DISRUPTING FINTECHS “TOWARDS ZERO FRICTION”

An evidence-based analysis of the drivers behind the fintech phenomenon

FRICTION, NOT FINTECH, IS THE REAL THREAT TO BANKS?

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For hundreds of years, frictionsurrounding any type of transaction has been hindering business growth: goods, money and data are never transferred

fast enough.

For hundreds of years the same problem, and for hundreds of years the same answer: “More”. More manpower for more goods, more bank counters for

more money, more keyboards for more data.

Simple. Costly. Absolutely not practical. Completely unscalable.

Fintechs are now on a mission

to solve the “friction,

money and data problems”

SMART STARTUPS ARE MOVING TOWARDS ZERO FRICTION

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BUT THEY ARE SUPPLY-DRIVEN NOT DEMAND-DRIVENTheir entrepreneurs confuse technology with insight:

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“We’re focused on millennials, in part based on the realization that the they’re just entering their acquisitive years and the majority of their purchases leave the type of digital exhaust that allows you to collect info on their value and track changes over time.”

Scott WalchekFounder TROV

WHY IS FRICTION A THREAT TO BANKS? The real driver of the fintech phenomenon is the exploding consumer shift “towards zero friction”

Fintechs are moving “towards zero friction” by removing process steps AND removing traditional banks from the

process

So, deep disintermediation is imminent, not by fintechs but by the mega platforms taking consumers “towards zero friction”

Facebook, for example, will use lending to make its ads more valuable – click on the ad and buy the thing, taking

you from ad to purchase with zero friction. It might even give away the credit to lift revenue from ads & commerce

Even the value of Google AdWords will be under siege – AdWords generates revenue for Google via cost-per-click & cost-per-acquisition fees. Frictionless payments will make clicking an advertiser’s link & shopping trolley payment platforms obsolete

In the “towards zero friction” customer cohort, traditional banks can forget originating revenue, credit card fee revenue, loan fee revenue, interest revenue, deep share of wallet, loyalty & lifetime value

Remove friction and customers can forget money – choosing life experience over transaction5

3. Roy Morgan Single Source, Dec 2015. n=255,777

WHAT IS THE SIZE OF THE THREAT TO BANKS?The real threat comes from knowing (or NOT knowing) which customers are the most likely to be impacted by digital disruption and to have an appetite for zero friction – threatening share of wallet. They will most likely be:

Younger (under 45)

Urban

Tech savvy

Tertiary qualified

Big spenders

Comfortable with debt & leveraging assets

Dissatisfied with big banks

Unhappy with the traditional banking system

Unhappy with the corporate / institutional branding of traditional banks

Open to digital disrupters 6

WHAT IS THE SIZE OF THE THREAT TO BANKS?In what is known as the Desire Economy, the 4.5 million high-value consumers are:

Younger – 62% are under 45 years-old cf. 52% of the population

Urban – 71% live in Australia’s capitals cf. 63% pop

Tech savvy – 39% are early adopters cf. 17% pop

University qualified – 50% have a degree cf. 31% pop

Big Spenders – 91% are in the top third of discretionary spenders cf. 33% pop

Big savers – have (mean) savings & investments of $275K cf. $181K pop

Comfortable with debt – 40% cf. 31% pop

Dissatisfied with big banks – 16% more than pop (more likely to be with smaller brands)

Unhappy with traditional bank branches – 64% of them: 28% more than pop

Open to digital disrupters – UBER 109% more than pop, Spotify 87%, Skype 55%

Unhappy with the corporate / institutional branding of traditional banks – the Desire Economy mantra is: Think

small. And stop shouting, we can’t hear you

The share of wallet of 4.5 million banking customers is at risk7

Source: Roy Morgan Single Source, Dec 2015. n=255,777

BUT IS FRICTIONLESS ACTUALLY AN OPPORTUNITY FOR BANKS?Fintechs are just supply-side technology platforms delivering products entrepreneurs consider relevant

Fintechs targeting ALL Millennials is a good example of technology without insight. Only Desire Economy

Millennials are valuable …

When the credit cycle turns and rates rise, first generation fintechs will be at risk (e.g. defaults on higher-risk loans)

The real banking threat (or opportunity) is from the digital mindset coming to life and demanding truly relevant experiences via frictionless technology. Fintechs are merely stimulating this awakening desire to ‘forget money’

8Roy Morgan Single Source, Dec 2015. n=255,777

AustralianPopulation

AllMillennials DesireEconomyMillennials(1.5m)

TraditionalEconomyMillennials(1.8m)

EarlyAdopters 17% 27% 52% 8.2%BigSpenders 33 38 90 5ABs 20 24 40 10UniversityDegree 28 41 53 9

CREATE FRICTIONLESS UX – AUTOMATE EVERYTHING

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And do it on mobile

Personal Loan Origination

Business Loan Origination

Mortgage Origination

Payments

Portfolio Management

SMSF

Customer Dashboard

WHAT IS THE DESIRE ECONOMY MINDSET?

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A peak experience is one that surprises us, stays with us, changes us, inspires

us and then becomes the norm

A Desire Economy consumer is 2.6 times more valuable

than a traditional consumer

The Desire Economy is a sanctuary from the traditional orthodoxy of product/price

marketing. It’s where Desire consumers & SMEs gather & yearn for a ‘peak experience’

Typically, Desire Economy accounts for more than two-thirds of a bank’s premium or affluent segments, while accounting for half

the mass retail segments. But they are not another segment

In fact, they are not taxonomic at all, they are dimensional. In other words, they can be identified, mapped and measured with surgical precision, but

their ‘dimensional mindset’ transcends conventional classification or segmentation

This mindset modelling integrates seamlessly with a

client’s own customer segments

Desire Mindset is defined by 194 factors:

12 elective spending 82 attitudinal

100 behavioural

WHAT IS THE DESIRE ECONOMY MINDSET?

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The $600 billion Desire Economy is fuelled by 4.5

million high-value consumers with 194 Desire mindset

attributes

The Traditional Economy is constituted by 9 million consumers

with a low-spending transactional mindset

HOW DO WE KNOW THIS WORKS?

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$45:1 ROI using predictive analytics to reveal & target most

valuable customers (Qantas)

780% revenue uplift in value-added

products using precision targeting for most valuable customers (Energex – Retail Energy)

20% sales growth using peak experience

creative for most valuable customers (Lexus)

$2m lift in sales using a brand & value

proposition for most valuable customers (Australian ski resort

client)

$2m saving in advertising spend

optimisation for most valuable customers (Qantas)

$80m discovery of hidden value using predictive analytics on just one

customer segment (Telstra)

HOW DO WE KNOW THIS WORKS?

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Following an exhaustive evaluation across the USADesire Economy algorithms were accredited by KPMG (USA)as world’s-best-practice

A DATA AND EVIDENCE-BASED END-TO-END PROCESS

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Business Goals

Predictive Analytics

Client’s highest-value-potential

customers

High-value Mindset

Modelling

High-ValueStrategy for

actual + desired customers

‘Frictionless’ Customer

Experience Design

Precision Reach Channel + Media

Desire Economy Content + Creative

DigitalMeasurement

across all devices

Evolve + Adapt

Unlocking hidden value from consumers with the highest-value-potential

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TOWARDS ZERO FRICTION