Podcast transcript: NextWave Consumer Financial Services: winning in the future (Agents of Change series)

Roger Park

Welcome back to the Agents of Change podcast series. I’m Roger Park, EY Americas Advisory and Financial Services Innovation Leader, and the series host. Today, I’m joined by Nikhil Lele. Nikhil is our Americas Digital and Consumer Financial Services Growth Leader for our financial services organization, the FSO.  

Nikhil, why don’t you tell me a little bit about yourself and your role at EY so we can get things going?

Nikhil Lele

Well first Roger, it’s great to be here with you. I have listened to all of your podcasts to this date and I really enjoy them, so I appreciate you having me on for this conversation.

I’ve been with EY about 15 years, have spanned virtually everything that we do from technology transformation to customer oriented growth strategies and I’ve had the privilege of leading what we call the next wave of consumer financial services thought leadership and research over the period of the last nine months and really excited to share the insights and what we’ve found coming out of this study with you.

Park 

All right, well thanks for being with us here today Nikhil, and I’m glad that you’re listening to all my podcasts.

So let’s get right into it. Nikhil, it’s no secret that the financial services sector has been experiencing seismic shifts in how it services its’ customers over the last few years, whether or not it’s a new technology, regulatory imperative or just changes in the economy and the way the customers want to interact with their financial services providers. You just led the launch of EY’s next wave consumer financial services research report. What prompted you to undertake this study now?

Lele 

Well for years we have read about, immersed ourselves in and really followed the entire trend of digital disruption moving into financial services and really fundamentally reshaping how financial firms serve their customers. And over the past 10 years the industry has made significant strides. They are in a much better place now in terms of how they offer experiences to consumers, how they serve them and how they allow them to interact and engage. 

And those are all very positive developments, but we’ve also seen when we took a step back and tried to truly understand how the consumer is being served today vs. how we think they are going to be served in the near future. We had to reflect on some core gaps that exist.

1. The structure of the industry that serve the consumer across all aspects of their financial needs has not fundamentally changed in the past 30 years. And even with advancements around automation and digital and more real-time interaction paradigms, the core business model is still the same core business model today as it was, which is very product-centric, very transactional, very individual relationship driven and where we see the entire environment moving is a new direction that is going to mirror what we see happening in lots of aspects of our digital lives as consumers. 
2. In that same time period consumer behavior has not changed and so 30-40 years ago, people stashed cash under a mattress; today, they stash cash in some online payment account they have somewhere. But the behavior in how they exhibit key rationale for making financial decisions … how they take care of their short-, medium- and long-term goals and objectives; how they set themselves up for long-term financial security … those behaviors haven’t changed and we wanted to understand why and what is prompting consumers to behave the way they behave today.

Park

I know everything seems to be changing all the time with changing business models, new technologies, globalization, new entrance into the marketplace. I know we’re seeing some significant demographic changes and that all leads to changes in the way that customers think they want to be served, their expectations of what products and services and how they’re going to be engaged. 

But the thing I really liked about your report Nikhil, is that it also focuses on the things that aren’t changing, like the basis rationale, life moments, the reasons why we engage with a financial services provider. Those really haven’t changed at a basic level, but how those needs are going to be served by companies probably is going to change quite a bit.

Lele

And that really launches into some of the major things we found when we undertook this research. 

At the core of why these two factors are what they are, an industry structure that hasn’t fundamentally changed and a consumer behavior around financial services that has not changed. We think that there’s some more core factors that drive that, and what we found in our research and we were able to quantify quite compellingly is before consumers make financial decisions, they first resolve a series of complex life decisions that are all highly emotional. 

We did a model that allowed consumers to rate the types of emotions that they felt in the course of making any number of different types of financial decisions, from simple to complex. And we were able to quantifiably show that in every major financial decision, however even happy or sad a moment it happens to be, there is always a mix of negative and positive emotional states that occur. And the challenge of today’s industry is that even when institutions know that a consumer may be going through a life event or there is some kind of conversation that could be useful at a specific moment of time, generally the first conversation they have is a product conversation. 

