Digital Service Branding

How financial service providers can better retain customers

A lot has been written about disruption in the financial industry. Recently, we discussed on our own blog how small and agile FinTech startups attack long established business models. Hundreds of these startups have entered the market, well funded by investors. Studies like the one by Deutsche Bank Research find that banks and insurers are forced to re-think.

Currently, the erosion of market shares of traditional financial services actors is still being slowed down by their strong, trustworthy brands. In established customer relationships, these brands convey trust and security. Especially in conservative markets like Germany, this entrenched brand loyalty is a high hurdle for small startups. These cultivated trust relationships have of course been threatened by financial crises, but there’s another crucial reason they’re in trouble:

User Journeys of teens and tweens (screenagers) involve fewer and fewer touch points with branches and advisors. Linear TV watching is becoming marginalized; mass media advertising is less and less relevant. Today’s already realistic alternative scenario: potential customers hear from friends about this new cool online bank, are excited about functionalities and services that they don’t get from their financial services provider, share this information on social networks, and spontaneously sign up. What may start as a parallel trial with two providers eventually leads to an end of the business relationship with the offline bank or insurer.

(Video: Centralway Switzerland AG)

Here is how it happens:

    • A friend’s recommendation trounces the trust capital that has been accrued by decades-old brands.
    • The spontaneous decision for certain functionalities combined with a certain “hipness” factor satisfies the prospect’s present need. This wins over the substantially broader service spectrum of larger banks and full-service insurers.
    • Young online target audiences are able to tackle fragmented services effortlessly – they have a checking account at A, a money-market account at B, a special insurance at C, and keep track of them all at D. These customers manage an average of 30 apps on their smartphones, and they’re not afraid to break with the traditional behavior of trusting one provider with all financial services.

In other words: sharing beats brand power and convenience beats service depth. Sinking trust in large financial service providers just accelerates this change.

Increasingly, there is an app for each service – and users have become bolder in combining them.


How banks and insurers can score again

Digital service offerings have become the pinpoint for new customer acquisition and customer retention. Because customers experience the brand online and because those experiences shape the perception of the brand, the importance of service branding increases. Service branding has become a mandatory part of brand management. For each division, product, or target audience, service branding needs to be at the center of all marketing activities. Just like a commercials and packaging design are part of product branding, the user experience – each online process, click, button, form field – is part of service branding.

So far, today’s strong financial brands have the advantage of managing the biggest chunk of customer relationships. But there will come a point at which a customer will notice a simpler service, tailored to their specific need. That’s when the established customer relationship will start to crumble. In the end, the bank or insurer will manage an “account corpse” with whom it is no longer interacting and whose potential business has been grabbed by others. All the established brand value created by the expensive branches and holistic offerings will have turned into a money pit.

The solution is much simpler than the chase-after-the-next-disruptive-business model would have you believe. At its core is a plain, old truth: Customers have to come first, and they have to be catered to with services that fulfill their exact needs. To understand those needs, companies have to look beyond their typical parameters, beyond their own industry: Which standards, processes, and usage patterns have their customers become accustomed to? Which of those are not yet part of the existing internal building blocks? Which need to be urgently overhauled? Which existing services do customers really use? To throw complexity and size at everything just because a company is big enough (and accustomed) to doing so may not be the best way to connect to customers in the age of information overload.

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FinTechs vs. Banks and Insurers

From the start, mediaman has had a focus in the insurance and financial space. A lot has happened there in the last few years. Agile Startups such as Simple, Moven, or Payfriends are stepping up to evolutionize banking. Insurers, too, have to move, as companies like SquareTrade are trying out new business models.

Today I am talking with mediaman Germany’s new Head of Finance & Insurance Dominik Groenen about the European FinTech scene, and about why and how traditional banks and insurers should care.

How do you define the term FinTech?

FinTechs are startups which use technology to make finance, banking, and insurance better. Doing so, they focus on one particular part in the value chain. PayPal, for example, is not a bank, it only simplifies online payments.

Does that apply to B2B and B2C startups? 

