THE STATE OF THE FINANCIAL SERVICES INDUSTRY 2019: TIME TO START AGAIN The State of Financial Services 2019
Dear Reader,
There is an old Irish joke about a driver in Tipperary who stops to ask a farmer how to get to Dublin. The answer comes back, “Well, I wouldn’t start from here”.
So it is with much of our financial services industry. Complex legacy infrastructure is costly and slow to adapt to changes. For an industry whose product - the movement and storage of money and the management of risk - is electronic, the processes remain far too manually intensive. Surveys regularly indicate that customers are rarely inspired by the service. The consensus is that overhauling all of this will require years of digital transformation of legacy systems and processes.
In our state of the industry report this year, we challenge that consensus, and make the case for starting again. We don’t mean new challengers or fintechs taking over. We mean giant financial services firms freeing themselves from the shackles of their legacy infrastructure and embarking on their future journeys unencumbered. That means brand new technology, entirely new organizations, and complete customer-centricity.
It also means tapping into the same flywheel momentum of growth enjoyed by the big technology industry over the last decade.
We believe the quality and low cost of new technology, the potential for dramatic change in competitiveness, the potential for reduction in conduct and cyber risk, and the scope for smooth migration all add up to making this idea compelling now.
Is this a realistic vision for the industry? Our news is that if you look carefully, you will find it is already starting to happen. To see how and where, read on…
Yours sincerely,
Ted Moynihan Managing Partner and Global Head, Financial Services, Oliver Wyman CONTENTS
INTRODUCTION 1
1. The Power of New 2
2. How the New Can Transform the Old 7
3. The Greenfield Approach 11
4. Flywheel Momentum 20
5. Go Build! 23 INTRODUCTION
In this year’s State of Financial Services report we We lay out a blueprint and success factors for these examine the potential for the industry to start again. initiatives, and then point to areas of emerging opportunity across all industry segments to deploy We explore the power of new – areas in the industry what we call the flywheel effect. where new technology and businesses are having a proven impact. During the report we include a case study with the head of one of the most ambitious greenfield projects We show how existing firms can deploy a greenfield to date. approach to deliver new growth and to accelerate transformation of the existing business. We conclude by pointing to the first steps in the journey – go build!
1 1. THE POWER OF NEW
Digital disruption in financial services is unevenly approval in Australia and Hong Kong. In the US, distributed. Some parts of the market are heavily Chime has opened more than 2 million no-fee impacted, others are less affected, and the speed at transaction accounts. which disruption will spread is open to debate. •• New types of intermediaries are winning over However, there is no denying that businesses corporates with working capital and supply- underpinned by digital capabilities are getting chain-finance solutions. Longstanding firm traction, for instance: PrimeRevenue doubled volumes over the past two years, arranging more than $200 billion in •• New nonbank trading businesses such as XTX trade payments. C2FO posts $1 billion per week have vaulted into the top five market makers on its working capital platform. Greensill has in foreign exchange in just three years, with provided $50 billion of financing, facilitating platforms that run at almost half the cost of the early payments to suppliers – and in the process largest banks. achieving a unicorn valuation.
•• Chinese financial services conglomerate •• Fintech and consortium efforts have redesigned ZhongAn has gained more than 400 million whole industry processes, from debt and equity customers within four years of its launch, with issuance to trade finance, commercial insurance, technology-enabled propositions for ecosystem wholesale/reinsurance placement, and more. partners, such as micro-policies for Alibaba. •• Big tech players such as Amazon and Apple have •• Digital “neo-banks” are winning over the next taken only the first steps into what they may do generation of consumers in some major markets, in financial services. offering customer-friendly access to finance and money management tools. South Korean digital Some of these propositions may face skepticism bank Kakao attracted 6 million signups in less about whether they can scale up or get the industry than a year. Monzo, Revolut, and their peers now adoption they need. For now, they are willing to have 2.5 million customers in the UK and are sacrifice near-term profitability to build a business expanding from narrow category killers toward that can scale rapidly, supported by patient digital full service. Similar ventures have regulatory economy investors.
2 Exhibit 1: THE IMPACT OF NEW BUSINESS MODELS
NEO BANKS UK # CUSTOMERS WITH MONZO, REVOLUT, ATOM, STARLING, TANDEM MILLIONS
June 2017 0.6 15% of the total banked July 2018 2.5 population attracted by one of South Korea’s first digital-only banks in one year SOUTH KOREA # CUSTOMERS WITH KAKAO MILLIONS 5% UK adult penetration of top digital banks June 2017 0 (Launch in July 2017) July 2018 6.3
Source: Oliver Wyman Analysis; Press Releases
NONBANK LIQUIDITY PROVIDERS SPOT/FORWARD MARKET SHARE
10% XTX
10% share of the spot/forward 5% market gained in three years by XTX, making it the second-largest player Jump by share in 2018
0 2015 2016 2017 2018
Source: Euromoney FX survey
NEW P&C OFFERINGS GROWTH OF ZHONGAN, FIRST ONLINE ONLY INSURER IN CHINA NUMBER OF CLIENTS NUMBER OF POLICIES SOLD MILLIONS BILLIONS
2013 0 2013 0 432 million customers 2014 199 2014 1.1 gained over four years by China’s first online-only insurer ZhongAn 2015 313 2015 2.5 2016 345 2016 3.5 2017 432 2017 5.4
Source: Oliver Wyman Analysis; Press Releases
US DIRECT BANKS OPENNESS TO DIRECT BANKS % OF TOTAL HOUSEHOLD DEPOSITS MONEY MARKET/SAVINGS EXCLUDING UHNW
20-30% Deposits held in direct bank accounts 20% of US customer deposits in direct bank accounts 5-15% O ine deposits held by clients with direct bank accounts Another 50% with the potential to switch 40-50% Deposits held by consumers without a direct bank account, but open to switching
15-25% Deposits held by consumers not open to direct bank only accounts Source: Oliver Wyman Rising Rate Survey
3 More interesting are the possibilities these new These businesses have “flywheel momentum”. businesses point toward for existing firms. They are collecting and combining data in ways that enable increasingly value-added services for First, time to market and build costs have decreased customers. The data gathered from initial offerings dramatically thanks to advances in cloud-based is used to understand the customer better and services and technology. Second, starting with a create new solutions, which brings in more data. blank slate, it is possible to create businesses that Features are launched and tested with customers are digital by design and have significantly lower run rapidly. Eventually, it is difficult for competitors to costs. Third, new business models and data-driven even catch-up. approaches are winning over customers.