And that is where we see the reframing of consumer finance going as it’s no longer going to be a product driven conversation. It’s going to be a conversation more holistically placed around consumer needs, what they understand about their financial state today and how they want to promote their whole well-being and then navigating them from a set of decisions and access to an ecosystem that they truly value as their needs grow over time.

Park

Nikhil, I think your hypothesis is spot-on and I’m sure a lot of our listeners are thinking the same thing. These basic life events that are the focus of financial decisions. What would you call those?

Lele

For us it was really understanding, not just why a consumer will ultimately make a choice to buy some financial product, but what are the moments that happen in that consumer’s life that prompt them to need to make financial decisions? We called those early on the “moments that mattered”, and then it really served as the anchor-point for organizing our entire set of hypothesis and research around how life events really do play a profound role in a consumer’s decision processes. And the things that they will value moving forward from their financial providers.

Park

Can you give me some examples of “moments that matter”?

Lele

Sure, when we started our research, we began with a portfolio of about 39 what we called life events and this spanned everything from someone starting their first job right out of college, to all of the things that happen later in life, from empty nesting to retirement and so forth. What we found in the research is that about 9 or 10 of these life events really popped as the most 1) pressing, 2) most regularly felt and experienced. 

And when we started to dissect and analyze how people behaved and made decisions at the intersection of life events and financial choices, the study and the research really was profound, because what we found was while consumers are not running around yelling and screaming at the top of their lungs that they want their financial providers to 1) give them more control and discretion over their personal information, 2) more control to give the institution more permission to use more data so that they can create more personalized value and 3) the need and desire to want to be served more holistically. 

And so when you think of the needs of the new couple that’s about to get married and how those needs evolve when that couple decides to start a family and then expand where they live and how they think about their broader goals in life. The complex needs of span multiple products and no one single provider today really addresses those needs holistically. 

So our concept of life event-based offerings that consumers have clearly shown a preference for is how you bundle the right products at the right moment of time, combined with a set of services that allow consumers to navigate, provide advice and support and access to a broader ecosystem and how do you platform-enable it so that the consumer themselves has the ecosystem of value around them, around each life event.

Park

So things like buying a house, you’re also looking at the neighborhood and what lifestyle decisions that means and maybe educational options in that area and when you’re thinking about having children, making sure that you’re financially stable and you’ve got savings in place and you’ve got access to the best healthcare, for example, for a new child, and then on into retirement as well, right. Where you start to see the converge of not just the financial health but physical health and the ability to maintain a legacy and build on the community and the relations that you have. 

I think you are absolutely right that the companies and financial services organizations that can serve those needs holistically and an integrated way to get the trust of customers and clients to get access to not just their lives and those important moments in their lives, but the data that allows them to do better analytics to give them more insights and help them make decisions, I think that’s going to be very, very compelling.

Lele

And one of the pivots in this is treating the value proposition as a function of how it supports what we call the five basic needs of finance. And these aren’t ground, earth-shattering things, but in a framework of, instead of talking about product, talking about needs. 

People have five basic needs. The need to save money, they need to spend money, they need to invest money, they ultimately sometimes need to borrow money and then they want to protect and preserve what they have for their family and their legacy. And that’s it. 

And so holistic offerings organized around needs that ultimately then carry product services and ecosystem access with it is where we see the industry moving in the next 3-5 years.

Park

I think that thesis is spot-on and I know you went through a lot of data collection and analysis to support that thesis. Can you describe the methodology in the approach you used to collect that data and run that analysis.

Lele

The research method we used is well-known, especially in marketing circles. We designed the research around a technique called Conjoint Analysis. 

So what this means is instead of anchoring a set of questions that we want responses to from consumer, we show consumers a set of varied financial value proposition profiles that allow them to select their most preferred value propositions. Through that we developed a very highly quantitative look at the specific features that consumers value and at what levels they value those. So that we’re able to now really understand the very specific effect of how specific kind of bundling results in share or preference and consumer demand generation of our clients’ clients. 

And because of the quantitative nature of the research, we are now able to do simulation for our clients that allows them to understand “what if” scenarios about new value propositions. What if we offered this kind of bundle? What would that do to our target customer segment in terms of our ability to attract them and deepen relationships or acquire new customers. 

