Are Office Depot, Google and Wal-Mart Disrupting Small Business Lending?

In recent weeks Office Depot and Google announced credit programs aimed at small businesses. Office Depot is partnering with Superior Financial Group, a non-bank SBA lending company, to offer small business loans up to $25,000.

Google is offering small businesses a credit card that can only be used to pay for AdWords, Google’s keyword advertising program. Google’s credit card offers a very competitive interest rate and no annual fees.

These companies join another corporate giant – Wal-Mart – in providing credit services to small businesses. Wal-Mart, also in partnership with Superior Financial Group, started offering small business loans last year.

These firms illustrate a broader trend of nontraditional competitors targeting the financial services industry. These new competitors include some the world’s largest corporations and best-funded, venture-backed startups. They are hoping to use disruptive innovation based on both new technology and the shift to online banking to attract customers and gain share in the financial services industry.

Disruptive innovation is a term coined by Harvard Business School professor Clayton Christensen. It describes a process by which a product or service creates a new market or reshapes an existing market by delivering simple, low-cost innovations to a set of customers who are ignored or underserved by industry leaders.

Industry leaders ignore these customers because they aren’t viewed as important enough, or profitable enough, to pursue. After a disruptive competitor establishes themselves with this group, these firms often move up-market, eventually challenging traditional competitors for their best and most profitable customers.

The classic example of disruptive innovation is Southwest Airlines. Southwest initially targeted price sensitive vacation travelers, a segment considered unattractive by the airline industry. Ignored by larger rivals, Southwest moved up-market and over time firmly established itself with business travelers, the airline industry’s most coveted customers.

We think something similar may be happening in the small business credit space.

The customers targeted by Wal-Mart, Office Depot, Google and others are very small businesses, most with less than $1 million in revenue -  a segment seen as unattractive by many financial institutions. But by ignoring this segment, financial institutions are providing an entry point for new competitors who may leverage this beachhead to become significant players in the financial services industry.

 

About Steve King:  Steve is a Partner at Emergent Research. His current research and consulting is focused on economic decentralization, the growth of small business and the future of work and workplaces. Steve has extensive consulting, marketing and general management experience with both large and small companies.  Steve is a senior fellow and board member at the Society For New Communications Research, a research affiliate at the Future of Work and an advisory board member at Pond Ventures.

About Carolyn Ockels:  Carolyn is the Managing Partner at Emergent Research.  Her current research and consulting is focused on economic decentralization, the growth of small business and Gen Y.  Carolyn has extensive consulting experience, and prior to Emergent Research managed Cambridge Energy Research’s Asian energy consulting business, led market research in Japan for RCM Capital Managment, and held a variety of domestic and international consulting positions with the economic forecasting and planning consulting firm Data Resources, Inc.

Reputation is the New Marketing Currency for FIs

The growth and convergence of the Internet, social media, and mobile technologies have created a disruptive shift in how businesses and their customers interact. Social media and other online connective technologies provide customers and prospects with an instantaneous, information rich platform for researching, discussing and buying everything from books to buildings.

This ability to access and share information has greatly increased pricing, product and corporate transparency, shifting market power from producers to consumers. It has also reduced the effectiveness of many of the traditional outbound marketing, communications and sales methods used by financial institutions.

The recent Banking.com post, Social Media Statistics: By-the-Numbers, May 2011, illustrates the size, scope and growing role of social media. Examples of some of key statistics included in the article are:

• 800,000,000 recommendations (aka ‘stumbles’) are made each month on news discovery service StumbleUpon

• 132,500,000 people in the US will log in to Facebook regularly this year; by 2013 that number will increase to 152.1 million

• 6 years of video is uploaded to YouTube every day

This massive increase in information, connectivity and transparency results in a greater role for corporate reputation in the purchase decision making process for both consumers and businesses. Because of this, financial institutions will need to build and manage their social reputations by actively participating in social media, delivering on commitments, building strong business relationships and providing value to their customers.

For more on this topic, please see the Intuit 2020 Report – The Future of Financial Services.

 

About Steve King:  Steve is a Partner at Emergent Research. His current research and consulting is focused on economic decentralization, the growth of small business and the future of work and workplaces. Steve has extensive consulting, marketing and general management experience with both large and small companies.  Steve is a senior fellow and board member at the Society For New Communications Research, a research affiliate at the Future of Work and an advisory board member at Pond Ventures.

