Today’s non-banks and new challenger banks lead innovation—and create what I call #REALVALUE—by taking a problem-solving approach to innovation. What does this look like? Simply put, some of the most interesting success stories in financial services seem to come from non-banks and new challenger banks. Many of the narratives focus on their growth, innovation, technology platforms, leadership, and the usage and scale of their digital and innovation hubs. (And, of course, their valuations!)
In each of the following examples, let’s consider how various companies identified real problems their customers faced and created a series of solutions. Beyond the tech, their mindsets drove sustained innovations and fostered momentum to keep improving their solutions.
This methodology and approach to innovation is something that Luis Perez-Breva describes in his new book, Innovating: A Doer’s Manifesto for Starting from a Hunch…. Innovation, he explains, doesn’t demand an earth-shattering idea; all it takes is a hunch. Anyone can prototype a problem and as they learn by being wrong—yes, wrong—innovation can be scaled up to make an impact … just as we see with companies braving the world of payments and financial services innovations.
Asia: Ant Financial, king of the hill
Founded in 2014, Ant Financial has amassed an astounding market capitalization in less than four years: an estimated $150 billion. That equals the market cap of Citigroup and far surpasses American Express and Goldman Sachs in terms of this metric.
Ant is an outgrowth of the former Alipay and owes much of its success to its parent company, Alibaba—which created various marketplaces on a scale unimaginable before mobile phones. Ant Financial emerged to build and scale the payment infrastructure required for transactions on these marketplace platforms.
Leveraging Alibaba and other marketplaces, Ant today accesses substantial national and international markets: almost half a billion users alone on various Alibaba platforms. Their much publicized Yuebao money market fund became the world’s largest in 2017.
Ant Financial helped customers make the most use of idle cash balances; it also offered returns higher than Chinese banks. They have created #REALVALUE by generating economic opportunities, financial access and a payments/financial services ecosystem to support micro and small businesses.
And as with Yuebao, they’re building a large user base by providing significantly better customer returns and opportunities on the Alibaba and Ant Financial platforms. Compare this to banks that would rather earn higher returns on the float.
To understand the scale and impact of Alibaba, I’ll let the numbers speak for themselves. As of March 2018, revenue from core commerce increased 62 percent year-over-year to $8.1 billion, with active consumers on the China retail marketplaces reaching 552 million—a 37 percent jump from the prior year. When innovation creates #REALVALUE, it is truly impactful.
Africa: Mobile money on the move
One seen purely as a threat to the micro payments business, African mobile money propositions such as M-Pesa outgrew the banking system in terms of reach, users and transactions. They not only enable micropayments but also have institutional, government and public sector use cases—even while expanding into lucrative areas such as cross-border remittances, loans and other financial services.
A 2016 McKinsey report analyzed the economic impact of digital finance including mobile money payment services. The report estimated that widespread use of digital finance could provide financial services access to 1.6 billion people in emerging economies, potentially boosting annual GDP by $3.7 trillion by 2025, a 6 percent increase versus a business-as-usual scenario.
Singapore: A rideshare platform’s roadmap to banking
Grab Financial Group, Southeast Asia’s leading fintech, announced its “Grow with Grab” roadmap in March 2019 with the launch of small-to-medium enterprise (SME) lending and micro-insurance for drivers in Singapore. The roadmap aims to provide the most comprehensive portfolio of financial services in Southeast Asia for micro-entrepreneurs and small businesses, and includes a range of other new services. These include post-paid and installment payment services as well as “Pay with GrabPay,” an online checkout payment method for online sellers.
Grab has identified what it sees as a huge untapped opportunity to support entrepreneurs less able to access traditional financial institutions. While SMEs contribute more than 50 percent of the GDP in the Association of Southeast Asian Nations, two-thirds cite business funding and financing as their biggest challenge. The Grab app has served more than nine million micro-entrepreneurs over the last six years. As a result, Grab believes it can leverage scale and data insights to bring financial services products to market at a more competitive price point than anyone else.
What’s more, most banks had not designed their car financing product offers to cater to an entrepreneur who wants to be a rideshare driver. Typically, bank car loans require need a minimum 10 percent down payment: often beyond the reach of a young Grab driver. Further, banks lack access to billing data and cash flows. But Grab and other platforms such as Go Jek have this data and can use it to build their risk and pricing models to serve these customers at a far more competitive price point.
Parting thoughts: Business through the eyes of two Seattle visionaries
These examples of non-banks offering financial services products stand out as success stories because they innovated and built propositions to solve real problems for many users. In this quest, they have scaled up rapidly, continued to innovate and have become significantly bigger than the market incumbents.
And in America, the sharpest insights on financial services innovation—or the lack of it—often come from far outside the sphere: here, from two Seattle visionaries. Not exactly known for stirring up trouble, Microsoft co-founder Bill Gates famously said in 1997, “We need banking, but we don’t need banks anymore.” They may have laughed at him then but no one’s laughing today, especially when ecommerce giants such as Amazon stand ready to enter the banking realm with seismic force.
What would Amazon look like in banking? The early words of founder Jeff Bezos could prove highly instructive: “There are two kinds of companies, those that work to try to charge more and those that work to charge less. We will be the second.”
Bezos was referring to Amazon’s disruption strategy: one that would attack their high-margin retail competitors with better value. What could such a strategy mean for consumers in banking? Zero fees? Higher earnings rates? Faster approvals? More inclusion?
Companies provide #REALVALUE when they venture beyond business as usual; trade in complacency for creativity; apply smart hunches to persistent problems; and change how they see things. In an age of so many financial institutions seeking opportunities for themselves, the champions of #REALVALUE are figuring out how to create it for others.
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