FinTechs vs. Banks and Insurers
- December 2, 2016
From the start, mediaman has had a focus in the insurance and financial space. A lot has happened there in the last few years. Agile Startups such as Simple, Moven, or Payfriends are stepping up to evolutionize banking. Insurers, too, have to move, as companies like SquareTrade are trying out new business models.
Today I am talking with mediaman Germany’s new Head of Finance & Insurance Dominik Groenen about the European FinTech scene, and about why and how traditional banks and insurers should care.
How do you define the term FinTech?
FinTechs are startups which use technology to make finance, banking, and insurance better. Doing so, they focus on one particular part in the value chain. PayPal, for example, is not a bank, it only simplifies online payments.
Does that apply to B2B and B2C startups?
Absolutely. In my experience, the major difference between the two is that as a B2C startup, you need full coffers from the get-go. Customer acquisition costs are extremely high, as well as the need to explain your product, if it is something completely new. As a B2B startup, you may have developed a new solution, a new technology for which you are looking at banks or insurers as cooperation partners. That is not necessarily easy, or less work, but definitely less costly.
Where is the danger for traditional banks and insurance companies?
Many B2C FinTechs are taking the customer interface away from them. Yes, banks still have your money in a checking account, but how profitable is that for them? When banks lose direct contact with you, because you now get all your statements through Mint, they don’t have the opportunity to sell you other products, either. Others will profit from your auto loan, your mortgage, your IRA. When you insure your iPhone through SquareTrade, the contract will still be maintained by a traditional insurer, but the idea to protect your laptop just as easily, will come from SquareTrade, or any other new player on the insurance market.
So banks and insurers will become pure “processors”?
You won’t really be aware of them anymore. They are somewhere down the chain and do what has to be done: claims settlement, risk management, etc. Everything else in the front end will be done by other players. I still like the often used comparison with the music industry. Spotify, iTunes, Pandora interface directly with music listeners. Nobody is aware of record labels anymore.
I think that bank branches, for example, will only survive in large cities. And they will look more like an Apple Store. Banks are experimenting with that right now, some of it is working, a lot of it isn’t. Even getting customers into the branch is a challenge, at a time where all banking can be done online and cash is being replaced by mobile payments. And maybe the expectation, that branches need to be profitable, is wrong. Maybe they need to be financed out of the marketing budget.
Do banks and insurers just have to accept this fate?
I don’t think that change and innovation can come from the inside alone. It’s not in an insurance company’s DNA to act technologically agile. I know from my experience that there are still managers in the upper ranks who are just waiting for the internet to “pass”. And even younger managers don’t clap their hands in excitement when they hear about technology driven change. The mentality that I see sounds more like: “We need a responsive website, an online transaction, an app, because that is what the others do and we don’t want to be left behind”. There is only very slow and careful movement out of the comfort zone, very little risk tolerance in trying something new. Traditional sales channels have made companies fat, over decades. And sluggish. Insurance agents still hold most contracts and still bring in most business. That is just the way it is. But it won’t remain that way, I believe.
In order to bust these crusts, traditional companies need to come together with startups and FinTechs. As partners, investors, or most importantly, by buying FinTechs. Their products, but mostly their entrepreneurial spirit and their explorative mood can be incorporated and facilitate a jolt. If the will is there.
How do you feel about internal innovation labs? Capital One just had a big presence with theirs at SXSW in Austin.
Yes, that can work as well, if there is a will and a strategy, and if it is not just a marketing event to display an innovative spirit. ERGO, for example, one of Germany’s main insurance companies, has been running an innovation lab in a co-working space in Berlin since 2013. I think it’s important for such a lab to be stationed externally, in a separate space. So that employees don’t get pulled back into day-to-day business. At the same time, there needs to be a direct line to the company headquarters. ERGO sent their entire upper management through the Berlin lab, so that they could experience what happens there and how important that is. I would consider that a change in company culture.
When banks and insurers shop for startups, or start their own innovation labs, what role remains for digital agencies?
I believe that in addition to traditional project work, consulting and product development will play an important role in the relationship between agencies and companies. To do that, it is crucial that we always remain at the industry’s pulse. So that we know what the pains are that could be lessened through technology. Sure I have 17 years of experience in insurance, but we still need to build and maintain connections to companies, to keep listening, so that we don’t develop anything blindly.
That’s why we are planning events in Germany and the US right now, where we will invite companies and experts to exchange their experiences and visions. I am hopeful that mediaman is well positioned to continue servicing clients in the banking- and insurance industries. As it has for almost 20 years.