With lower fee structures and advanced user-friendly interfaces, robo-advisors are infiltrating the financial services industry at a higher rate than ever before. As a result of the increase in consumer choice, the bargaining power of financial enterprises in the market has had a downward trajectory.
Companies like Betterment and Wealthfront have attracted a lot of press lately. Most startups, however, are unprofitable; many will likely disappear, consolidate, or be acquired with time; and several are still working to formulate sustainable business models. While robo-advisors collectively manage about $60 billion in assets
, the largest incumbent financial services enterprises—Vanguard, Fidelity, Blackrock, and Schwab—together manage more than $15 trillion
FinTech companies may be cropping up globally, but it's clear incumbents still have the upper hand. If traditional companies want to survive this industry shift, however, they must find ways to drive innovation across their geographically dispersed and often bureaucratic corporate structures. But how?
Initiate Rapid Permutation
Innovation has become a corporate-speak buzzword with a benign implication. Indeed, it’s no longer enough for siloed corporate venture teams—internal groups that look at investing venture capital dollars in outside startups—to track and research innovation trends in the wider marketplace, as has been practiced by major enterprises for the past 10–15 years.
Instead, firms must commit to internal product and service ideation and instill the concepts around rapid permutation, testing, and design as core company values. Decades-old enterprises must create internal specialized innovation labs and corporate strategy and development teams to help them reverse stagnation and modernize. These teams can serve as centralized hubs to initiate frameworks that prioritize exploration and set up enterprise-wide digital transformation programs as the ideation lists develop over time. Employees in disparate geographies and business units should be encouraged to bubble their ideas up to these development teams and leaders.
Firms can center their idea-vetting teams outside of headquarters to foster independent thinking. Enterprises with headquarters in suburban or rural geographies can set up their innovation teams in urban cores for greater access to thought leaders, highly educated and mobile talent, and university research centers. Companies are increasingly choosing destinations like NYC, San Francisco, Chicago, and Boston for permutation initiatives, however, outside the usual suspects, smaller cities like Boulder, Pittsburgh, Raleigh-Durham (Research Triangle), Philadelphia, and Seattle also have world-class universities with strong tech scenes.
Encourage Fresh Partnerships
Rather than competing in a race to the bottom
for management and trading fees, financial services enterprises must offer long-term value to their shareholders, employees, and customers by providing better products and services. But extra hands are crucial to quickly being able to vet, test, shoot down, or commercialize the massive volume of ideas to explore. As a result, initiatives often experience bandwidth and expertise constraints with limited access to outside resources.
In the past, financial services companies have looked to large consulting firms like Bain & Co. and McKinsey for help with growth strategies and new market initiatives. Realizing that these costly solutions are often too slow to juggle the high volume and accelerated pace of change, enterprises are starting to look to independent consultants to help them with innovation initiatives. With cutting-edge FinTech and industry backgrounds, highly qualified on-demand experts
and professionals are now helping resource-strapped enterprise innovation teams scale their operations and meet the evolving wants and needs of their client base.
As the United States undergoes the greatest demographic shift
since the start of the post-war era with baby boomers retiring, drawing on their investments, and passing wealth down to their heirs, the key for incumbent providers is to retain and draw in the business of their current clients' digital native Gen Z and millennial kids
and grandkids. To better position themselves for future growth, financial institutions should implement permutation and modernization programs with agile frameworks inclusive of rapid ideation, testing, and commercialization of new products and services.
Does your company need help driving profitable growth through experimentation with permutation initiatives? Check out Catalant's hand-picked expert profiles for flexible access to top-tier highly qualified talent and download our whitepaper on embracing the agile workforce.