Exhibit 2: HOW FLYWHEEL MOMENTUM IS GENERATED
Active solutions create New customers generate Revenue information Better solutions drive better value propositions more revenue and and talent growth fuels rapid customer growth and drive new customers information, which creates richer solutions for more in adjacent categories innovation challenges that scope of customer needs of need, which builds attract top talent resilient organizations that “do more, faster”
Well- defined and big customer problem
Source: Oliver Wyman Analysis
4 Imagine if you could combine what is possible in Existing firms are starting to see the potential in a new build with the business model advantages starting from new: of an existing firm. •• RBS Group has stood up a greenfield banking offering to support customers with personal We call this approach greenfield. financial management, built on a new technology stack in 12 months (see case study on page 13). Greenfield is a method for existing firms to build new •• National Australia Bank (NAB) launched businesses. A project starts with a specific customer QuickBiz, a fully digital unsecured lending need, often identified from existing customer data, solution. It has become a core channel for small in an area that is already strategically important, or to business lending and expanded to overdrafts, kick-start expansion. It needs to develop compelling equipment finance, and corporate credit cards. customer solutions and evolve them quickly, using the flywheel effect. •• Goldman Sachs has launched Marcus in the US and Europe, allowing it to enter A venture approach is taken, with investment consumer banking. stage-gated. The venture has freedom to operate •• German insurer ERGO built Nexible as a from the rest of the organization and to deploy challenger proposition to its existing auto- new technology. insurance business. Nexible has a fully digital application, management, claim, and A greenfield build is forced to meet the needs of renewal journey. surrounding stakeholders – risk management, compliance, regulators – and is not a theoretical innovation project.
Exhibit 3: INTRODUCING GREENFIELD
E ISTING FIRM DIGITAL CHALLENGER GREENFIELD BUSINESS
Established brand Agile and innovative Best of breed technology Customer base Customer centric Customer centricity Funding ow cost base Freedom to operate E isting data Cloud based enture discipline Perceived safety e t generation system Regulatory approval AP driven Micro services
Source: Oliver Wyman Analysis
5 5 Exhibit 4: THE OLD VS. THE NEW
GROUP OF ExiStiNG bANKS GROUP OF DiGitAL ChALLENGERS
A ERAGE COS O AC RE EW C RRE ACCO C S OMERS 150 30
A S FROM APP CA O O C RRE ACCO F C O A BE G ACCESS B E 3 0
ME O A CH A EW FEA RE 3-6 2 months ee s
RE A BA G C S OMERS PER F E
1 000 2 500
EMP O EES RA G HE R COMPA AS A S AR EMP O ER 25 68
Source: Oliver Wyman Analysis; Press Releases
6 2. HOW THE NEW CAN TRANSFORM THE OLD
Financial services firms are operating in a tough the firm’s revenue – should then become a major environment. Growth is hard to come by in developed focus of the organization. markets, and costs are constantly being squeezed to maintain earnings. At the same time the performance and productivity of the core business needs to be optimized. Those New capabilities and approaches are required to businesses which are no longer going to drive grow businesses in the digital economy, with a growth, no matter how profitable today, need to be differentiated management approach. identified so resources can be freed up.
Incubation of a portfolio of investments is It is important for shareholders to see how the needed – with ruthless prioritization and a structured portfolio of investments aligns with the company probe-learn-pilot approach. Efforts today in strategy, both in terms of growth or addressing innovation can provide the impression of activity, disruption threats. The return on each investment but lack discipline, access to customers or top-down will be uncertain, but the funding required is stage- backing. gated. The governance model is no longer about big multiyear budgets with fixed, micro-detailed The one or at most two initiatives that stand a chance deliverables. Investment funds are allocated with the of really scaling-up – generating over 10 percent of scope to scale up the most promising ideas.
