This article was first published by Oliver Wyman as part of its report in April 2020.
“Super apps” such as Grab and Go-Jek have risen in Southeast Asia, and we can expect some of these to dominate their markets over the next couple of years. The apps use a flywheel approach, starting with a core business proposition and expanding into ancillary and complementary services, both financial and non-financial.
Players in traditional financial services — or any other industry for that matter — can learn from this flywheel approach, by expanding products and services to meet customer needs, deepen their customer relationships, and generate additional value.
One stark contrast to the unicorn apps is the traditional players’ relatively small safety net and limited resources. Without hundreds of millions of dollars to test and experiment with, they need to pick carefully which complementary products or services to offer. It’s not as simple as just plugging in other products and hoping customers will adopt them. Instead, critical success factors include clearly understanding what customers need, what needs are not being met today, and how customers like to be interacted with. Getting these right leads to a clear strategy for products, engagement and partnerships.
Consumer finance, for example, can benefit greatly from product expansion and cross-selling, as growth in its core business — lending — is often capped to prevent the growing lower middle class becoming over-burdened by debt. A typical synergistic product is insurance, but standard insurance products were never designed for mass-market or lower-income customers. Premiums are often high and non-flexible; the claims systems are complicated; and much of the coverage offered is not relevant. So they just don’t appeal to typical consumer-finance customers.
The first, critical step is to truly understand what protection products these customers might want. A consumer-finance firm can then work with insurance partners and regulators to come up with products that might meet customers’ needs. They can then design a suitable customer journey to deliver the products at the point of need.
Consumer finance firms can also consider new ways to bundle insurance products with loans at points of sale. They have a treasure trove of data on customers that can help predict both their insurance needs and their propensity to purchase. In the short term, they can score easy wins by bundling, say, insurance for a motorbike along with a loan to buy one; or mobile device protection with a loan for consumer durables. For future growth, they should use propensity models or more-advanced analytics to predict demand for products and the best form of interaction.
Finally, consumer finance firms should figure out how best to work with the external partners they will need to augment their products and services. They will have to navigate tricky areas, such as customer ownership and value sharing outside revenue, and they will have less control over underwriting and product features. Insurance partnerships are relatively easy, as agency and bancassurance models provide some precedent, but other product partnerships could be tougher.
As a general approach, traditional financial services providers should build on their current positions, start diversifying their products and services, and aim to get ahead of the curve. Those that don’t will slowly but surely become less relevant, as virtual banks and digital platforms encroach on their territory. The combination of consumer finance and insurance is just one example. Other forms of synergies, too, will be able to generate value from the foundations of a core business.
