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Money talks. A two-part* conversation about online innovation in the Financial Services sector. (Part two.)

In today's post I look at "sexy austerity" and the rise of Credit Unions, Friendly Societies and Cooperatives, venture into the territory of niche innovation and social banking, and consider some emerging trends in the mobile world.

In yesterday's post I looked at Personal Financial Management (PFM) online tools and the rise of financial personalities in the digital space.

#3: SEXY AUSTERITY: Now that most Finance Companies are in the red, are Credit Unions, Friendly Societies and Cooperatives the new black?

Did you know that, “Over 170,000 Kiwis belong to the New Zealand Association of Credit Unions’ 21 member credit unions which combined have about $633 million of assets” (source)? Similarly, cooperatives (who are not just limited to the Financial Services sector), are also very popular in New Zealand – one Financial Services cooperative has almost 140,000 members.

These sleepy organisations are the quiet achievers of the New Zealand Financial Services space. In a post-recession era (if it’s safe to say that), where there are many moves towards sourcing locally, downsizing, working smarter, getting less from more and so on, the Credit Union and Friendly Society philosophy is suddenly in vogue.

And so their ‘innovation’ per se is not via the latest “real-time, semantically-enabled, location-based, socially-aware, augmented-reality, predictive money tracking app” that they’re about to launch with USD $30 million in Silicon Valley VC funding, but by leveraging the value of what they have always been – mutually owned co-operative financial organisations that provide savings and loans products for their members.

This is yet to really manifest itself online in any significant manner, but it’s a perfect time for these organisations to be using their loyal membership base, and ownership model, to increase their profile and grow their businesses.

By law, a Credit Union’s objectives are the: 

  • Promotion of thrift among the members by the accumulation of savings
  • Use and control of the members’ savings for their mutual benefit
  • Training and education of members in the wise use of money and in the management of their financial affairs
  • Welfare of members and the making of donations for charitable, cultural, benevolent, or philanthropic purposes

Not very Gordon Gekko is it? Let’s all hold hands and make daisy chains. And why not save some money while we’re at it. The sweet irony is that many of these ‘old-fashioned’ values are actually a perfect match for the brave new world of socialised, collectivised financial thinking. Which leads us to… 


#4: NICHE INNOVATION & SOCIAL BANKING: A problem shared is a problem paid for…

As I said at the start (that’s three weeks ago if you’re still conscious), I wanted to avoid a list of product-based advertorial and product placement in this post, but obviously you can’t avoid the fact that the Financial Services industry sells stuff. So rather than pick through every sub-sector, line by line, here are three examples that demonstrate how providers are trying different approaches to traditional segments (with one example from savings, home loans, and insurance).


4.1 Saving differently

While ‘online only’ savings specialists like RaboDirect (formerly RaboPlus) have successfully entered the market in recent years, other Web-only offerings such as ‘Uncle Percy’ have tried something even more niche. Their positioning is quite different – as they say on their site: ‘saving to spend – not saving to invest’ and ‘making saving a visual and interactive experience’. As expected, they’re heavily across the usual social channels, are clearly focussed on a younger market and are probably as far away from the Credit Union philosophy as you could get.  

Uncle Percy’s pitch is thus:

  1. Set-up your goal
  2. Build your profile
  3. Add contributions (money)
  4. Share your goal (with friends and family), and
  5. Watch your account grow (via contributions from your network)

There’s been some ‘healthy debate’ between watchdogs, the media and Uncle Percy about the merits of the system. It’s interesting to see someone doing something differently in the online space. And while there will be continued howls of anguish and much waving of fists from the ‘save and wait’ baby boomers it’s really just a case of not one-size-fits-all in the savings space. (*Sits. On. Fence.*)

Once again, there are some excellent offshore examples of saving differently in the online innovation space. Also called peer-to-peer banking, this sector includes: SmartyPig – another goal-based offering that’s relies on the social channels to deliver its promise; Zopa – which is an online marketplace for buyers and sellers of money (loans/lending) is really worth a look; and finally, Kiva – which is a fantastic idea that seeks to: “Connect people, through lending, to alleviate poverty”.


Kiva uses the Web to provide loans to people in developing countries.

Image source: http://www.kiva.org/ 


Founded way back in 2005, and influenced heavily by the microfinance model, Kiva is a non-profit organisation that allows people to use the Web to easily loan money to projects in the developing world. According to Wikipedia, “As of September 19, 2010, Kiva has distributed $160,822,200 in loans from 757,183 lenders. A total of 220,977 loans have been funded. The average loan size is $382.77. Its current repayment rate is 98.90%.”

That’s a pretty amazing achievement even if it’s only half-way accurate.


