The next big wave of innovation in financial services will be driven by incumbents, according to Oliver Wyman’s 2019 State of Financial Services report titled “Time to Start Again” launched at the World Economic Forum Annual Global Meeting in Davos.
The report describes an emerging new approach—called greenfield—where existing firms break free from the constraints of their legacy systems, business and talent models. It is based on new subsidiaries, new technology and new customer solutions.
Greenfield delivers a customer offering to match or exceed the challengers. Using modern technology, an open platform and third-party services, new banking and insurance platforms can be built within a year, at a cost of between $10 million and $60 million.
By doing this, existing financial services firms hope to outcompete fintechs with greenfield platforms, while having the advantage of tremendous resources and an existing customer base from day one.
Some examples of this are already beginning to be rolled out. The RBS Group will soon launch Bó, a greenfield digital offering, built with new technology in under 12 months. In addition, National Australia Bank (NAB) has had success with QuickBiz, a fully digital unsecured lending solution, and German insurer ERGO has built Nexible as a challenger to its existing auto-insurance business.
Meanwhile, Goldman Sachs has launched Marcus in the US and Europe, allowing it to enter consumer banking.
“For an industry whose product—the movement and storage of money—is electronic, the processes are still far too manually intensive,” said Ted Moynihan, Managing Partner and Global Head, Financial Services, Oliver Wyman. “Established firms will look to free themselves from the shackles of their legacy infrastructure and embark on future journeys unencumbered.”
New technology empowered South Korean digital bank, Kakao, to attract 6 million signups in less than a year. Monzo, Revolut and others in the UK also managed to grow their customer base from 0.6 to 2.5 million customers in a year.
In the US, Chime has opened more than 2 million no-fee transaction accounts. In the foreign exchange market, XTX gained 10% market share in just three years, making it the second-largest player in 2018.
Some of these businesses may not yet be profitable, but over time the digital challengers and greenfield businesses will use what the report calls “flywheel momentum,” collecting more data, developing new propositions with that data, and attracting more talent.
At the same time, financial institutions need to have the same advantages as digital challengers to be able to survive in the future. For example, a challenger bank serves an average of 2,500 customers, compared to 1,000 in existing banks. Digital challengers launch new products or services in two weeks, compared to three to six months for traditional firms.