About Carolyn Ockels:  Carolyn is the Managing Partner at Emergent Research.  Her current research and consulting is focused on economic decentralization, the growth of small business and Gen Y.  Carolyn has extensive consulting experience, and prior to Emergent Research managed Cambridge Energy Research’s Asian energy consulting business, led market research in Japan for RCM Capital Managment, and held a variety of domestic and international consulting positions with the economic forecasting and planning consulting firm Data Resources, Inc.

Risk Shift Creates Opportunities for FIs

 

 

Over the past few decades, economic, political and social changes have resulted in the shift of risk management responsibilities from institutions to individuals, a trend we are forecasting to become more acute over the next 10 years.

The biggest driver of this shift is the changing nature of work. Lifetime employment – and the retirement, health care and career planning benefits that once came with it – are no longer the norm. For example, according to the Bureau of Labor Statistics, only 28 percent of Americans, and less than 20 percent of Americans working in private industry, participate in a traditional defined benefit pension plan.

In addition to the decline in corporate benefits, support services from federal, state and local governments are also being reduced due to fiscal problems. The current policy debates in Washington and state capitols are not about whether or not to cut services, but instead how much to cut.

These shifts are resulting in an increased burden of responsibility for both individuals and families in all aspects of personal financial management, including planning and decision making in the areas of education, retirement planning, health care and elder care.

While this shift in responsibility enhances individual choice and can be empowering, it also forces individuals and families to shoulder the burden of managing the risks and complexities of their financial lives. This is a time consuming task requiring discipline, skill and specialized knowledge.

Driven by the risk shift, individuals and families will turn to products, services and trusted advisors to help them anticipate and understand the implications of their financial decisions. Financial institutions are well positioned to provide individuals and families with their increasingly complex financial planning and risk management needs.

While all adults are facing the risk shift, baby boomers (born 1946 – 1964) in particular have a very complex set of planning needs. They are reaching traditional retirement age, but many are also financing their kids’ education and dealing with aging parents.  Gen Y (born 1980 to 2000) will also need help as they move from the relatively carefree spending days of the 20s to the more careful financial management years of middle-age.

The risk shift is a powerful trend that impacts almost everyone. It also creates new fee-based service and product opportunities for financial institutions that can effectively and efficiently help individuals and families navigate their increasingly complex financial lives.

For more information on this topic, you can view the latest edition of the Intuit 2020 report, Intuit 2020 Report: The Future of Financial Services, which identifies and examines four key trend areas that will  transform the financial services industry over the next decade.

 

About Steve King:  Steve is a Partner at Emergent Research. His current research and consulting is focused on economic decentralization, the growth of small business and the future of work and workplaces. Steve has extensive consulting, marketing and general management experience with both large and small companies.  Steve is a senior fellow and board member at the Society For New Communications Research, a research affiliate at the Future of Work and an advisory board member at Pond Ventures.

About Carolyn Ockels:  Carolyn is the Managing Partner at Emergent Research.  Her current research and consulting is focused on economic decentralization, the growth of small business and Gen Y.  Carolyn has extensive consulting experience, and prior to Emergent Research managed Cambridge Energy Research’s Asian energy consulting business, led market research in Japan for RCM Capital Managment, and held a variety of domestic and international consulting positions with the economic forecasting and planning consulting firm Data Resources, Inc.

 

 

 

 

New Entrants, Big and Small, Target the Financial Services Industry

One of the key findings of the recently released Intuit 2020 Future of Financial Services research report is that the financial services industry will see a wide range of new entrants in the coming decade. These new competitors will include both Davids and Goliaths. Expect to see some of the world’s largest corporations and some of the best funded venture-backed startups enter as new financial services players.

These new entrants are attracted to the financial services industry for 4 key reasons:

1. New technologies and the shift to online and mobile banking provide an opportunity to disrupt existing competitors and win customers with new methods, approaches and business models.

2. Consumers and business customers are becoming more comfortable managing their finances online and are increasingly willing to trust online providers with important financial data and transactions. Gen Y (born 1980 to 2000) is especially open to using online financial services products, even from new startups.

3. Technology now allows highly customized online banking services to be delivered seamlessly to customers, both virtually and at brick-and-mortar establishments.

4. The size and scale of the financial services industry makes it a very attractive target for new entrants.

walmart-logoWal-Mart is an example of a non-traditional, new entrant. They offer a growing array of financial products, including small business and consumer credit. Wal-Mart has even gained regulatory approval in Canada to open a bank focused on consumer credit.

