The next big wave of innovation in financial services will be driven by incumbents starting with a blank canvas, 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 – “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.
“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.”
Examples are beginning to be rolled out. RBS Group will soon launch Bó, a Greenfield digital offering, built with new technology in less than 12 months. 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. Goldman Sachs launched Marcus in the US and Europe, allowing it to enter consumer banking.
The Power of New
Digital challengers are providing the inspiration and motivation for existing firms to embark on new builds. South Korean digital bank Kakao attracted 6 million signups in less than a year. Monzo, Revolut, and others in the UK grew 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 3 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.
Enter Existing Financial Services Firms
To be successful in the future, financial institutions need to have the same advantages as digital challengers. For example, the average number of customers each person in a challenger bank serves is over 2,500, compared to 1,000 in existing banks. Digital challengers launch new products or services in 2 weeks, compared to 3 to 6 months release timetables for traditional firms.
Greenfield is an attempt to deliver 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 $10M and $60M. Financial services firms will hope to out-compete fintechs with Greenfield platforms, while having the advantage of tremendous resources and an existing customer base from day one.
In the process, the new Greenfield businesses will help catalyze and drive change across the organization. “The new will transform the old and create a better financial system overall”, concluded Moynihan.
The Oliver Wyman Time to Start Again report is available here. This year’s report is broken into 4 segments: The Power of New, How the New Can Transform the Old, The Greenfield Approach and Flywheel Momentum. The report features the 1st in-depth interview with Mark Bailie, former Group COO of Royal Bank of Scotland and current CEO of Bó.
Key exhibits from the report include:
- Exhibit 1: The Impact of New Business Models
- Exhibit 3: Introducing Greenfield
- Exhibit 4: The Old vs. The New
- Exhibit 10: A Year in the Life of a Greenfield Build