Who Will Close the Customer Value Gap in Financial Services and Reap the Rewards?

NEW YORK NY and DAVOS, SWITZERLAND, January 23, 2018 – According to global management consultancy Oliver Wyman, traditional financial services firms will need to accelerate customer value creation or risk conceding an increasing share of customer attention and wallet to other firms, primarily to ‘big tech.’ Although the largest financial services firms in the world trace their histories back, on average, nearly 150 years, the largest ten consumer tech leaders have reached an average market capitalization 2.3x that of global financial leaders in just 1/5th the time.

The Oliver Wyman State of the Financial Services Industry 2018 report titled, The Customer Value Gap:  Re-calculating Route, finds that while financial services incumbents have largely recovered towards relative health ten years on from the financial crisis and conditions have improved significantly, there is a gnawing sense of concern regarding the prospects for future underlying industry growth.

The most prominent concern highlighted is that a group of highly successful big technology firms are generating new customer value at a much higher rate than financial services firms.  “The lessons from big tech in the last decade are not just about gaining and growing customer mindshare; they also reveal the nature of future competition they will pose,” said Rick Chavez, report co-author and partner at Oliver Wyman.  “The basis for competition has shifted from products to active solutions, from product-selling to problem-solving for customers with systematic improvement in the overall value delivered to customers.”

The 21st annual Oliver Wyman report looks at the global mass market as a case study to demonstrate the customer value gap in financial services, and utilized extensive primary and secondary research, including a survey of approximately 4,000 mass and mass affluent customers across the US, the UK, France and Australia on customers’ perception of value and their unmet financial needs.

“Financial services firms need to quantify the other side of the customer value exchange, and assess how much value their solutions actually deliver to customers,” said Aaron Fine, Oliver Wyman partner and report co-author.  “These incumbents have focused on three categories of historical financial need: Borrow, Safeguard and Grow, but there are actually three others:  Earn, Spend and Transfer.

Our global survey of consumers indicates that four of the top five current needs for the mass market customer relate to these three additional categories.  In the case of the US, if you could reduce the amount an average mass market customer spends by 4%, that would create $1,000 in annual value.  To have the same impact on financial life through an increase of deposit and investment yields or interest and principal paid on borrowings, you would need to increase the return by 33x or reduce the amount paid by 15%.  So we see these sorts of areas as the coming battlegrounds for new value creation in Financial Services.”

According to the report, it is in these additional categories that new value is being created by new companies already. For example, the report calculates that in the US since 2010, $1trillion of new value has been created in the borrow, save, secure businesses – largely by incumbent banks, asset managers and insurers. But an additional $1trillion of new value has been created in businesses focused on spend, earn, transfer and this has largely been created by new firms such as Big Tech firms.

In addition, six plays are outlined in the 2018 SOFS report to provide practical orientation on what financial services firms can do to move forward and combat the gnawing sense of concern originating from the erosion of structural advantages, such as risk-free returns on deposits, lagging industry growth, and the competitive forces emerging primarily from big tech.

Oliver Wyman’s Managing Partner for Financial Services Ted Moynihan said, “Over the last 10 years, the Financial Services industry has fought its way back to relative health. But, in the meantime the techniques used to create new customer value have dramatically changed and the Big Tech industry are dominating customer mindshare and reaping the rewards. It’s time for Financial Services to learn and react, or continue to watch value shift to other parts of the economy.”

The Oliver Wyman State of the Financial Services Industry 2018 report is available here.

Key exhibits from the 2018 report include:

• Exhibit 1.1    The Gnawing Sense of Concern
• Exhibit 2.1    Oliver Wyman Customer Value Framework and Survey Results
• Exhibit 2.2    Relentless Focus on Customer Value and Growth – The Flywheel Effect
• Exhibit 2.3    Bonding Comparison Across Industries
  
• Exhibit 3.1    Global Real Income Growth for Median Household
  
• Exhibit 3.2    Deteriorating State of US Mass Market Finances
  
• Exhibit 3.3    The Customer Value Exchange
  
• Exhibit 3.4    Oliver Wyman Financial Needs Hexagon
  
• Exhibit 3.5    Top 5 Global Financial Needs for the Mass Market
  
• Exhibit 3.6    Sensitivity of Impact Across Mass Market Financial Needs – By What % Would Each Category Need to Improve to Create $1,000 of Value
  
• Exhibit 3.7    Market Growth Across Financial Needs
  
• Exhibit 3.9    Bonding Gap Between Mass Market and Mass Affluent
  
• Exhibit 4.2    Example Innovators Addressing Evolving Needs
  
• Exhibit 5.1    Focus for Getting on the Growth Flywheel
  
• Exhibit 5.2    Changing the Way You Change

About Oliver Wyman

Oliver Wyman is a global leader in management consulting. With offices in 50+ cities across nearly 30 countries, Oliver Wyman combines deep industry knowledge with specialized expertise in strategy, operations, risk management, and organization transformation. The firm has more than 4,500 professionals around the world who help clients optimize their business, improve their operations and risk profile, and accelerate their organizational performance to seize the most attractive opportunities. Oliver Wyman is a wholly owned subsidiary of Marsh & McLennan Companies [NYSE: MMC]. For more information, visit www.oliverwyman.com. Follow Oliver Wyman on Twitter @OliverWyman.

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