This research both allowed us to answer and validate our hypothesis, now also gives us the powerful capability to work with our clients to offer them those same level of customized insights.

Park

That sounds like a very comprehensive approach and methodology Nikhil. I really like the fact that because you’re presenting propositions rather than asking for specific questions, you get passed some of that inherent bias in the survey process.

Lele

That’s absolutely right, Roger. And just think about when you’re asked a conscience question, you usually give a conscience answer based on what’s going on in your life that very day. 

Conjoint allows us to cut through all of that and get to the essence of why people make decisions, what prompts them to do so and what are the value of the attributes that can be offered to them, so that institutions can truly customize and personalize what they offer their customers.

Park

Yeah, so you’re not asking what do you like, you’re asking which of these 3 or 4 things do you like and through the analysis you are identifying the features that actually do matter to their decisions.

Lele

That’s exactly right.

Park

Nikhil, so this seems like an amazing methodology and approach and it sounds like you’ve collected a lot of data. What are some of the key insights that you were able to pull out of this data so far?

Lele

To summarize it, we found a series of very unique paradoxes that exist in the consumer industry that shaped our understanding of why the industry is what it is today. And then it shined the light on three factors that we think are really going to shift the sands underneath the financial industry in a much more disruptive way than it has been over the past 10 years.

Park

All right, so don’t keep me hanging, what are those three fundamental drivers you think that are coming out of the data?

Lele

First, trust is going to have a profound impact on consumer preference and the way consumers choose to engage their financial life in the next few years. What that means is that over the past 10-20 years, financial institutions have done a good job and consumers have come to expect that their data is secure, that they’re treated in a confidential manner, that everything they do in exchange will the institution is safe because of the institutions rules and laws and compliance and sophisticated infrastructure.

Park

But that’s just table stakes nowadays, right? What’s new about trust that you’ve learned from the report?

Lele

Well that’s the operative question, is what’s new about trust. And what we found and what we’ve now quantified is that there’s a series of factors that actually shift how consumers will prefer engaging with their financial institutions. And those are items related to how services are personalized, the ability of customization a consumer can do to the individual proposition that they’re being offered; a series of elements related to how the institution uses, then provides transparency about use of data and the pricing that they provide their consumers. 

But most profoundly, one single feature we found to be the largest mover of preference and that was giving consumers ownership and control of their data.

Park

That seems very similar to what’s happening with GDPR and some of the consumer privacy regulations that are happening in California, does that seem like to what you think is driving the data in your report?

Lele

That is exactly what we found Roger, is that the key tenets of GDRP, as it’s named coming out of Europe, at the core of it is giving consumers control and ownership and discretion and portability over their personal data. That is a foundational principle that is now going to become the standard in Europe. That’s what’s being at least started with the conversation in California, but this is going to have a profound impact on the way consumers engage their financial providers and whom they trust moving forward.

Park

So it’s not just a regulatory imperative, it’s actually something that’s basic to the way that consumers are going to be making decisions in the future?

Lele

That’s exactly right. 

Park

So trust has always been important in financial services and you’re saying it’s going to become even more important going forward and there are going to be different dimensions to this, what are some other factors you’ve seen Nikhil?

Lele

Second deals with the notion that the reason consumers haven’t changed their behavior, especially in their financial life, is because the experiences they get are either transactional or they’re separate and distinct from the experiences they have in the rest of their digital life. And what hasn’t happened yet, and what we’re seeing with this concept of becoming the consumers new personal financial operating system, is that consumers now have access to an ecosystem that is bettering their life, that allows them to engage interactively, that gives them daily relevance to prompt decision making on a more regular basis. 

That’s the future of financial well-being and that’s financial services and digital ecosystems coming together.

Park

What do you call that?

Lele

For us, that is really where the entire topic of financial well-being, or consumer financial health, is going. So financial institutions have laid a good foundation today with aggregation, personal financial management and goals-based planning and the integration of those things. 

What we’re saying now is you need more information from your consumer to help prompt them to make better decisions and that data has to be provided by the consumer and used smartly by the institutions so that you make the engagement real-time and relevant.

