You’re digital, but not too digital; you want direct communication but don’t want to be harassed with emails or calls; you don’t like attending bank branches but always want to have the opportunity to talk to your bank consultant. What does the average customer, with a combination of traditional and digital needs, actually want?
Besides traditional financial service providers, many young and digital startups – so-called FinTech companies – are trying to answer that question. They offer a large variety of additional services, to fulfill the needs of customers with a certain web affinity: managing bank transfers via text messages, applying for online loans within minutes and a bank account that is exclusively accessible through apps.
FinTech needs to do more. While the vision of FinTech was an unbundled world where customers could pick and choose what they needed from an a la carte menu of apps and websites, many people still have an appetite for an all-in-one solution. So, FinTech companies are making moves to expand their offerings beyond their initial use cases — providing insurance on top of credit, business management tools along with payment solutions, etc. This rebundling creates challenges for FinTech companies as they consider new strategic directions — when should they offer these new lines? How do they build internal capabilities to offer these services? To whom do they offer them? But ultimately offering more comprehensive services may help solve the retention challenge FinTech face. We expect to continue to see new digital banks emerge, offering customers better services across all of their financial needs.
Banks and FinTech companies work with each other as peers which result in large numbers of co-operations. Large banks implement digital insurance brokers and financial service providers offer their clients to switch bank accounts digitally by using the technologies of the new players. The German blog “Payment and Banking” has counted roughly 70 co-operations between 32 German banks and their digital challengers.
The platform solution takes the cooperative approach a step further. Platforms include products and services from banks and FinTech companies, even services that directly compete with each other. This will be challenging especially for banks because they will have to offer third party services even if they are superior to their own. Such platforms can be set up by modern banks with a digital approach but also by large and regulated FinTech companies.
Casting a glance at China, a third way emerges – social networks as financial platforms. The messenger service WeChat is currently on its way to becoming China’s market leader for mobile payments. Roughly 697 million people worldwide are using WeChat already and 200 million new users join the service every month. In the meantime, WeChat also has opened up a German branch.
Users of the application can transfer money among themselves and also use the service to pay their bills online. The success of this Chinese social payment method can be explained by the fact that China has previously been an underbanked market before. According to a study that was published by McKinsey in July 2016 (“Disruption and Connection: Cracking the Myths of China Internet Finance innovation”) only one in five Chinese adults has access to financial services. Still, more than thirty percent of the population use financial services on their mobile device. For the majority of underbanked Chinese people, which also includes around 277 million itinerant labourers, digital payments via social networks are the most simple solution to transfer money.
This development is not very likely to be seen in Europe, because many young people already have access to one or more bank accounts. In addition, people still have more trust in banks than in new technologies such as social network payments. Nevertheless, banks should not react to that circumstance with idleness, as the success of FinTech companies has already shown. In the end, the surviving model will be the one that considers the customer’s needs and also prioritizes data security. It will be a digital platform with knowledge, agility, passion and a profound security concept. After recent developments, that development is not as unthinkable, nor as distant, as it may seem.
Many westerners are skeptical about successful Chinese software companies like WeChat: there is a perception that they have succeeded through copycat strategies, and have benefited from Facebook and Google being blocked from operating in the country. But WeChat didn’t get an easy ride: it had to fend off dozens of domestic competitors when it was launched, and it had to keep innovating to stay ahead. Many observers rate WeChat as offering a superior user experience than its western counterparts today, and its innovative features are now being copied by others.
WeChat’s success wasn’t achieved through technological superiority. It was built on the vision – or grand design – of Allen Zhang, a senior executive at Chinese tech company Tencent, who saw an opportunity in 2010 to create an entirely new product for the mobile era. He personally led the entire development effort of WeChat, taking responsibility for the overall look and feel of the product, as well as overseeing the coding teams.
The grand design logic is markedly different from the now-standard design thinking approach to innovation that was popularized by design firm IDEO in the 1990s. Design thinking has been defined as a non-linear, iterative process which seeks to understand users, challenge assumptions, redefine problems and create innovative solutions to prototype and test. This user-centric perspective has made design thinking hugely popular, but some consultants and academics have argued that it is too structured, too prescriptive, and results in incremental or conservative outputs.
Design thinking seeks to create practical, user-oriented solutions: it is about pulling together what’s desirable from a human point of view with what is technologically feasible and economically viable. In contrast, the grand design starts with a concept, a vision in the mind’s eye of the creator, and it holds onto that concept for as long as possible. Here is how Allen Zhang described WeChat to us:
At the heart of design, thinking is the notion of empathy – the ability to see the world through other people’s eyes, to see what they see, and experience things as they do.
While the grand design approach to innovation doesn’t deny the importance of empathy, it takes a selective approach to how much user views should be heeded, because if one does everything they ask, the result is increased complexity and a loss of coherence.
Another key feature of design thinking is its emphasis on collaboration – the notion that good ideas emerge through a social process where people build on each other’s suggestions. There is no room for big egos in design thinking.
The grand design approach, in contrast, gives less freedom to the collective and puts more faith in the views of a small number of people (sometimes just one) at the top. It operates through top-down stewardship. It is paternalistic in style: we want you to share your ideas, but we won’t act on many of them, because we know best.
The style of leadership required for design thinking and grand design also differs. Design thinking favors a coaching style of leadership, hand-holding when necessary but drawing back when a team hits its stride. The grand design logic, in contrast, puts leaders on a pedestal – they embody the design they are pursuing, and they project a strong emotional conviction about why it is right. This leadership may be charismatic and larger-than-life, or more softly spoken and introverted.
What should innovators take away from WeChat’s experience? First, you need to understand the key principles underlying your chosen approach for innovation and product development. Design thinking is now so well established that many people don’t question whether it is the right methodology. But it builds on a number of underlying assumptions – for example, empathy with user needs and collaborative development – that isn’t right for all circumstances. By laying out the alternative set of assumptions underlying a grand design logic, you can engage in a more critical and constructive discussion about why you are using your chosen model.
Second, you should be thoughtful about the specific circumstances in which you are operating, and choose your innovation approach on that basis. Design thinking works well in established and mature markets where user needs are properly understood and innovation tends to be incremental, whereas the grand design approach has greater scope to succeed under conditions of high uncertainty, and where user needs are unknown and potentially malleable.
Innovation is the lifeblood of any successful company, but many companies get it wrong – by falling into the trap of me-too incrementalism, or by betting on risky new offerings that miss the mark. A clear understanding of the conditions in which you are operating will help you make better choices about the approach to innovation that you use.