AnthemisHackingFinanceBreakfastSeries

Topic:FinancialWellness,hostedbyExponentialVentures

Introduction Anthemis Hacking Finance Breakfasts are a series of highly curated gatherings of industry leaders from across the financial services spectrum. For the September 2016 instalment in London, Exponential Ventures hosted a breakfast with Anthemis, focused on Financial Wellness.

Through extensive research with our academic partners, the University of South of Africa and the University of Bristol, as well as our investment activities, it has become increasingly evident that the concept of Financial Wellness is relatively unknown or ambiguous to the public. The breakfast was an excellent opportunity for Exponential Ventures and Anthemis to share ideas around the topic with a diverse, invite-only group of financial services executives.

The breakfast was borne out of a desire to foster thoughtful debate and facilitate meaningful interactions that ultimately help move us towards making better investment decisions, which lead to better Financial Wellness outcomes for individuals, small businesses and communities.

With over 75 executives in attendance, we received very positive attendee feedback and look forward to building on the learning shared in the room. In this document, I have shared some of the key insights generated from the various roundtable topics. Thank you to all those that attended and contributed with their valuable insight. We plan to arrange a series of Financial Wellness-themed events throughout 2017, with our first one pencilled in early next year in the United States. We are building great momentum on this track, watch this space for more in the New Year!

Dan Smith

Managing Partner, Global Investments

Exponential Ventures

United Kingdom

Key Takeaways and Insights Roundtable 1 - Defining Financial Wellness

• Financial Wellness is not a market or a sector. It is also not a particular product or service. It is first and foremost a customer-centric value proposition – one that focuses on life goals, outcomes and continual user engagement as key principles.

• The definition of Financial Wellness varies and is dependent on many factors – age or life stage, geography, lifestyle etc. Measurements need to be contextual.

• MMI Holdings’ current definition of Financial Wellness is focused on an individual’s ‘personal income and expense management, in order to help prepare an individual for life’s milestones, future requirements and unexpected events that threaten financial stability.’

• The underserved, financially illiterate market is the hardest segment to connect with on this theme — and it is also the segment most in need of resources. Securing this opportunity requires smart ways of unlocking value whilst monetising in a commercially sustainable and profitable manner.

• Physical and mental health are strongly correlated to Financial Wellness. People in financial stress show symptoms associated to Post Traumatic Stress Disorder (PTSD). Achieving Financial Wellness requires a more holistic approach to wellness and behaviour change to be impactful.

• Financial Wealth vs. Financial Wellness

o Financial Wealth: a state of being which is not necessarily a steady state.

o Financial Wellness: dependent on education, preparation, awareness and access to appropriate tools.

Products vs. solutions:

• There is a need for financial services firms to be customer and solution centric, as opposed to product centric. If you start with customer outcomes, product solutions will follow. Many financial services firms push product options before understanding the users’ underlying need.

• Education and communication around products is important — having the detail in the fine print isn’t good enough and doesn’t engender trust. This is also one of the key barriers for user engagement in financial services today.

Helping people understand their finances:

• A big question we have to ask when it comes to supporting people with their finances – are you developing a business for profit or philanthropic purposes?

• Brands that promote wellness at their core will win in the future.

• Education is key and there is currently very little education for people around personal finance — it needs to start early and needs to be on the agenda in schools.

• It is currently very difficult to get the holistic view of an individual’s finances. Data availability and access is poor, but this appears to be changing as Payment Services Directive 2 regulation (The European Commission’s initiative to make cross-border payments easy, efficient and secure) opens up banks and numerous startups are unlocking value from smartphone or wearable data.

• Current products require the user to make many decisions which have the adverse effect of increasing financial stress. Behavioural science and automation are critical components to remove stress, friction and increase user adoption and retention rates.

• Open APIs (Application Programme Interface) could help people receive an aggregated financial picture more easily.

Roundtable 2 - Business Model Enablers

• Business models are evolving: Business to consumer (B2C) remains prevalent but business to business (B2B) and business to business to consumer models (B2B2C) are becoming increasingly important as startups look for collaboration opportunities, quick scale and multi-stakeholder value creation and monetisation.

• There is a lack of comprehensive offerings: Financial Wellness can only be achieved with a comprehensive understanding of an individual’s (or business) state of being and currently this

holistic approach is not being provided by the market. There is a need in the market to concisely piece together a complex jigsaw of different strands of information (e.g. current accounts vs. savings vs. investments).

• Trust is both a constant challenge and opportunity: Both large institutions and startups need to work on earning and maintaining the trust of actual and potential customers. The next economic downturn will result in some fintech failures and this is likely to disproportionately ‘scare’ the market, impacting people’s financial stress levels and risk appetite.

• A shift towards user-orientated offerings: the market is moving away from a financial service provider orientated approach, towards end-user customised, data driven, needs-based and situation appropriate ‘solutions’.

• Establish new revenue models: Service providers should be encouraged to create multi-stakeholder value so the end consumer pays little to nothing. This serves as an important trend to derive commercial value from a low or middle income segment that is largely underserved as everyone chases the higher income earners.

