Partnerships in financial services & how they affect the entire market

The new trends for financial services companies

financial services

Partnerships in financial services & how they affect the entire market. Source: shutterstock.com

Today PaySpace Magazine would like to talk about a new trend in the financial services world. Let’s see how the market is changing. Probably, it might help to predict future trends and changes.

Have you heard that Google is planning to offer checking accounts to clients? Moreover, the company’s representatives claim they may be able to implement this by the end of 2020. Apple’s collaboration with Golden Sachs and the Apple Card as a result of this cooperation is a good example of financial services partnership as well. Even Swift in early 2019 announced that they would partner with R3 (blockchain software and solutions), which seems to be promising.

Partnerships in financial services

Today, it is not just a fancy term or a new trend. Partnerships mean much more, especially in terms of proficiency and competency of financial services firms. In 2019, there have been more and more partnerships emerging on the market, while collaborations with firms from different areas (for example, marketing/sales, customer-service firms, etc) are being taken to the next level.

First of all, it is worth mentioning that partnerships help financial services (FS) reach out to new markets and broaden product lines and platforms. Thus, companies have an opportunity to offer more advanced and versatile products to new audiences and create scale FS providers. You may say such an approach is not new, and you will be right. Nevertheless, as we’ve mentioned above, this trend has reached a new level in recent years.

Naturally, any company desires to compete more efficiently and meet client demands, so a lot of FS firms have created partnerships to deliver better value to their customers. A partnership between FS companies and complementary products/services is designed to fulfill client needs related to savings, borrowing and insurance, creating the all-in-one versatile offer. In this case, partnerships allow FS companies to provide a more robust set of products and services so they can meet evolving customer financial needs.

Co-brand credit card programs are intended to create rewards and loyalty programs. Source: shutterstock.com

Other partnerships like co-brand credit card programs are intended to create rewards and loyalty programs that help partners build relationships with high-value customers. The co-brand market has become an important source of customer acquisition and revenue for card issuers and their partners in the travel/entertainment, and retail industries. Moreover, this trend is not at all new, since the earliest examples of co-branded cards date from the 1980s (initially, mostly airlines collaborated with banks and offered mileage rewards/discounts). For example, American Airlines’ MasterCard partnered Barclay Bank, while United Airlines’ Visa collaborated with Chase Bank. Today, store co-branded cards are also quite popular. For instance, consider Amazon Prime Rewards Visa Signature card.

In the lead-up to 2020, there are new and different partnership structures being created that move relationship among partners from competitors to collaborators in the FS industry.

These changes cause partners to transform old/conventional ways of operating and create the need for establishing new practices. As part of these changes, those pursuing partnerships will need to rethink and efficiently integrate marketing, sales and service activities to achieve their common goals and meet their customer expectations.

All the transformations of partnerships that already exist and the emergence of new partnerships is customer-driven. Thus, it is clear that they are not driven by new technology advancements. It is caused by clients searching for new experiences, rewards, transparency, and choice from their FS providers.

The successful growth of FS partnerships will focus on delivering value to the customer. This is where a new coupling of marketing capabilities will come into play. This means using FS products to create new experiences for customers. These interactions should create meaningful synergies for each partner and more importantly a completely new customer experience, an experience they are expecting.

The role of FS partnerships is expected to keep shifting in response to customer preferences. As customer expectations rise, FS providers will be required to provide a fuller experience that is customer-driven and has the potential of changing the role of a consumer’s primary FS provider. As customers become more tech-savvy, the value propositions and customer experiences FS providers deliver, will be increasingly shaped by customer demands.

Partnerships with big tech

The structure of this partnership allows the tech company to play a large role in the life of the client. Source: shutterstock.com

Client demand and increasing confidence in new tech firms may enable non-traditional providers to assume the role of controlling the client relationship while traditional providers focus on manufacturing financial products. Big tech firms are uniquely capable of originating customers, delivering great user experience and selling innovative products. Meanwhile, traditional banks are skilled at other capabilities such as understanding credit risk management, payment processing, and compliance.

The structure of this partnership allows the tech company to play a large role in the life of the client. User’s loyalty and stickiness may erode. The risk for the FS providers is that tech firms will own more of the client relationship and branding in these deals, keeping the most lucrative parts of that relationship for the FS industry, it will be important to find a way to continue their engagement with customers. This may mean, embracing the back seat and establishing partnerships that could represent millions of customers.

What about alternative providers?

Another new development is the non-traditional network of alternative FS providers working together in an ecosystem to compete with incumbent full-service banks. As alternative providers of niche FS continue to mature and become more reliable, the market experts expect to see these niche providers creating bi- or multilateral partnerships. These networks provide the ability to mix and match services to fit consumers’ needs in a manner that is difficult for traditional FS companies to accomplish. These services could include payments (debit/credit/P2P), deposits (insured products), and access to ATMs. These networks of non-traditional niche providers have the ability to collectively meet consumers’ banking needs and compete with traditional full-service banks.

An essential by-product of these networks is the large amount of data they use. As consumer activity increases, there is more and more data generated through natural network effects that can be utilised to support the development of customer relationships. This collection of customer interactions and other data presents an attractive opportunity for marketers supporting these partnerships.

The shift of consumer preferences to this channel provides increased choice and potentially lower prices and will impact their loyalty to traditional providers.

What to expect?

A direct to consumers sales

FS partnerships can begin to realise their full potential. Source: shutterstock.com

Given the fast changes taking place in the FS industry, experts worldwide believe that partnerships need to redesign their marketing programs. And the first and foremost aim will be delivering more value to clients and improving their financial success. By doing so, FS partnerships can begin to realise their full potential.

Newer partnership structures may have a lot of unknown problems at this point. But, one thing is known – the expectation of customers. In the face of rising client expectations for a flexible, intuitive and personalised service across many platforms, there will be a disaggregation of manufacturing products and the ownership of client relationships. This raises an important question – who owns the client? From shopping for services to originating an account to servicing the relationship, there are important experiences that FS providers want to shape and deliver. The connection to clients is certainly changing and is creating a new challenge and opportunity for FS providers.

Looking across these new partnership models, we believe that marketing programs are not yet fully developed and delivering on their full potential. In some extreme cases, some experts see decay in the partnership economic model caused by changing consumer behaviours that create cost-effectiveness and revenue share challenges.

Interestingly, even in the best circumstances partners are missing opportunities to create better engagement with customers. Navigating the transformation that is required by changing consumer behaviours and the complex marketing and media environment is difficult. Experts recommend FS companies take a deep look at their partnerships and engage their partners to address challenges they are facing. Now is the time to build a response to future risk and take advantage of the opportunities that exist.

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