Leveraging Product-Market Fit in Financial Services as a Growth Lever?

Can most FSIs put their hands on their heart and confidently say that their digital products and solutions are meeting the needs of their customers at a standard that their customers expect/ demand?

While many of the ‘traditional’ challenges FSIs face have been (albeit slowly) improving, the current world we live in with COVID-19 as well as a changing competitive landscape has exposed some of the most fundamental weaknesses when it comes to FSIs’ serving their customers in this fully or predominantly digital environment.

While the pandemic has accelerated the urgency of digital transformation for FSIs, the speed of adoption that FinTechs have managed during this time is worth noting, with FinTech Apps usage sharply increasing by 72%, showcasing clear evidence of how the competitive landscape has changed.

Remaining competitive in an ever evolving market with shifting customer expectations means FSIs need to lead and not lag behind — so what could aid in FSIs’ ability to move faster, to innovate more, and to evolve their programs?

One thought I want to explore is whether FSIs are better off trying to become technology companies, as some have declared, or are they better off leveraging the ecosystem of Fintech partners and others more deeply than they are currently doing?

Having seen both sides — the internal realities FSIs face, both large and small, and the realities of technology/product firms, I believe that FSIs can gain an edge in today’s market by leaning more heavily on an integration and partnership strategy vs a building in-house approach.

Why do I think this integration and partnership strategy vs a building in-house approach is critical for forward thinking FSIs?

For me, a lot of it comes down to how efficiently FSIs can achieve product-market fit.

Before we look at why this is important from an FSI’s perspective, let’s make sure there is alignment on the terminology product-market fit.

What is Product-Market Fit?

Product-market fit is a ubiquitous term in the venture world.

It signifies whether a new venture has a product that meets customer expectations, has demand, is gaining adoption — and in turn, reflects the viability of the venture.

At a high level, the usual steps involve a company defining its product, target market, target customers, and then developing a go-to-market strategy to get customer adoption.

When a company achieves product-market fit, it can focus on growing and scaling the business.

Since these companies focus on that product as its core business, they put relentless focus on being the best and top of the pyramid.

It is worth noting that 90% of start-ups fail — clearly, it is not easy to achieve product-market fit and in turn build a successful company.

The technology/product companies in the financial services eco-system whose products do achieve product-market fit do so by spending a tremendous amount of time, money, and resources in order to solve the specific challenge they set out to address.

Technology/ product companies have a marked advantage over FSIs when it comes to achieving product-market fit in financial services as they are not weighed down by many of the challenges that FSIs face.

This poses some questions.

From a strategic perspective, how should FSIs determine what should be the next innovation they build that will enable them to thrive in this new digital landscape — and does any firm have a ‘crystal ball’ for what that ‘next big, robust idea’ will be?

On the other hand, what level of certainty can they have early-on as to whether that idea will be a major hit or fail due to lack of adoption?

And then when you take into consideration the road blocks FSIs face when looking to bring a new product to market such as skills shortages, process, culture, legacy mainframe systems, disjointed in-house systems as a result of multiple mergers & acquisitions, high regulatory costs, and soaring operational costs — you can see how achieving product-market fit on their own is not such a simple ask for FSIs.

So how can FSIs aspire to provide their customers with solutions that achieve product-market fit when faced with these challenging realities?

Whether large or small, FSIs are serving varying types of customers with varying needs.

Under such circumstances, innovating through a pure intrapreneurship route seems far riskier (consuming large pool of funds and resources ) than leveraging ecosystem partners that have already achieved product-market fit in respective areas and who have already taken the risks of investment and failure.

By leveraging off these partners, FSIs can exploit their domain knowledge and knowledge of their customer base to formulate their go-forward strategy and launch new ideas — quickly iterating and offering new products and services rapidly.

This would enable FSIs to remove the complexities of development and move to the world of plug and play.

For example — just in the last decade, customers have moved from the days of paper based account opening to online application process to complete account opening virtually without ever visiting a branch.

Now, the differentiation is how fast, how accurately, how easily (less friction the better) FSIs can validate the customer, complete the due diligence process and open the account.

The ultimate goal should be to condense the traditional cycles of responding to changing customer expectations and create capabilities for more ideas to go through the funnel, and to be able to delight customers faster, and at scale.

And the exciting thing for FSIs who leverage off an integration and partnership strategy vs a building in-house approach to achieve product-market fit is that it will bring in a new era of innovation on their digital transformation journey.

One where they can react quickly and efficiently with an ethos of aspiring towards being in a loop of infinite product-market fit as the market and their customers evolve.

Conclusion

The real challenge for an FSI which does not achieve product-market fit with their customer solutions and range of service offerings is that the days of a ‘customer for life’ are bygone.

This is because completeness of the offering is a huge factor in retaining customers.

According to Yes Marketing’s 2019 survey of a thousand US consumers, ‘range of services’ is the second-most significant factor for customers of all ages when selecting an FSI.

As non-traditional players like Robinhood and others expand their services, traditional FSIs must up their game by adding complementary services beyond their ‘bread and butter’ as we live in an age where customers are willing — and able — to switch to the competition who offer a wider variety, enable better experiences, and provide tailored services to meet its customers’ unique needs.

Through taking a product-market fit approach, FSIs would focus on the wants, desires, and predicting future expectations of their customers — moving to a more customer-centric ethos, while leveraging off FinTechs and other parties in the financial services ecosystem as enablers in their transformational journey.

I am confident that FSIs who foster an environment where customers are at the heart of their strategy, who take on an integration and partnership strategy to leverage off the strength of the eco-system and who apply this principle of infinite product-market fit as part of their promise to delight and serve their customers will prosper, thrive, and lead us into a future that no doubt will continue to change swiftly.

Now that’s an envelope worth pushing.