Roundtable 3 - Technology Enablers

• Accessibility o The power of mobile technology should be used to create appropriate access for the ‘long-

tail’ of underserved or unserved individuals. o Intuitive user interfaces (UX) drive and influences good financial behaviours. These could

be in the form of timely content and in-application notifications tailored to improve adherence to savings goals.

o Open platforms allow various providers to focus on niche needs, better servicing them whilst the two-sided marketplaces democratise access and lower costs for the individual.

• Chat Bots o We see the immediate opportunity for bots, coupled with Artificial Intelligence (AI) to aid in

customer on-boarding and engagement. More sophisticated AI-focused chatbots could lead to effective nudging for behaviour modification and even become a personal financial advisor or life coach.

• Customer Data o AI and big data have a powerful role in increasing financial inclusion. They have potential to

provide alternative access to financial services, which include alternative scoring for those who are typically financially excluded with little to no credit history.

o There is a need for a deeper understanding of customers and their needs; the role of the Internet of Things (IoT) and wearables, as well as telematics. There will be a shift from Knowing Your Customer (KYC) to Understanding Your Customer (UYC).

o ‘Set it and forget it’ models need to become dynamic and enabled through AI. They offer promise in the long run as they support the notion that limited ongoing decision making on financial matters will reduce financial stress.

• We need to consider gamification and its role in financial education. While it is very difficult to monetise, it is also a critical component to getting individuals afoot on the Financial Wellness journey.

Roundtable 4 - Customer Needs

• How do you uncover customer needs that customers themselves may not be aware of as they have never been serviced before?

• There is a need for offerings that are simple, with processes that are not time consuming. These should give a holistic view of an individual's assets and liabilities. Offerings should also dynamically learn and adjust over time as the individual’s situation changes.

• Millennials want to be involved in managing their portfolio of assets at any time. For the most part, they do not trust incumbents. This is a fundamentally different mind-set to other generations.

• There is a need for better, low-cost, intelligent budgeting tools. The market is saturated with personal financial management tools but still require a lot of manual user intervention. These models have also struggled to find a viable commercial model and could well be a feature more than a product.

Behavioural psychology

• Financial wellness products are used to "wake people up" and make them aware of their current financial condition and habits.

• There is a need to complete customer profiling beyond simply assessing income levels – it will also become critical to use behavioural indicators to better target, and serve customers.

• Behavioural modification – consider whether it is sustainable or habitual. Is this a new equilibrium or will people revert back when the focus on Financial Wellness ceases?

• Offerings should predict future financial reliability by looking at personality traits and develop correlation indexes.

• There is a need to eliminate the noise in the market as information overload lowers attention span of consumers and makes decision-making harder. Therefore service providers shoult focus on simplicity, access, transparency and trust.

Trust

• For trust to be established there needs to be alignment of interest and creation of shared values. MMI’s research into Financial Wellness has led to the creation of a Maslow-esque hierarchy of Financial Wellness needs which starts at the bottom of the pyramid with Protection > Accumulation > Financial Independence > Transferring Wealth > Giving Back > Being Remembered.

Roundtable 5 - Role of Corporates & Government

Government

• Governments are in an ideal position to facilitate innovation, create standardisation and access to data. HM Revenue and Customs’ recent Pensions Dashboard initiative is a great example of the facilitation role they can play in dragging the pensions industry into the 21st century. Needless to say, getting pensions right is critical for the long-term Financial Wellness of UK citizens.

• Increased tax breaks and financial incentives are to be offered to the low income segment. It is estimated that tax relief on Defined Contribution pensions may be slashed, which would have a significant negative impact on Financial Wellness across the UK.

• Governments should take greater responsibility, not just for financial education and literacy, but to help ensure financial services products that are being promoted are ‘fair’. A notable example of which is payday loans companies should not be allowed actively mass market to a potentially financially illiterate population, one which might not be aware of the consequences of their decisions. It is not an easy line to draw, however, given that the Financial Conduct Authority is already in place to protect consumers’ interests.

Corporates

• Employee benefit programmes have risen in popularity as companies realise that financially well employees are productive employees. Studies have shown that up to 4% of a company’s bottom line is impacted by employees’ financial stress.

• Given these tangible benefits for employers, some value propositions that might not be commercially viable in a B2C model could be viable with a B2B2C approach.

• Corporates and institutions already donate to social impact initiatives. Start ups that are truly embracing Financial Wellness principles into their value proposition and business model have an opportunity to garner broader appeal to corporate stakeholders under a mission of ‘profit with purpose.’

Quotes from Hacking Finance Attendees • “I am amazed by the number of senior and high quality individuals that are attracted to the Anthemis

breakfasts...this must have been a who's who in Financial Wellness!” Senior Investment Manager, Asset Management

• “Financial wellness is very relevant to me in my new role, in a large global insurance company, so this was an excellent breakfast and it was great to meet the Exponential guys from the perspective of potential collaboration.” Head of Innovation, Global Insurance Company

• “Really enjoyed the breakfast. Went with trepidation since I am not a mainstream financial technology person and had no preconceptions about financial wellness. I initially disagreed with everyone at my table but ultimately saw their side. I thought the discussion was interesting and healthy and I learned a lot and contributed meaningfully.” Senior Portfolio Manager, Hedge Fund

Photos from the day