Exhibit 5: THE FOUR ZONE MODEL – ORGANIZING AND MANAGING FOR DISRUPTION
GREENFIELD BUSINESSES CORE BUSINESSES TODAY (Disrupting innovation) (Sustaining innovation)
TRANSFORMATION PERFORMANCE New businesses with scale to contribute Optimization of the existing >10% of revenue in time operating model Now (1 year)
CATALYST FOR CHANGE “Between now and then” (2-5 years)
RACE TO MATERIALITY
INCUBATION PRODUCTI ITY Investment in emerging businesses E ciency e orts and associated not yet generating material revenue investments targeted at cost centers Now (1 year)
5+ years
Source: Geoffrey A. Moore, “Zone to Win,’ and Oliver Wyman collaboration 7 A CATALYST FOR CHANGE
Greenfield businesses accelerate change in the As it expands, the new, leaner operating model and parent organization. data capabilities can be increasingly leveraged across the whole business. The institution’s conventional wisdom gets heavily challenged during a greenfield build, something A greenfield business improves access to external that is not always comfortable. A cadre of managers innovation. Partnerships can be established is developed with experience of building businesses quickly, with the attraction of a real customer base, not just experimenting with new technologies. and offerings or services integrated into an open Customer offerings, new business models, ways of integration layer fast. This real-world testing can help working, and technology architecture all need to be prioritize what works, and surface challenges that will delivered on time and to budget. be faced integrating an offering into the core.
Exhibit 6: GREENFIELD AS A CATALYST FOR CHANGE
From concept From go live From an evolving to a to ready to and through a substantial business launch growth phase
AS A AS A TRANSFORMATION AS THE FUTURE DISCRETE UNIT CATALYST TARGET STATE
Customer A discrete proposition A live platform to experiment A new organization that is that serves an identified with new innovations and driven by customer needs customer need generate customer feedback in and that can rapidly deploy an unconstrained environment changes to meet changing customer requirements
Culture A new team which is flexible, Proven methodologies and ways A talent magnet attracting the is customer centric, can of working that can be adopted workforce for the future, with experiment, and drives delivery by the group capabilities across technology, at pace data science, human insights, design
Data A streamlined, customer- Elements of the data model and An industrialized big data centric data model designed to insights imported back into the environment, which is generate customer insight and main business central to driving value in the power automated processes main business
Technology A clean, modular technology Discipline and best practices A full technology architecture architecture that is lean and made a requirement for the that can deliver an increasing resilient, a means to experiment main business where it seeks range of services to the with external providers to be a service provider to the main business new business
Source: Oliver Wyman Analysis
8 GREENFIELD MIGRATION – LESSONS FROM THE POWER INDUSTRY
Enercity, a large energy provider in Germany, The platform also allowed for rapid innovation; has worked with Oliver Wyman to launch an Enercity replaced legacy systems including a entirely new greenfield business. commodity-data model with a generic modular platform that allows for extension of services The platform, which went live after eight and integration of microservices. months, followed the same principles now being employed in greenfield financial services In the end, Enercity was able to build a highly projects. customized business, with lower acquisition costs and churn rates, and increased customer It was relentlessly customer centric, providing a value over the life of the relationship. digital front-end solution that allows for tailored customer journeys and eliminates manual pain Next up: transitioning existing customers to points in current offline solutions. the new platform. A large number of existing contracts are being recreated on the new The platform was lower cost by design, offering platform via an extraction layer. Customers a level of automation not achievable with legacy will then be transitioned to the new platform, systems, such as integration of regulatory allowing the wind-down of legacy systems. processes and painless sign-up procedures, as well as segment-specific messaging through digital marketing.
Exhibit 7: GREENFIELD IN ENERGY
FRONT END
A G PAGE C S OMER POR A C E G S S EM AGE POR A S G P O R E
ENERGY MARKET PROCESSES CUSTOMER MANAGEMENT EXTERNAL SERVICES B G CO RAC CO F RMA O PR C G
Source: Oliver Wyman Analysis
9 A FUTURE END-STATE?
Most firms share an ambition to move towards a In the meantime, the legacy business will be moving modern technology architecture composed of an towards a set of re-imagined, componentized, and open platform on which channels and services self-contained services. can be easily configured. This approach uses open and standard mechanisms, allowing components The open platform built by the greenfield business to be flexibly sourced and changed, with the could act as an integration point for this legacy risks bounded. functionality and customer data, enabling it to service more and more customers' needs. This target architecture goes far beyond UI/ UX improvements. It is fundamentally different In a migration, reaching a fully equivalent from the current architecture of most financial functionality and mapping data remains a services companies. challenge. If some heritage capabilities cannot be cost-effectively transferred, a legacy platform may A greenfield business will be built on these target remain and need to be managed down. Otherwise a principles and provides new options for the core reduction in customer functionality may be needed business in making the transition. to enable cost savings.
Customers will have the opportunity to switch to the Migration onto a new, greenfield platform may greenfield business where services are comparable, require different channels or additional brands to particularly for products with frequent renewal be managed. The major advantage compared to a cycles. Customers could also be incentivized to move. tech-led migration is that the greenfield platform has been tested end-to-end by new customers first, and therefore the transition risk has been reduced.