Park

Alright, so I see a future driven by AIs that create this integrated personal financial operating system combined with the trust that customers need to have in order to provide data to the financial services that are providing those services. What’s the third major insight that you hinted at earlier?

Lele

So this is following on what we discussed about the bundling of products, services and access. If we look at what’s happening in almost the entirety of the consumer ecosystem at large, from the way people consume content, to how they engage experiences, travel, everything else, the industry has moved to a rent, pay-per-use or subscribe model. 

Simply put, people don’t want to own anything anymore. They just want to subscribe to it, print it or have access to it. And that’s where we see, ultimately, consumer finance going. 

By creating the new life event-based subscription bundles that take two items that are missing today in today’s environment, and providing it to the consumer. That’s number one. 

The hyper-personalization of service, which is products, advice and access. And number two is price certainty, which means consumers know exactly what they’re paying for, and they know exactly the value they’re going to get in return. 

And in doing so, our data shows that their actually going to be willing to pay for that subscription from their financial institution. 

Park

But I want to make sure I understand this Nikhil. So things like, instead of buying a car and a vacation home and a yearly vacation somewhere cool, like a subscribe service that gives me that type of lifestyle across all those three different types of products?

Lele

Yeah, in a certain sense, what it’s bringing together is capability to understand what that consumer’s desires are – short-, medium-, long-term, what experiences matter to them, what major decisions are they trying to make in major moments of their lives, and then offering them a way to configure a bundle that meets those needs for a flat fee. And so consumers don’t intrinsically value getting a loan for a home, or getting that next credit card, or opening up that next checking account of life insurance policy.

Park

So those all seem very insightful and as you said earlier, compelling, and I know there’s a ton of data to support this. The question I have Nikhil is whether or not this is demographically-driven, by for example, the millennials, or is there a broader impact?

Lele

You know, fascinatingly what we saw, is that wealth tier, or how much money you have really doesn’t have a material effect on consumers’ preference towards these new types of models. But where we see the highest level of interest is in the Gen-Z, millennial, and even baby boomer generations. And so this is not just a millennial model, this actually has shown to increase preference of the high net worth segment that is probably often served by financial advisors that cater more to their individual needs. 

This model has universal appeal and the institutions that serve the broad range of customers that we surveyed really ought to take a look at this and understand the implications that this could have on their business models.

Park

Nikhil, that is fascinating and I think there’s a lot of insight in there. I know beyond some of the previews that you’ve given us, I’m guessing that a lot of our audience is very interested in this report and they’ll be clicking the link to get it as soon as they can. As they read through the report, what would you suggest they have in their mind? What questions should they be asking as they’re pouring through the data? 

Lele

To us this report was not just about shining a light on the problem, but really coming up with a path forward that we think anyone across the industry could be thinking about. 

First, we really urge leadership teams to pressure test today’s thinking, which means, all of the business model and strategic decisions that have been made, all of the ways in which you have assumed you are going to be serving your customer in the years to come, now is the time to take a pause and just pressure test the thinking, which means, given the data we now have, the insight we’re able to generate on, especially in the back of this research, have the assumptions we’ve made, do we think they’re really going to pan out? Are there different choices we could be making? Are there new ways of offering value to consumers we could be testing? That’s what this process is really understanding. 

Number 2, it’s time to start experimenting. I can’t tell you the countless number of executives I have met with that have all said, we would rather wait and see what happens. Now is exactly the time to be experimenting with action, because five years from now is not the time to start to learn how to commercialize new models. Now is the time to understand what it takes, build the operation models and platform capability to support and then learn what it’s going to take to scale those kinds of businesses. 

But most pressingly, most of our clients struggle, still to this day, with the issue of legacy. Thirty and forty years of development on end-of-life platforms, this incremental approach, because it’s really hard to maintain momentum with modernization initiatives because their ROIs are very loose and the paybacks are very long. We hope this serves as a blueprint to make a case that modernizing legacy is not just something we should be doing, it is an imperative for future relevance.

Park

Yeah, it’s kind of a wake-up call, right Nikhil, that you have to address your legacy systems and get that done quickly so you can free up the capacity and increase your agility to respond to all these new opportunities.

