By Kevin Telford, Strategy Consultant – Banking, Insurance, and Financial Services at Monstarlab
Organising Business by the Global Industry Classification Standard created in 1948 is one of the leading methods alongside predecessors for a logical, accurate way of assigning companies into sectors. From my point of view, this system still reflects the ways businesses organise themselves in day-to-day operations.
The challenge of grouping and subgrouping has influenced the way we talk about industries, the way people relate to each other, and how we behave alongside many other dimensions. This is true for financial services organisations as finance continues to be embedded in cross-sector experiences.
To stay ahead of disruptors, it is key to build and implement a strategy for digital transformation centred on mutual customer and business value, as opposed to how we segment our work internally. The key focus is on designing client-centred solutions that cater to customers’ evolving needs. But it’s not easy changing practice and age-old operating models. This is about rapid change culture as much as enabling tech and smart data applications.
In this article, we discuss how financial services companies collaborate and innovate at the intersection of different sectors through multi-discipline teams.
A Paradigm Shift
The foundations laid for Open Banking, Finance, and the near horizon Open X, is being driven by legislation that will further disrupt markets such as the proposed PSD3 advancement, as technology bridges the gap on protecting our citizens balanced with sharing data for wider impact and interest.
Now regions are applying some of the same principles to shift the narrative and reimagine the future. Driven by “functional” legislation working back from the problem to derive the innovative use case to how we access data points required to deliver innovative solutions. The approach to data-driven research for innovation, with data protection and governance to protect people, requires a different mindset and methods to drive value from data in ways we couldn’t do before.
This shift in mindset to drive innovation through legislation is having a profound impact on how we access, utilise, and approach multiple data assets across sectors, behaviours, and many other dimensions. Disrupting the way we enable data-driven research, using real data versus models, and panels for faster and better research outcomes. We use the research to pinpoint where innovation will more effectively solve known, and unknown societal, environmental, and economic problems.
We can see the approach to functional or enabling legislative foundations springing up in MENA, Brazil, and possibly Canada; towards the far-reaching impact of Australia’s Citizen Data Rights enabling people to safely share data businesses hold about them with other trusted organisations. In the background, such a move could leave the EU on the innovation, purpose-driven business models back foot.
The Emergence of Embedded Services
Payments is a business model rather than a sector, it has always been horizontal by design cutting through every sector. The disruptive market forces of Open Banking, Open Finance, and the emerging Open Life (X) should also be explored alongside Embedded Finance (EF) which is disrupting ageing business models. The following defines a logical pathway for organisations to explore options for Embedded Services (ES).
EF is transforming markets, creating world-class experiences people love and is set to fundamentally shift businesses into cross-sector ES integrations. EF is moving to integrated services designed to fulfil customer journeys through technology, and data engineering to seamlessly link markets and ecosystems. Embedded finance alone is all set to touch $230 billion in revenue by 2025 and could potentially reach up to $1 trillion in value, and it is poised to grow further to $3.6 trillion by 2030 [1].
Seeing how the principles of ES, platforming, and API integrations unlock value from existing and new data sources, they drive the development of embedded services such as insurance across multimodal mobility platforms with API integrations. Disrupting century-old insurance models for pay-by-the-second automotive, car sharing, and variable charging on-the-drive versus on-the-road payment rates are starting to emerge.
Diagram 1: Pathway from Open Banking to Open X
For example, in automotive multi-modal transport, insurance can be integrated towards a higher level such as travel and impact on our environment. On another level, how people use transport can be linked to well-being, keeping fit and infinite use cases for impact. There is a growing trend for people to demand in-the-moment digital experiences that combine with payments embedded in customer journeys, to drive frictionless, wider choice value without borders or barriers.
A note of caution, embedded services come with a health warning. The potential to bundle services with binding clauses may not be in the interest of the consumer. If your organisation is not thinking about doing horizontal cross-sector innovation, for new propositions and in adjacent markets with partners for customer-centric experiences, then the threat of others using ES for disruption is just around the corner.
Defined by Purpose and Vision Practitioners
The opportunities are enough to organise some Target Operating Models now around “whole brain” multi-functional teams with cross-sector expertise. The teams are multi-disciplined talent, wedded to culture and ways of working for customer-centred innovation, design experiences and value. The team is carefully constructed for purpose-driven outcomes, with an eye on the incremental steps towards the vision, know-how, and can-do attitude on how to drive the mission, with strong principles on the values, ethics, and governance to build trust.
The team transforms and disrupts at the intersection of cross-sectors’ gnarly problems that impact our environment, society, and economy. It is a largely unexplored area opened for discovery through legislation, smart data, enabling technology and people with the mindset for the art of change. It starts with creativity, imagination, ideas, values hinged on a design strategy, and methodology to embed purpose in new propositions.
Diagram 2: Vertical by Construct, Horizontal by Design
As shown in diagram two above, the horizontal design approach enables innovators to design new solutions cross-sector. The resulting data amalgamation with the right data privacy and consent provides a new asset for research and innovation. The new principles of cross-sector value propositions and legislation are bringing design thinking to a new level, with tech as an enabler and smart data strategies bringing customer relevance.
In summary, organisations need to:
- Organise components of their target operating models to shift focus on problems and use cases for solutions with a clear purpose and impact on our environment, society and economy. It makes sense to follow where the impact investments are being made and will grow.
- Engage partners that are different. Different means partnership, transparency, and onboarding purpose practitioners with deep vertical expertise, x-sector knowledge and multi-disciplined teams. The team brings agile methods to influence wider horizontal perspectives, approach to develop customer-centric strategies and bring collaborative innovation to the table.
- Inspire, empower, and upskill your talent and practitioners to succeed.
In my next article, I will be sharing best practices on where this is happening. Stay tuned.
References:
- Embedded Finance: What It Takes to Prosper in the New Value Chain, Bain and Company September 2022.
About Monstarlab
Monstarlab is a digital experience partner focused on accelerating growth for ambitious clients. We achieve this through our human-centred design and engineering expertise, our open partnership approach and our extensive network of global talent.