Exhibit 8: ILLUSTRATIVE FUTURE STATE FOR A BANK
Customer channels Mobile App Web Channel Third-party Intermediary Branch Relationship Manager
Integration orchestration OPEN PLATFORM API ECOSYSTEM Microservices capabilities
Deposits
Unsecured lending
Mortgages KYC Credit Payment Budgeting Live chat / Single Core Corporate decisioning Hub tools and chatbot colleague banking general analytics portal system ledger
Greenfield component Legacy component Third-party component
Source: Oliver Wyman Client Project
10 3. THE GREENFIELD APPROACH
A greenfield business is an attempt to break free Additional features and services can then be easily from the constraints imposed by existing systems, bolted on over time. business models, and talent models. It is an attempt to start again. Based on this approach some of the new wave of startups has been able to go to market with There are critical tests across customer centricity, rudimentary banking and insurance propositions for culture and governance, data, and technology that less than $5 million. This might not account for large can highlight if an initiative is truly a greenfield build amounts of sweat equity, however. or if it is part of a more incremental digital rollout. Incumbent firms are going live with more robust Experience has shown that by following a greenfield banking and insurance offerings for between $10 approach it is possible to build a digital banking or million and $60 million. Whilst not a substitute, this is insurance platform that is open to customers in just a small fraction of the spend on maintaining existing 12 months, at materially lower cost than in the past. systems in major financial institutions.
Exhibit 9: GREENFIELD BUILD SUCCESS FACTORS
STARTING FROM THE DATA AND ANALYTICS DISTINCT CULTURE MODERN CUSTOMER NEED AT THE CORE AND GO ERNANCE TECHNOLOGY • Are customer needs • Does the data model • Does the new • Is the solution free the basis for developing enable customer insight, organization promote from legacy system value propositions? facilitate process a challenger culture, constraints? • Is there a mandate to automation, and drive where experimentation is • Is it being built so that experiment, test, and value for the business? supported? it can be flexibly scaled learn with real customers? • Are cutting edge • Can decisions be made up by using modular • Is the flywheel e ect analytics used to quickly? micro-services and APIs? activated? support a di erentiated • Is investment funding proposition? released based on the maturity of di erent initiatives and the extent to which demand is proven?
Source: Oliver Wyman Analysis
11 Exhibit 10: A YEAR IN THE LIFE OF A GREENFIELD BUILD
anuary - - arch April - - - - - uly August ------ ecember anuary onwards
ExPERiMENt PiLOt SCALE RUN
Develop brand design Iterate Explore customer Prototype proposition data to identify opportunities to Iterate and value proposition validate their potential Test key enhance options as a customer and features commercial proposition Build key features
Validate key Stand up core Handover founding technology Enhance key to BAU technology and security features Launch the first proposition choices through architecture into the market technical spikes
Set up core business functions (incl. risk, Design core finance, and Set up new business customer support) architecture organization and Launch private Review performance greenfield funding alpha and beta and customer mechanisms releases (friends outcomes and family)
Source: Oliver Wyman Analysis
12 OLIVER WYMAN CLIENT CASE STUDY An interview with Mark Bailie, former Group COO of Royal Bank of Scotland and current CEO of Bó
Many people in the UK have no savings. They are RBS concluded that its current attempts to digitize one misfortune away from being pushed into a debt may not be enough, on their own, to address these problem from which they might struggle to return. needs. With the support of Oliver Wyman, RBS A large proportion of consumers are either under- decided on taking a new path with a new offering, or over-insured. with a new brand, built on a new technology stack. Bó represents a new breed of financial Their financial struggles aren’t being addressed by institution – a greenfield digital bank owned by an the existing financial system. existing incumbent.
13 Oliver Wyman: What started the journey that led Greenfield lets you sidestep the challenge of legacy to RBS building Bó? infrastructure and get to a truly customer-centric Mark Bailie: When he became RBS CEO in 2014, offering faster — it’s the pragmatic solution. However, Ross McEwan made clear we had to start putting greenfield isn’t a cost-free strategy. It creates other the customer at the heart of everything we do, and issues, which we’ve got to learn to manage: we will become customer, rather than product, centric. have two tech stacks, and two brands. That has taken a lot of thinking through, and in the end you have to From that foundation, there have been two key make your choice. enablers we’ve needed to help us build Bó; first, having our customer data in one place and really How did you reach the decision to build Bó? analyzing our customers’ situations in depth. This has We didn’t wake up one morning and decide, "let's allowed us to see some of the issues our customers’ build a new greenfield bank," or, “we're going to face – and what could be done to help them. spend X, go away and come back when it's done.” This was done in measured but quick, incremental steps. The second enabler came from the growing potential to deliver technology and services at scale, and the We took a very small amount of money and gave rapid development of machine learning, AI, and cloud ourselves three months to see if we could put together computing capacity. a proof of concept, using enough of the components, and make it work. Having done that, we went to the When you put these together you see the potential next step, to see if we could make it work in a real-time for major changes, and opportunities. We can see a environment with live connection to payment rails. combination of customer need and the potential for Once we got there in the time period we’d set, the next highly personalized financial services. step was to put it into a production environment, and then into beta. What was the thinking behind taking a greenfield approach to the build? How much did the threat of new challenger banks We knew the kind of outcome we wanted would be motivate Bó? a long and hard journey for an incumbent bank to So far, we don’t think anyone is managing to deliver deliver, with product-centric legacy infrastructure. truly customer-centric financial services, and no- So, for us, the question we discussed was, “how long one's yet proven that you can disintermediate the have we got?” existing banks. This has led to a relatively common response: “The challengers are never going to make If it's 10 years, you can probably transition the any money, their business model is unsustainable.” existing core into a truly customer-centric business, because you can do almost anything in 10 years if I think that misses the point; it's still a very young you're good and you can execute - and we still have a sector. Customers are using the new services and Plan A around this. capital markets are funding them. The product isn't perfect, but some customers clearly like it, which But if customers start accelerating their move toward is why you can see the adoption levels increasing. new offerings, and you’re not already operating in that Although what they're doing today isn't yet the market, then the downside risk is asymmetric. If you full answer, these business models will evolve and don't know the timing, and you can see the potential develop over the next five years. for a material impact, then you need to cover the risk, so long as the cost is sensible.
