Thoughts about money

Posted by James at 2:58 pm

CONSUMERS EXPECT MORE

Across the developed world, more and more people are rejecting the old and traditional norms that governed how we once lived our lives. Some call it the ‘Individual Revolution’ - I prefer ‘Freeforming’ - but its name really doesn’t matter. What is important is that people’s attitudes and behaviours are changing. They are becoming ever more individual and ever more self-reliant.

People care more about the food they eat, the clothes they wear and the lives they choose to lead. They increasingly desire authenticity - and values such as transparency, control, community and ethicality are becoming more and more important.

These Freeformers don’t believe their employer or the Government is going to look after them, and they want to take responsibility themselves instead. They don’t want the job for life. Instead they want to choose how they live their lives to suit their own individual outlook, values and aspirations. They are more likely to be entrepreneurial, to combine periods of self-employment or freelancing with working for someone else. They will change what they do over time - doing what they want to do - rather than what the world expects them to do.

New technology is playing a pivotal role in this growing trend. It is making the increasing individualisation of almost everything possible, and people all over the world are lapping it up. Individuals now expect individual solutions to their specific needs. Like music on their own terms, not prepackaged on an inflexible format. Their own holiday, combining the elements they want, not an off-the-shelf package their parents might have chosen.

The impact on the various markets first hit by these developments has been enormous. Major global record companies don’t know what has hit them. Retailers selling CDs are struggling. And package holiday companies are closing or being bought out by the bigger ones able to survive a little longer. In the meantime, the new power players are emerging – iPod, YouTube, Skype, Google and eBay.

When it comes to their money, Freeformers want to feel more connected with what actually goes on. When they borrow, they want more transparency and a process that makes sense to them. They also want to deal with an organisation that doesn’t expect them to live an old fashioned cookie cutter life - one house, one job, no change for 30 years - and which speaks to them in a way they can understand. They are much more likely to extend their house than invest more in a pension. And a flexible, current account mortgage is the very least they’d expect.

In the UK, even politicians are waking up to the rise of the Freeformer. In a speech last year, Tory Shadow Chancellor George Osbourne concluded by saying, ““With all these profound changes - the Google-isation of the world’s information, the creation of on-line social networks bigger than whole populations, the ability of new technology to harness the wisdom of crowds and the rise of user-generated content - we are seeing the democratisation of the means of production, distribution and exchange. This new democracy is a good thing. It is challenging our existing sources of authority, in the media and in politics, and so it should. People are no longer prepared to sit and be spoon fed. They are taking matters into their own hands. They are the masters now.”

BACKLASH AGAINST THE BANKS

Recent furor over excessive bank charges and record profits by the big banks signals a watershed in people’s attitudes to personal finance in the UK.

At one level there is no doubt that the UK has a very strong and competitive banking industry. Britons do trust their banks to keep their money safe and secure, and to make payments from A to B when requested.

But consumers do not trust their bank to act in their best interests or to help them get the most from their money. It has become a grudging relationship – with banks seen typically as a necessary evil. Most people think they make far too much money and would use an alternative if they knew it was available.

Another very unhealthy sign is the fact that consumers can’t see the difference between one bank and another. They can see clear differences between say Tesco, Sainsburys and Marks & Spencer - or Ford, BMW and Porsche. But they cannot see meaningful differences between Barclays, Lloyds, HBOS, RBS or HSBC.

BUT THINGS ARE CHANGING

The vertically integrated nature of the financial services industry is being pulled apart - and the pace will only accelerate.

Banks as institutions are just not set up for, nor are great at customer service. Banks are great at keeping money safe, adding up beans, making payments, but are bad at providing their customers with a great experience. Show me a bank that sets out to “help people with their money”. Surely this is what consumers want? They can get it in other sectors, so why can’t they get it with their money?

With rare exceptions, banks don’t believe that a great experience will drive more happy customers to do more with them and drive more value for the bank. Instead they design products that can be marketed to look good, but are fundamentally designed to make them money.

The major banks are reluctant to change. Strategically, maintaining the status quo and the inertia is their best value-maximising strategy for now. Their shareholders would go nuts if they changed before they had to, but by the time they have to, it will be too late.

The power is shifting quickly in Financial Services. And it is following organisations who interface with the consumer well. Businesses that DO provide a good service that helps people make more of their money.

The aggregators are a prime example. Their services mean consumers don’t have to visit their bank to see what’s going on. Moneysupermarket and uSwitch are now major players in the UK. They have the power to impact new customer acquisition results of even the biggest banks.

And now new businesses are opening that auction customer leads to the institutions, turning the whole customer acquisition model on its head. Imagine if a Moneysupermarket did this for all business? Imagine if Google did this? Banks would quickly be relegated to commodity plays – to simply being the factories for money transactions. Their large profits and sector dominance would disappear as quickly as the major record labels’.

Another example (and I declare an interest here) is the Social Lending movement. Social Lending offers consumers a great financial deal and strong social reward by using peer to peer technologies. It gives the power back to the consumer by cutting out the banks, and is starting to take market share. While it is relatively early days for the likes of Zopa, Kiva, Propser and Smava, the recent entry into the US market of Virgin, eBay and Facebook suggests that Social Lending could really begin to shake up the power structures in financial services.

One final example. Paypal - which is part of eBay - has recently relocated to Luxembourg. Look out banks!

IMAGINE A WORLD IN WHICH…..

Remember the Carlsberg advert? “What if Carlsberg did a bank…” What would that look like?

Imagine Apple designing the consumer interface for people’s money needs. When they designed the iPod, Apple asked themselves “how do we create the best mobile music experience on the planet”. Everyone else tried to sell MP3 players, but Apple sold 100 million.

What would happen if the financial services world really set out to design services to help people with their money? Forget products, forget designing for profitability - just give the customer what they really want.

It’s time for a fundamentally different approach, where the outcomes for the consumer could be revolutionary. Technology has never been more able or likely to help. Consumer demand for something different and something better - much better - has never been more acute. These are exciting times indeed.

This entry was posted on Tuesday, June 19th, 2007 at 2:58 pm and is filed under General. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.