Absolutely. In my experience, the major difference between the two is that as a B2C startup, you need full coffers from the get-go. Customer acquisition costs are extremely high, as well as the need to explain your product, if it is something completely new. As a B2B startup, you may have developed a new solution, a new technology for which you are looking at banks or insurers as cooperation partners. That is not necessarily easy, or less work, but definitely less costly.

Where is the danger for traditional banks and insurance companies? 

Many B2C FinTechs are taking the customer interface away from them. Yes, banks still have your money in a checking account, but how profitable is that for them? When banks lose direct contact with you, because you now get all your statements through Mint, they don’t have the opportunity to sell you other products, either. Others will profit from your auto loan, your mortgage, your IRA. When you insure your iPhone through SquareTrade, the contract will still be maintained by a traditional insurer, but the idea to protect your laptop just as easily, will come from SquareTrade, or any other new player on the insurance market.

So banks and insurers will become pure “processors”?

You won’t really be aware of them anymore. They are somewhere down the chain and do what has to be done: claims settlement, risk management, etc. Everything else in the front end will be done by other players. I still like the often used comparison with the music industry. Spotify, iTunes, Pandora interface directly with music listeners. Nobody is aware of record labels anymore.

I think that bank branches, for example, will only survive in large cities. And they will look more like an Apple Store, like the AIB Lab in Ireland. Banks are experimenting with that right now, some of it is working, a lot of it isn’t. Even getting customers into the branch is a challenge, at a time where all banking can be done online and cash is being replaced by mobile payments. And maybe the expectation, that branches need to be profitable, is wrong. Maybe they need to be financed out of the marketing budget.

Do banks and insurers just have to accept this fate? 

I don’t think that change and innovation can come from the inside alone. As Magnus already postulated in his blog post, it’s not in an insurance company’s DNA to act technologically agile. I know from my experience that there are still managers in the upper ranks who are just waiting for the internet to “pass”. And even younger managers don’t clap their hands in excitement when they hear about technology driven change. The mentality that I see sounds more like: “We need a responsive website, an online transaction, an app, because that is what the others do and we don’t want to be left behind”. There is only very slow and careful movement out of the comfort zone, very little risk tolerance in trying something new. Traditional sales channels have made companies fat, over decades. And sluggish. Insurance agents still hold most contracts and still bring in most business. That is just the way it is. But it won’t remain that way, I believe.

In order to bust these crusts, traditional companies need to come together with startups and FinTechs. As partners, investors, or, most importantly, by buying FinTechs. Their products, but mostly their entrepreneurial spirit and their explorative mood can be incorporated and facilitate a jolt. If the will is there.

How do you feel about internal innovation labs? Capital One just had a big presence with theirs at SXSW in Austin. 

Yes, that can work as well, if there is a will and a strategy, and if it is not just a marketing event to display an innovative spirit. ERGO, for example, one of Germany’s main insurance companies, has been running an innovation lab in a co-working space in Berlin since 2013.  I think it’s important for such a lab to be stationed externally, in a separate space. So that employees don’t get pulled back into day-to-day business. At the same time, there needs to be a direct line to the company headquarters. ERGO sent their entire upper management through the Berlin lab, so that they could experience what happens there and how important that is. I would consider that a change in company culture.

When banks and insurers shop for startups, or start their own innovation labs, what role remains for digital agencies? 

I believe that in addition to traditional project work, consulting and product development will play an important role in the relationship between agencies and companies. To do that, it is crucial that we always remain at the industry’s pulse. So that we know what the pains are that could be lessened through technology. Sure I have 17 years of experience in insurance, but we still need to build and maintain connections to companies, to keep listening, so that we don’t develop anything blindly.

That’s why we are planning events in Germany and the US right now, where we will invite companies and experts to exchange their experiences and visions. I am hopeful that mediaman is well positioned to continue servicing clients in the banking- and insurance industries. As it has for almost 20 years.

Portrait-Dominik-GroenenDominik Groenen is 33 and already has 17 years of experience in the insurance industry. It is in his genes. His father is a banker and his mother, as well as his two brothers, work in insurance. After starting out in a bank, Dominik worked in insurance sales for 7 years, then went to Lloyds in London for another 7, which is where he got hooked on the FinTech scene. Which then led him to Berlin as a startup founder. Dominik strengthens mediaman’s Finance & Insurance Unit since February 2015.