14 Greenfield lets you sidestep the challenge of legacy infrastructure and get to a truly customer-centric offering faster
What customer needs is Bó focused on? The second is, you have to separate it out from the RBS is a large bank, with just under 20 percent of the core business, but still ensure the new business has current account market in the UK. We serve everybody Exco-level sponsorship. and are able to put together quite a detailed view of how people deal with their finances. The third thing, when you are a large existing bank, is that you have to build it within your existing risk We know that 40 percent of working-age adults in appetite framework, and it must be aligned with your the UK – that’s just under 17 million people – have existing policies. You have to build these things so less than 100 pounds of savings. That’s not just down they can co-exist together in the long term. to incomes – relationships with, and understanding of, money are also factors. So, we see a clear need How did you create the team that delivered Bó? for services that can help those millions of people to We started with a core group of internal people who manage their money better, but crucially, delivered in understood the organization, and have influence, a way they are willing to engage with. because we were going to need favors. However, the bank’s wider priority remained the transformation of What is the secret to building a new digital bank the core business, so we had access to relatively few within a large existing bank? of our best people. For me, there are three things we have found to be most important. Initially we drew heavily on external support – Oliver Wyman – to scale up technical and business Number one is having full support from the chief management resource, especially through the early executive and the chairman. Unless the CEO is driving stages. the vision, there’s no point in starting, and the board needs to be willing to back the CEO. If these elements hadn’t been in place, we wouldn’t have started.
15 Finding people able to work in a fluid environment is Can learnings generated in Bó be taken back to hard. This became easier once we moved to launch RBS? and there was something real to point to. Yes, it is already happening. In a number of cases, both the core bank and Bó have selected the same How did the core bank support Bó throughout the suppliers for certain functions, such as for fraud build? monitoring. We've then been able to deploy them Bó is separate but still highly connected, particularly first in Bó’s cloud-based environment, where it is through Simon, Les, and David who run our technology, faster and easier to do, and we can then decide how retail banking and marketing operations respectively. best to deploy them into the core environment of the They are hugely important not only because of the main bank. resources they have at their fingertips, but also because they've been running large banking operations for years So could greenfield be a way to transform the and have seen most of the problems before. We're not core? a startup, and the worst thing we could possibly do is It might be. Nearly all banks have old mainframe leave behind all the advantages of incumbency. systems. It isn’t a commonly accepted view, but they are very good at what they do. They're very stable, How will Bó be positioned in relation to the RBS they're very secure and they are a great system of and NatWest portfolio? record. They are all entirely separate brands. They have very distinct customer propositions. We aren't blurring Greenfield is, perhaps, a route to extracting the lines between them; indeed, we think they're workloads that aren't suited to the mainframe complementary to each other. We're not sure the new environment, which in turn allows you to simplify the challenger banks are here to replace existing banks. core infrastructure to make it cost effective. We think these propositions are here to complement, enhance, and embed what existing banks do. This might be an alternative to what numerous banks have considered, and declined: core replacement, Bó is not a product engine — it’s there to genuinely something a minority of banks globally have opted get to customer need, to add richness and depth of to do this and even fewer have delivered it on-time service to existing and new customers' relationships. or on-budget.
How does Bó impact on group profitability? One last question – what would your dream be for Bó is forecast to generate attractive standalone Bó in 10 years’ time? returns. The core challenge is maintaining customer I would like to say that we helped a material number of engagement in a world where the big tech firms are UK adults start living more financially sustainable lives. building powerful customer relationships, there are lots of competitors emerging, the barriers to entry Thank you for your time Mark. are falling, and technology is ever more flexible and Thank you for all your support over the past year. powerful.
16 GREENFIELD SUCCESS FACTOR 1 – STARTING FROM THE CUSTOMER NEED
With a “blank sheet of paper,” greenfield businesses By contrast, established financial services firms are forced to think deeply about customer needs to inevitably have entrenched existing product lines. attract business with economic acquisition costs. Despite the acknowledged importance of customer Customer feedback is vital, gathered early and via centricity, it has proven difficult for product verticals frequent customer engagement. to think of the customer outside of the context of their product or for horizontal innovation teams to drive Freed from the volume and service expectations of customer outcomes across the competing demands the core business, and legacy technology constraints, of different product lines. the greenfield business can launch more innovative and frequent offerings.
