In the 2014 Edelman Trust Barometer survey conducted across 27 countries and more than 33,000 respondents, financial services ranked the lowest of the 15 global industries tested. Within these results, it was the insurance and financial advisory segments that scored lower than bank and credit cards/payments. The simple fact is that consumers trust banks and insurance companies less than any other industry.
This erosion of trust in financial services isn’t a new phenomenon. The origins of this widespread and quite fundamental decline in consumer confidence in our financial institutions goes back a long way. There are many factors that underpin this erosion, from the persistent media frenzy on ‘fat cat bankers’ and corporate greed, to the institutional ‘conduct unbecoming’ of those entrusted to look after our money. Of course, events such as the financial crisis and the resultant failure of banks and national economies don’t do anything to build confidence in the financial services industry that we all rely on. Yet, this lack of trust is deep-seated following decades of poor consumer advice, being mis-sold products that are not right for them, and the ‘you can trust me, I’m independent’ message of advisers with no transparency over the commission and reward mechanisms that drive their behavior.
At the heart of this lack of trust is the consumer’s engagement with financial institutions as the provider of good advice. Consumers expect this good advice to be backed up by expertise to bridge the gap in their own competence to understand the complexity, jargon and technicalities of whatever it is they’re looking for. They also expect this advice to be provided in their best interests, and not in the interests of the providers or advisers themselves. (See my article on addressing the issue of mis-selling and bad advice with the artificial intelligence solution from Recordsure.)
Shopping around doesn’t always offer a solution to consumers because of the difficulty in comparing competing, complex products in the market. I covered one example of this in a recent post about Abaris, which has a solution in the US market to compare income annuity products. Abaris is an intermediary that provides an apples-for-apples and transparent comparison across multiple providers, and in so doing, it provides the consumer with a level playing field to make their own judgments. When consumers do go shopping, they’re faced with cash back, money off and other discounts or other enticing offers from providers and intermediaries, from free cinema tickets for buying health insurance to free money for signing up to a new credit card or current account. None of these offers help match the consumer with the right product for them, but what we do know is that there are few free lunches in this world, and if anyone offers one … caveat emptor – buyer beware!
So, where does that leave us in the disruptive world of fintech today? We have undeniable evidence of a problem in the market that needs to be addressed. We have a complex and broad world of often difficult-to-understand, technical products that consumers have to buy (though many are not buying, and there’s growing evidence of the true scale of under-insured in our society). Plus, we have the emerging power of social, the crowd, and of networks.
When you bring these together, you create a market opportunity for money managers, a new breed of financial services intermediaries that bridge the gap between the buyers (consumers) and the sellers (insurers and banks), and in so doing, they create a trusted platform for consumers that offer a lot more than the last wave of intermediaries, the aggregators.
To gain insight into the world of money managers, I spoke to Dieter Fromm and Johannes Cremer, co-founders of Germany-based moneymeets. Dieter and Johannes have been friends for a long time, both working for more than a decade in the world of financial services. It was the subject of the lack of trust and consumer confidence that led them to talk about creating an Amazon-like business in financial services.
Having both had long careers in the industry, they understood that the heart of the issue was in the area of advice. Quite simply, consumers didn’t trust the advice and the quality of that advice that they were being provided by the industry. They also understood that the underlying IT or financial product itself wasn’t being questioned by consumers. Essentially, this was a distribution problem, not a manufacturing one, so they set about creating moneymeets as a one-stop shop, financial portal that would do five things:
- Provide a complete overview of a consumer’s financial position, including insurance and investments as well as their current account.
- Define a set of financial goals and objectives specific to the needs of the consumer.
- Manage their portfolio of products against those objectives, taking feedback to improve the consumer’s financial position from the moneymeets community through social rating and review, or C2C (community to community).
- Transparent pricing of all products showing all commissions and fees with a cash-back offer to split commissions 50:50 with the consumer.
- Ongoing monitoring of financial activity.
The core value of their consumer proposition is a simple one: trust! This is established by providing consumers with a complete view of their financial position, by being transparent with prices and sharing commissions, and by building a social network of collective support and wisdom in the community.
How moneymeets works
Formed towards the end of 2012, moneymeets now has over 4,500 users and €20m of assets under administration on the portal, which is growing fast, with 5% growth in new assets being added each week. As the platform grows, so does the size of the community and the buying power of moneymeets, which in turn creates a greater pool of experience to share among the community, and stronger purchasing power to further drive down prices.
There are money management platforms all over the world, but I was drawn to moneymeets because it’s one of the few that has included insurance in its platform. When its users move their insurance business to the portal, moneymeets declares all the commissions and charges against the policy. In the German market, it’s typical in the life market for only the distribution cost (fee to the intermediary) to be shown, but moneymeets goes further and shows the full cost breakdown for the insurance product.
The company is the first in the German market to show this level of transparency and return 50% of the fees in a cash-back offer to the user (typical fees in the non-life sector are 20% of the premium, which effectively gives the consumer a 10% discount).
One of the reasons for this being an attractive market proposition is that many non-life insurance products can be low margin for brokers, and the consumer doesn’t get a great deal of service. Instead, the users have access to the moneymeets community to pool shared experiences and provide support for insurance products.
The success of the portal is reliant on its connectivity to financial institutions and it already has over 160 interfaces to banks and insurance companies. The aim is to have 98% coverage of the German market by the end of 2015. To make the portal easy to use, it has an intuitive, uncluttered and simple user interface that hides the intelligent algorithms and investment strategies that sit within the platform.
While other platforms provide some of the features of this portal, moneymeets is the first money manager in the German marketplace that provides a holistic and transparent offer to the consumer. In doing so, it hopes to build a business based on trust as its core value.
– This article is reproduced with kind permission. Some minor changes have been made to reflect BankNXT style considerations. You can read the original article here. Image: Josh Felise