4.2 Borrowing differently

Here in New Zealand, Fundit entered the home loan space over four years ago and they’re still going strong. The concept of online auctions wasn’t new – but Fundit was the first player in the New Zealand market to apply the auction model to Home Loans. It’s an excellent example of ‘user-centred design’ in action – rather than going cap in hand to a lender, you can simply:

  1. Choose how much you’d like to borrow
  2. Select your preferred rate and repayment options
  3. Let the lenders bid on your auction and how long you want it to run, and
  4. Choose your lender and sign up

Their big selling points are control, transparency and convenience. Plus it’s a free service for borrowers. Good stuff.


4.3 Insuring differently

Finally, continuing the direct-to-consumer theme, many insurers offer ‘online only’ products or instant quoting engines that provide simple, immediate services. Pinnacle Life is a good example (as is The Buzz Insurance – from across the ditch). I managed to get a quote in under a minute (as they promised) and this model will only continue to grow.


#5: MOBILE: Look at me! Look at me! iCan build apps too…

Obviously mobile is a massive growth platform for this sector and it really merits a separate post (go right ahead, Chris). However, at the very least, it’s worth mentioning some of the trends and opportunities that are emerging and changing (daily) in the mobile space. 

Those I spoke to who had experimented with the usage of applications on handsets had been blown away by their uptake and success. (Kiwis love engaging with the financial position while on holiday, apparently – as it’s one of the few times of the year when we actually stop and think.) There was a general feeling, which has been widely reported elsewhere, that Kiwis are also keen to trial things, are pretty quick to learn new technologies and are generally hungry for more and better mobile applications – and this is definitely true in the Financial Services space. 

Location-based offers will increase as more people opt-in to share their whereabouts with commercial entities. However, providers have to be extremely careful to actually provide tools that solve people’s problems and ensure they regularly test and modify the services, features and functions that they are providing. Again, the difference between ‘user-driven’ applications and ‘provider-driven spamware’ is huge – as one respondent I spoke to (from a small, progressive team who have experimented and tested very carefully in the mobile space) said: “Mobile advertising doesn’t work. People just want be left alone.”

The land grab for data will continue as will the desire to elegantly provide mobile payments seamlessly between individuals, merchants, businesses, banks and government without the handbrakes and headaches of interoperability, integration or interconnectedness. That’s a whole different story of complex technical and commercial shenanigans.

And as smartphones become the norm, perhaps the real opportunity is for PFM on-the-go. This could outstrip the ‘sit down’ (website) model as financial insights are actually available to us all when we are actively transacting (the right content, in the right context).


STATEMENT OF FINANCIAL POSITION: Snapshot of online innovation in this sector…

Clearly, there’s a lot on the go. There’s plenty more I could’ve covered or have missed, so here are some final thoughts from those working in the sector about what’s working and what (if anything) is holding innovation back:

  • There are still too many barriers for people to really engage with their own financial wellbeing – Kiwis are still more focussed on deleveraging than saving.
  • The online offering still needs to be: more integrated; more powerful; more useful.
  • The Financial Services sector (banking in particular) has a very high rate of churn – so it’s easier for banks to invest in keeping their existing customers (as opposed to acquiring new ones).
  • Data aggregation is seen as ‘easy’ – but providing a meaningful and satisfying ‘wrap’ product (i.e. a consolidated view of a client’s total financial status) remains elusive.
  • After the financial crisis, increased issues for customers are CONTROL, VISIBILITY, TRUST and SECURITY.
  • Innovation will come from outside of ‘main players’. It’s too easy for the ‘big guys’ to stick to their knitting. (Also, many banks, and their offshore parent companies, see a greater ROI on investment spend overseas. In India, for example, two thirds of the population is ‘unbanked’.)
  • If you’re trying something new online, start by doing one thing extremely well; not a bunch of things in a really average manner.
  • Don’t forget about people – face-to-face contact is still really important; people don’t want to be treated just like a line on a spreadsheet.

That’s it. Thanks for hanging in there. Future posts will focus on what’s happening online and what’s innovative in other sectors (and brevity). Let me know if there are any sectors you’re particularly interested in.

*Read part one of this blog.


And it wouldn’t be a Financial Services post without a DISCLAIMER:

I am a National Bank and BNZ Visa customer (and Xero Personal user). I am not currently working with or for any of the organisations cited above. Five of the eight people I spoke to in researching this post, are either personal friends or industry acquaintances working in the Financial Services sector, or former clients/colleagues (also in this sector). I promised them all anonymity to encourage candid comments. In hindsight, this was probably a dumb idea as I can’t directly attribute quotes to sources. Guess I’ll know better next time!

Posted by: Giles Brown, Web Strategist | 22 October 2010

Tags: financial services, Mobile, Social Banking

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