Some of the largest technology companies are also adding financial services products, with many targeting electronic payments. Facebook, for example, recently created an electronic payments division and Google, Amazon, Apple and Microsoft have all either announced or are rumored to be announcing products in the payments space. There are also dozens of startups targeting electronic payments.

The financial services industry is so attractive to startups that specialized incubators focused on building new financial services companies are being developed. FinTech Innovation Lab was created by a consortium of large banks and venture capital firms to find, fund and develop the next generation of financial services companies. It is just one example of the many approaches venture capital firms are using to fund financial services startups.

New entrants using new technology, business models and, in some cases, regulatory advantages will target the most profitable and attractive market segments. Financial institutions that don’t recognize and respond to these new competitors risk losing their best customers.

 

About Steve King:  Steve is a Partner at Emergent Research. His current research and consulting is focused on economic decentralization, the growth of small business and the future of work and workplaces. Steve has extensive consulting, marketing and general management experience with both large and small companies.  Steve is a senior fellow and board member at the Society For New Communications Research, a research affiliate at the Future of Work and an advisory board member at Pond Ventures.

About Carolyn Ockels:  Carolyn is the Managing Partner at Emergent Research.  Her current research and consulting is focused on economic decentralization, the growth of small business and Gen Y.  Carolyn has extensive consulting experience, and prior to Emergent Research managed Cambridge Energy Research’s Asian energy consulting business, led market research in Japan for RCM Capital Managment, and held a variety of domestic and international consulting positions with the economic forecasting and planning consulting firm Data Resources, Inc.

Intuit 2020 Report: The Future of Financial Services

Today, Intuit released the latest edition of the Intuit 2020 report, Intuit 2020 Report: The Future of Financial Services, which identifies and examines four key trend areas that will  transform the financial services industry over the next decade.  These are:

1.  A New Playing Field for Financial Services: Regulatory pressures will increase and competition will grow from both traditional competitors and new entrants. These forces will lead financial institutions to explore new business models, collaboration and partnerships, and increased consolidation.

2.  Shifting Segments, Changing Markets: Consumer demand for financial services will increase across all age groups. The two largest contingents – aging baby boomers and GenYers – will demonstrate particularly acute shifts in their needs and types of products and services they purchase.

Competition to serve mid-market businesses will intensify, slimming financial institution margins.  However, the overall small business sector will continue expanding, with the total number of small and personal businesses increasing by more than 7 million over the next decade. Most of this growth will come from micro and personal businesses (less than $1 million in revenue) creating opportunities for financial institutions that can serve these firms efficiently.

3.  The New Customer Connection: Technology’s role in the customer experience will take center stage. With increased cost pressures and a growing demand for flexibility, accessibility and personalization, financial services organizations will accelerate their use of technology to meet customer needs.

Cloud computing platforms and applications will combine with advanced analytical tools, ever-larger data sets, and social and mobile computing to reshape the way the financial services industry designs and delivers value-added products and services to customers.

4.  Reputation and Relationships Rule: Institutions that use technology to serve up useful customer insights will win. Over the next decade, the financial service industry will shift its focus from transactions to customized value-added services.

Through a combination of both virtual and brick-and-mortar branches, banks will develop stronger, more personal relationships with businesses and consumers, helping them manage risk, build wealth, plan retirement and anticipate health care expenses.

Intuit 2020: The Future of Financial Services builds on the data, trends and forecasts in the Intuit 2020 report, which identifies 20 emerging trends and shifts that will shape business and society over the next decade.

As part of the research process, Intuit’s Financial Services division and Emergent Research conducted a series of interviews and forecast workshops with financial services professionals, academics, and industry analysts. These sessions helped identify the important trends and implications that will impact financial services over the next 10 years.

Click here to download the report.

About Steve King:  Steve is a Partner at Emergent Research. His current research and consulting is focused on economic decentralization, the growth of small business and the future of work and workplaces. Steve has extensive consulting, marketing and general management experience with both large and small companies.  Steve is a senior fellow and board member at the Society For New Communications Research, a research affiliate at the Future of Work and an advisory board member at Pond Ventures.

About Carolyn Ockels:  Carolyn is the Managing Partner at Emergent Research.  Her current research and consulting is focused on economic decentralization, the growth of small business and Gen Y.  Carolyn has extensive consulting experience, and prior to Emergent Research managed Cambridge Energy Research’s Asian energy consulting business, led market research in Japan for RCM Capital Managment, and held a variety of domestic and international consulting positions with the economic forecasting and planning consulting firm Data Resources, Inc.