Tell Me How Much You Love Your Finances and I’ll Tell You Who You Are


We all expect a lot from our banks and insurance companies. Perfect service, low costs, secure investments, comprehensive coverage. The list could be continued at will, and there is no doubt that we could well argue about whether and how the banks and insurance companies of today are meeting these many expectations. However, the majority of the incumbent companies are equally poorly positioned in one respect: Many of their products are not transparent enough or simply incomprehensible. It arises the question: Why is that?

The force of scaling made products complicated

Since the introduction of modern IT systems, banks and insurance companies have been suffering from huge scaling pressure. Because the development and launching of new products and services comes always with high costs, these products can only be operated economically sensible if they are purchased by customers in a maximum number of units. One common way to ensure this success was to design new products really big and comprehensive. Everything, that seemed necessary to some extent to the respective target group was incorporated. ‘Our product always fits!’ that or something similar to that must have been the mantra of the product managers of old days. The result was inevitable, financial products became non-transparent and complicated.

Due to the modularization of products, problems were only shifted

But particularly in retail financial services, however, there is now a necessity for banks and insurance companies to react flexibly and individually to the wishes of their customers. With the introduction of high-performance consulting software, it was finally possible to split financial products in their key elements and to offer them as modular systems. ‘Only pay what you really need’, is now the new-found mantra of financial service providers. It was the entering of tailormade financial products. The result was unavoidable: These products never got easier; instead they only required more and more explanation.

And so it was the financial consultants‘ obligation to use these new tools to help their customers when choosing the right product combination. Needs had to be sorted according to priorities and widely ramified decision trees ended up in a final product recommendation. Objectively speaking, this software support has actually led to an improvement in the quality of customer advisory services for banks and insurance companies, but the bad image of financial consultants could not be changed by that.

It’s essential to think outside the box

Customer’s desire for simplicity remains unchained. A significant innovation, however, came along and is now respectfully called the Netflix effect. Respectfully, because this phenomenon has already revolutionized entire industries in its still young success story.

With the rise of companies such as Uber, Airbnb, Netflix, Spotify and others, a fundamentally old idea was completely rethought and implemented in a revolutionary way: Vendors and buyers of goods and services meet on a common marketplace. On the marketplaces of earlier times it was a lifelong task of the individual trader to get to know and internalize the preferences and wishes of all his customers. But in today’s algorithms-driven marketplaces the entire platform learns something new about its customers through every new like and every assigned star, instantly and millions of times, second by second. They enormously profit from that, because without any effort or knowledge, they still get offered what’s relevant for them.

Banks and insurers must become marketplace platforms

For banks and insurance companies the future also lies in such a marketplace business model. In this model, financial products and their providers become fine-grained components which always arrange themselves in a new and highly individual way to form a fitting mix according to the preferences and needs of the customers. Where there were once separated and complicated full-products, there will be a constantly updating stream of individual components in the future, which will be assembling itself for the customer in a cross-provider and self-reliant manner.

The digitalization in the financial industry is a real chance of realignment for all participants. Through open APIs, financial service providers on the one hand and related providers such as estate agents, lawyers, and tax consultants on the other hand form an integrative network. Customers, who are willing to participate in the network with their personal data, get personalized offers that go far beyond the scope of pure financial products. Fully automatized and constantly updated by Machine Learning. The more the customer allows the platform to combine their information that was so far only stored in data silos, the more relevant the offers will be. Likes and stars of course included.

Big Data, Predictive Analytics, Roboadvice, Chatbots, what has seemed so far as a threat to traditional banks and insurance companies, actually makes the new marketplace platforms possible as an opportunity for the revolutionary realignment of their business model.

The first FinTech and InsurTech startups already set out to build these kinds of platforms. Obviously it is only a matter of time when the new future of banks and insurers becomes a reality.

Picture credits: pathdoc/

Dennis Grönger

Author Dennis Grönger

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