Why CMOs Will Shape the Future of Finance
February 15, 2018
This month, experts from both sides of the Atlantic will slug it out in our FinTech FaceOff event, debating the direction of finance. Their views may clash, but their starting point is likely to be the same: the hype over the role of technology in finance has been here and gone.
Over the course of LinkedIn’s three-year ground-breaking World Fintech campaign, the bubble of excitement that surrounded disruptive financial technology start-ups has burst.
Tech may still steer the future of finance, but only where it serves customers’ needs. And that puts the CMO role at the heart of tomorrow’s successful providers.
Fintechs are disrupting by stealth
Even if the hype is over, some fintech players are delivering on their promise – just not always in the ways they, or we, had first predicted.
Firstly, fintechs are scaling up, and doing it faster. UK-based digital bank Monzo and N26, an app-only start-up based in Germany, now have over half a million customers apiece. The Venmo app, started by two college roommates as a way of paying each other back, processed $8 billion in the second quarter of 2017.
Few of these players have geared up to provide core banking services. But in focusing on simpler elements, such as payments, they are disrupting the established banks by stealth.
As McKinsey & Co. has noted, these new platform companies are increasingly dominating the “distribution” end of banking – that is, origination and sales – which account for 65% of bank profits.
Fintechs are starting to add new services, based on customer need. Mobile payment platform Stripe, set up by two Irish brothers to take the hassle out of e-commerce, is now rolling out new services such as automated payment reconciliation for small businesses. Sofi, which started out in 2011 offering student loans, now has a thriving mortgage service, too.
Meanwhile, those fintech start-ups who have found it more of a struggle to scale up are partnering with the big players instead. The founders of Bud set out to make finance apps work better together; the company was only two years old when it signed a deal to help HSBC launch an integrated finance app, linking customers’ accounts across different providers.
Big Tech is here (but they don’t want to be banks)
Of course, the tech giants have already advanced into the banking space – see Apple Pay and Google Wallet. Amazon Lending offers business loans to its merchants, and Facebook Messenger users can make payments to each other through the app.
None of them has plans to become a fully-fledged bank, however. Amazon may have met the banking regulators on a couple of recent occasions, but Jeff Bezos has no desire to fall under the regime of the US Treasury’s banking overseer, the OCC.
“It would just get in the way of our innovation,” as Apple co-founder Steve Wozniak told the Money20/20 event. “We just want to slide in and partner with banks.”
Where these ventures work best is where they offer a seamless customer experience, as Apple Pay does with the use of credit cards. Uber and Barclays are attempting a similar trick with their Uber Card. The rationale is that customers shouldn’t need to think about payments; they should simply happen.
Curt Hess, CEO at Barclaycard US, says it’s “all about removing friction.” And he is confident that Uber Card will appeal to a wider audience than just millennials.
An East wind is coming
In finance, we can reverse the aphorism “First the West, followed by the Rest.” The US, for instance, lags far behind much of the world for contactless payments. In Australia, 92% of face-to-face Visa transactions use contactless. In Taiwan, the figure is 44%; in the US, it’s 0.6%.
Famously, Alipay’s ecosystem – which encompasses China’s biggest e-commerce sites, Taobao and Tmall – dominates the country’s $5 trillion mobile payments market. It’s clear that Chinese fintech innovation shouldn’t be dismissed.
Take Japan’s Rakuten, whose CEO, Hiroshi “Mickey” Mikitani, has been talking about the platform’s ecosystem strategy since it was founded 20 years ago. Today, Rakuten Card is poised to leapfrog traditional providers and become Japan’s largest credit card company.
Rakuten’s success incorporates its status as Japan’s largest single online retail marketplace, as well as providing loyalty points and e-money usable at hundreds of thousands of stores. It also runs the popular instant messaging app, Viber.
This is not just an Eastern phenomenon. Banks everywhere need to be alert to the rise of the digital finance platforms and the ecosystems they build.
Incumbents are becoming platforms
Many incumbents are on the case. We’re seeing a host of banks reinventing themselves as platforms.
In some cases, the market has forced them into action. Netherlands-based ING, one of Europe’s largest banks, has partnerships with hundreds of fintechs and now focuses almost all its investment on digital. It’s growing at a rate of 1.5m customers per year.
By contrast, Santander OpenBank, relaunched last year as a fully digital bank, looks at fintechs but takes the view that “you’ll have to be good or we’ll just build it ourselves”. It has over 1m customers in Spain and has big expansion ambitions.
Its CEO, Ezequiel Szafir, compared banks who aren’t embracing digital to captains ignoring their sinking ship. “I go round bank boardrooms and many faces look like the orchestra on the Titanic.”
The positive case is as compelling as the negative one. The more users a platform has, the more valuable it becomes, Ezequiel points out. It’s a virtuous circle – a winner-takes-all business model.
Why this brings the CMO center-stage
The finserv revolution is an opportunity for all CMOs. Having a laser focus on the customer experience, and not getting distracted by technology, is the key to success.
It’s not about fintech any more. Even the word feels outdated, as many of those interviewed for the LinkedIn Agents of Change series have suggested.
“The future of finance is not technology. It’s to be on the side of the consumer,” said Harit Talwar, Head of Marcus by Goldman Sachs. Finance blogger Chris Skinner agreed: “The winners won’t be those with the best tech but those who create the best value exchange.”
It follows that the CMO should be in the driving seat in setting strategy for what we might provisionally call the finserv. Those who are still fixated predominantly on the tech side ignore the customer focus at their peril.
The question is whether today’s financial services CMO is up to this fresh challenge and whether they’re even aware of the key tasks that lie ahead.
Join us on Tuesday, February 27 to hear these issues explored online at FinTech FaceOff. CapGemini and LinkedIn, in collaboration with 11:FS, are gathering top financial services influencers from the US and Europe in debate – and you can vote for the most convincing future predictions. Register here.