Exhibit 11: ILLUSTRATIVE CUSTOMER DATA ANALYSIS USED TO UNDERPIN A GREENFIELD PROPOSITION
Grocery stores
Fast food Gas / diesel
Restaurants/bars Subway
Household goods Vacations and services
Clothing Home (mortgage/ and footwear rent/bills)
Technology Health
Entertainment and culture Taxis
SOCIALITE SIZE: 5% COLLEGE STUDENT SIZE: 20% Spending profile: Above average on most categories with spikes Spending profile: Below average on all categories, spending across clothing, vacations, and restaurants bars primarily on necessities, save a small spike in restaurants bars Demographic profile: Predominantly female and in s s, higher Demographic profile: oung, low savings and often in debt, spending on lu ury items, city based spending concentrated to term time, primarily spend on food drink
PROFESSIONAL SIZE: 15% TECH SAVVY MILLENNIAL SIZE: 20% Spending profile: Above average on most categories, spikes in Spending profile: Bias towards technology, restaurants and holidays, restaurants, and entertainment entertainment, lower than average across home and household goods Demographic profile: end to be older, higher concentration of Demographic profile: ounger, average savings, tend to spend more professionals home owners, high savings, high income on entertainment, eating out, and gadgets, higher use of mobile banking
SENSIBLE SPENDER SIZE: 15% AVERAGE SPENDER SIZE: 25% Spending profile: Below average on most categories with a bias Spending profile: Average across most spending categories towards home Demographic profile: ow savings, tend to have an average income, Demographic profile: Higher income, average savings, primarily with a family, low use of mobile banking parents, low spending on lu ury items and eating out, higher concentration of mortgages
Source: Oliver Wyman Illustrative Output 17 GREENFIELD SUCCESS FACTOR 2 – DATA AND ANALYTICS AT THE CORE
Much of the value in greenfield comes from of insight. The range of different systems used, often combining data assets of the existing business overlaid by a history of inorganic acquisitions, has with improved data management and analytics introduced different, inconsistent data sources into capabilities in the new business. the organization, resulting in a patchwork data model that cannot be industrialized. In a legacy environment, it is extremely challenging to structure the data model to deliver the same level
GREENFIELD SUCCESS FACTOR 3 – DISTINCT CULTURE AND GOVERNANCE
A greenfield project should have venture discipline. Rapid delivery is provided by cross-functional teams, The starting point is not a request for large amounts or pods, with end-to-end accountability for the of funding to build the “answer.” The initial ask would design, build, and testing of features or systems. be to work intensively on customer data to identify The pod structure minimizes dependencies, enables opportunities, make the unknown better known, faster delivery, and limits the “blast radius” of and earn the right for the next level of funding. As failure. Each team needs support from a range of the customer need and proposition is built out and disciplines – business, design, technology, testing, proven, subsequent funding releases are made. and data science. Subject matter expertise needs to be accessible, on data privacy, risk management, In delivery, the greenfield business then needs and so on. freedom to operate and to make decisions quickly, with the support of the entire senior executive team The working style is more akin to a tech giant or to deliver resources and unblock barriers. The leader startup, creating a different employee proposition of the business should have credibility and clout and attracting different talent. As a stand-alone within the organization, often a senior leader with a business with its own customers and business model, proven track record. This provides legitimacy and the the culture is also more pragmatic than internal experience to balance inevitable conflicts. innovation labs.
GREENFIELD SUCCESS FACTOR 4 – DEPLOYING MODERN TECHNOLOGY
Greenfield should deliver a technology platform A modern, microservice architecture is walled off, that is scalable, has a variable cost base, enables with security controls between each component. As fully digital experiences, provides flexibility to swap a result, the impact of a breach is localized. components out, and can be iterated to meet the needs of both customers and the business users. A single portal can be developed to consolidate workflow, tools, and data. This enables greater This will typically be assembled from modular efficiency and cross functional working, unlocking microservices that are integrated with APIs. These the talent in the workforce. technologies are cloud-based, scalable, and generally offered as software-as-a-service (an In comparison, when innovations are built on top example of this for a greenfield bank is shown below). of legacy systems, complexity escalates, there is reliance on niche skills, and release cycles are limited. Starting with a new platform enables infrastructure While abstraction layers can help, the lead time from and security by design, increasing operational a promising proof of concept to a production version resilience and reducing vulnerability to cyberattacks. in the hands of real customers will still be longer than New technology platforms remove the single- with a fresh approach. point-of-failure risk of old corporate firewalls which, when breached, allow access across the platform.
18 Exhibit 12: A TYPICAL GREENFIELD BANK LOGICAL ARCHITECTURE
Customer
Third-party services Mobile/Web Chatbot Third-party distribution partner interface
Customer channel interface
DDos protection
Open Event Rules/ Audit/ Event banking stream policy reconciliation store Tech operations Message and event processing Call-back interface(s) Employee identity Integrations Data flow Business and Caching & access mgmt. management compliance logic Security event Predictive Dev Orchestration Account monitoring analytics platform microservices Event and log AI Pricing App store/ monitoring engine Collaboration marketplace Aggregated data store Tools and Services and platform Alerting console API Analytics mgmt. platform Data analytics Admin operations interfaces
Core Digital ID & Switching Ledger banking KYC checks FX services
Fraud PEPs/Sanctions Credit Social media Payments detection screenings bureau integration gateway
Fraud transaction AML transaction Device External banking monitoring monitoring prohibiting data sources
External services Aggregation Parent bank
Customer identity Customer Multi-channel Card issuing & access mgmt. support comms. Sales & mgmt. Reporting Customer model store Order Doc mgmt. Knowledge Privacy Marketing Subscriptions and search creation/mgmt. mgmt. mgmt.