Lele

That’s exactly right Roger. And let me give you a very specific example so that everyone in the audience knows how we’ve really been thinking about this. 

Say you run the customer center for a large bank or major wealth management firm or life insurer, and so much more of the experience your customers engage in is digital, but in the moments where they need to speak with someone and resolve some fairly complicated issues, the person on the other end if the front-lines of that brand, of that experience and of that business. And if they are still toggling between disconnected system. They don’t have access to deep insight about performance of an operational consideration. They don’t have the abilities to automate things to make the experience almost real-time for a consumer when they call. 

That’s as much what we mean by addressing legacy as it is modernizing back-end technology. It’s about holistically looking at the organization to a blue print for modernization.

Park

Thank you for highlighting all this impactful research and for doing the research, which I think you’ve done a lot of work on behalf of our listeners and our clients to try to drive insights in a way that will help them make decisions now and in the future. 

You know we like to end these podcasts on a personal note, let the listeners learn a little bit more about you, so I’m going to ask you a couple of questions. Is that alright?

Lele

Sure 

Park

Nikhil, what’s the one thing you challenge yourself to do every day?

Lele

It’s learning. I’m never satisfied with what I think I know about the industry. I’m always testing what I think I should know, and that starts with asking lots of questions about the things I don’t. and that’s what I come in every day to do and that’s really some of the thought processes that inspire the way we did this research.

Park

That’s good advice Nikhil. Actually I think I need to do more of that myself.

What book on innovation or transformation or just any topic would you recommend to our listeners?

Lele

One of the foundational books that still to this day is relevant is The Innovator’s Dilemma by Clayton Christensen. It has become the standard bearer for all that institutions deal with when they’re trying to figure out the right time and the level of boldness around action for new innovation. 

And the innovator’s Dilemma sits very much at the heart of what we know institutions are going to go through over the next few years and I still think that is a must-read for anyone in any organization that is in a position of decision-making with respect to where they’re business are going.

Park

That definitely is a must-read. And a must-read again, if you’ve already read it.

What headline do you think we might be reading on this date in 10 years?

Lele

I don’t know if this is a 10-year headline Roger, but I can see a day, sometime in the next 10 years, where we may see a headline that says … Big tech has more financial subscribers than the largest bank.

Park

Do you really think that’s going to happen Nik?

Lele

I don’t, however, there are two things that stand in the way of many of our client’s decision processes – that’s incumbency (that’s complacency) and what our data very clearly shows, is that consumers will be willing to engage big tech for these kinds of solutions if they’re not offered to them by their financial providers.

Park

Nikhil, that’s a pretty provocative headline. And I think there are a lot of listeners who would like that headline and a lot of listeners who won’t like that headline.

Nihil, I know you have small children. What skill do you think our listeners should be teaching their kids?

Lele

I’ll use the word teaching very loosely here. I think one of the most powerful forces that we can instill in our children is the desire to be curious. And its curiosity that has created every large innovation that has moved human kind since its inception. And losing that curiosity would really bring the entire industry to a stand-still. 

So for me it’s about showing them that their father is curious, that he’s going to his work every single day, exploring that curiosity and doing things that he hopes makes a broader impact on the industry that he serves. And it’s through observation that I believe they hopefully get that.

Park

That’s great advice Nik. I have small children as well and sometimes, honestly, they can be a little bit too curious.

I know our listeners are going to want to reach out to you directly Nikhil, what’s the best way for them to get in touch?

Lele

You can email me or contact me on my LinkedIn profile. My email is in the research report on the back page – nikhil.lele@ey.com. 

Park

Well Nikhil, I know a lot of people are going to be reaching out and thank you once again for joining me on the podcast today and sharing some of the insights from the research report you did in The Next Wave of Consumer Financial Services. And if you want to download the report, it’s going to be in the description of the podcast, but it’s also available at ey.com/nextwavecfs. 

And in closing, as always, listeners can make suggestions on topics, guests or questions on Twitter using #agentsofchange and thank you for your time. Our next podcast will be in four to six weeks.

Lele

It was a pleasure being here with you today Roger.