Customer Product Chatbot profile mgmt. catalogue Billing
Customer relationship management Business operations management
Operations UI
Customer operations Business operations
Source: Oliver Wyman Analysis
19 4. FLYWHEEL MOMENTUM
Rich seams exist across all of financial services from We list below a sample of value opportunities suited which new solutions can be developed and grown to greenfield in each customer segment. Particularly into greenfield businesses. in Asia, new growth is being driven by the integration of financial services into digital platforms, creating The starting point needs to be an unmet customer brand new types of product. need or a radically lower cost approach. Initial solutions are used to create engagement, build Greenfield also provides the potential to create momentum and grow – the flywheel effect solutions that combine different aspects of described earlier. traditionally siloed services.
Exhibit 13: FLYWHEEL MOMENTUM IN CORPORATE BANKING
Treasury workflow Networking solutions events
Simulation Regulation and of cash Integrated compliance management transaction information portal structures functionality
Treasury Multi-bank benchmarking aggregation of account balances
Cash flow forecasting Cash pooling Market alerts
Account analytics Dynamic discounting FX/Risk Treasury spend management analytics simulations
Bank-agnostic liquidity Working capital investment Virtual forecasting accounts platform
Minimum viable product 1st gen solutions 2nd gen solutions 3rd gen solutions
Source: Oliver Wyman Analysis
20 MASS MARKET INDIVIDUALS: •• SME trade credit insurance. The cost and hassle of accessing credit insurance often outweighs the •• Life map. Delivering highly personalized perceived value. Tech-driven plug-in solutions at and dynamic financial guidance that is the point of invoicing can allow insurance to be predictive and responsive to changes in the bought as needed with a single click. customers’ circumstances. CORPORATE AND •• Integrated insurance. Allowing consumers to INSTITUTIONAL ENTERPRISES configure coverage, for instance, life, medical, and disability features on their terms. This •• Corporate treasury solutions. Helping to reduce requires new approaches that are extremely working capital requirements and processing complex to deliver via legacy product and IT silos. costs for corporate treasurers with analytics- led propositions. Several non-traditional •• Retirement planning. The mass market struggles competitors, as well as incumbents, are to access advice around retirement planning. developing greenfield solutions in this space with Expanding robo-advice offerings could be part differing levels of urgency. of the solution, but currently still only address a narrow subset of customers’ retirement needs. •• Flow trading. The non-bank liquidity providers Solutions to de-accumulation are also needed. such as XTX, GTS, Citadel, and Virtu, have shown what is possible in FX, cash, equities •• Personal insurance lines. The Internet of Things and government bond trading. With a modern (IoT) has long promised to support entirely tech stack, clean data model, and leading-edge new types of insurance, including in home and analytics, it is possible to be much leaner and contents. The processing bandwidth, speed and more agile, and deliver pricing and liquidity that integration into technology ecosystems typically competes with the very largest banks. cannot be supported by legacy platforms, and a far lower cost base will be needed. •• Climate risk management. A customer centric approach may now be possible to help MASS AFFLUENT / HIGH-NET- companies and investors understand better both WORTH INDIVIDUALS the price risks on raw materials and also climate and sustainability risks, relying on advanced •• Wealth Management. The upper mass affluent/ analytics and external data. It can help manage lower HNW segment is set to see massive those risks on an agency basis into accessible growth, particularly in Asia, but existing cost liquidity pools. structures of traditional wealth management make it impossible for global firms to compete •• Streamlined asset management. Fee pressure effectively despite their powerful brands. A new on funds is set to intensify, with the need for model to deliver access to managed assets with operating models that can deliver passive and cross-jurisdiction offerings is needed. active funds for a fraction of current costs. While third-party systems and services are becoming SMALL AND MEDIUM-SIZED ENTERPRISES widespread, no one has linked together the best available front-end, risk management, and fund •• Small business services and tools. This is a client administration tools onto a single platform that segment often caught between banks’ retail can hold data efficiently with built-in compliance and full-blown corporate offerings. Compelling to new regulations. tools for cashflow forecasting, invoicing, and payments remain a gap in many markets.
21 Exhibit 14: GREENFIELD DRIVER HEATMAPE ALUATING THE GREENFIELD OPPORTUNITY
SECTOR CUSTOMER COMPETITION COSTS TECHNOLOGY How large is the opportunity to Are economics coming under strain Can services be delivered at a Are API enabled core platforms meet customer needs in a because of new challengers, substantially lower cost by and microservices readily available di erent way? incumbent expansion and wider designing from scratch? to be leveraged? shifts in demand?
Retail • Large percentage of the • Neo banks in select markets • Legacy costs of branch, ATM • New cloud-based core Banking population need help in • Regulators more disposed networks despite optimization banking platforms financial management to new license applications • Limitations on process • Modern, API-enabled • Opportunity to serve sole • Incumbents investing automation, pushing microservices across the traders, small business heavily in digital functionality customers to self-service customer lifecycle (onboarding, owners better • Fintechs with specific service due to legacy systems fraud prevention, payments • Vulnerable customer o erings, especially in payments • Widespread instances of hubs, front-end) groups facing challenges customer groups accessing services cross-subsidizing others
Corporate • Corporates looking to optimize • Aggregators providing access • Relationship management • Scope to plug in fintech Banking their treasury processes and to multiple providers, e.g. in FX remains a major cost, but o erings – products, analytics working capital • Potential for commerce also a requirement to win • Core payment/transaction • High all-in cost of cross-border platforms to integrate broad mandates banking systems highly activity banking services • Sprawling systems and customized • Emerging needs from changes • Market entry of traditional processes supporting to corporates’ own business broker dealers highly complex large models • Banks’ integration into clients’ corporate activity systems a major barrier to entry
Institutional • Flow products price rather • Nonbanks building a major • Sophistication, mergers, • Volume and complexity of Sales than service driven, scope presence in liquid products breadth of o erings driven di erent product lines mean to help with trading of • Pressure growing on tier-2 massive back o ce complexity systems highly configured Trading illiquid assets from largest global banks • Potential to combine balance • Risk management, analytics • Institutions looking for • Other fintechs mostly focussed sheet, risk capital from systems are often still in-house help managing data, on enabling banks cheaper sources and a source of advantage post-trade lifecycle
Investment • Scope to streamline • New entrants generally • Cost base primarily the front • New platforms developed to Banking customer integration talent-driven carveouts and o ce sta (sales and structurers) support end-to-end issuance • Limited use of technology to specialist boutiques required to provide product better meet customer needs • New, technology-led • Scope to increase to date players generally aiming productivity via technology to support banks and workflow tools
P C • Estimated 50% of personal and • Aggregator platforms • Data and analytics can be • Influx of investment into Insurance small business risks go uninsured strongly positioned to employed to automate and InsureTech, with new core • Internet of Things and third-party disintermediate insurers improve services and decision platform o erings and data enabling new o erings, • Direct insurers are making across the value chain innovative services across the dynamic pricing proliferating in some markets value chain • Customer-facing processes (China, UK, Canada) remain frustrating, particularly • New entrants with new models finding the right coverage providing on-demand and and claims context-based pricing
Life • Opportunity to provide better • Limited success of digital • Large volume of aging policies • Emerging solutions as in P&C Insurance retirement guidance challengers to date supported by layers of high • New extraction layers making • Large numbers of individuals • Direct to customer propositions cost legacy platforms, a transition from legacy with underfunded pensions have not gained significant complex processes and systems more manageable • Few compelling at-retirement traction (services remain manual interventions for the back-book and deaccumulation options largely intermediated by • Fewer touchpoints to o er an agents/brokers and via enhanced customer experience workplace marketing)
Wealth • Lack of access to • Fintechs gaining some traction • Cost control a lower • Most services and Management cost-e ective advice for in mass auent with priority historically infrastructure developed auent segment and below robo-advisory, scope for • Constant upgrades to in-house • Need for transparency on distributor/aggregator plays meet changing regulations various layers of fees and • Strong relationships and leading to overly complex post-cost performance institutional trust helps protect operating models (U)HNW customer base
Asset • Opportunity primarily in • Ongoing creation of boutique • Widespread ine ciencies • Third-party solutions available Management more cost e ective o erings alternative providers with in data management, across execution, risk • Challenge accessing less passive o erings infrastructure, and expenses management, and fund admin, liquid assets • Not a major focus area though generally plugged into for fintech legacy infrastructure
Low Medium High
Source: Oliver Wyman Analysis; Various Company Reports and Websites
22 5. GO BUILD!
To drive growth in today’s environment, financial services firms need to be more ambitious, get onto the front foot, and build.
With the development process getting cheaper, and the potential to reuse components across the business, the downside is small and the potential exists for transformative effects across the business.
Most important is for senior management to believe in the endeavor, to give sufficient time, support and attention, and to pro-actively drive the benefits back into the core business.
REASONS TO GET STARTED •• Business lines struggling to generate new growth •• Disruptive threats going unaddressed •• Innovation efforts that are incremental or not linked to the business
WHERE TO BEGIN •• Specific unmet needs, analyzed via customer data and engagement •• Rapid development of an offering to create flywheel momentum •• A modular, scalable technology approach, with maximum use of vendors
WHAT YOU WILL NEED •• Full support of the Executive team, functions, and leading shareholders •• A senior executive to lead the charge, with a talented multi-disciplinary team •• Investment budget and a stage-gate approval process •• Willingness to grant freedom to operate
23 AUTHORS AND CONTRIBUTORS
LEAD AUTHORS
Barrie Wilkinson, Partner
Deborah O’Neill, Partner
Chris Allchin, Partner
Rick Chavez, Partner
The authors were supported by Max North, Tristan Brandt, Devika Chatwani, Zack Scott, Gorkem Dogangil, Stefanie Dolpp, and Robert Hunter. The report was produced by Vla Stanojevic and Doreen Tan.
The report draws on expertise from across the firm. In particular the authors would like to thank:
Ashik Ardeshna, Matthew Austen, Anthony Bice, Peter Clarke, Jess Clempner, Dan Cole, James Davis, Chris DeBrusk, Jason Deering, Christian Edelmann, Jason Ekberg, Aaron Fine, Tony Hayes, Julia Hobart, Gianni Huaman, Seo Young Lee , Matthew Leonard, Thierry Mennesson, Anders Nemeth, Adrian Oest, Ronan O'Kelly, Martin Robinson, Robert Rudy, Bruno de Saint-Florent, Martin Sommer, Jenny Tsim, Dylan Walsh, Arthur White, Johaan Wiggins, Duncan Woods, Michael Zeltkevic Oliver Wyman is a global leader in management consulting that combines deep industry knowledge with specialized expertise in strategy, operations, risk management, and organization transformation. For more information please contact the marketing department by email at [email protected] or by phone at one of the following locations:
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