‘Credit Suisse and AXA launch digital bancassurance services’, ‘Joint venture: Raiffeisen enters into strategic partnership with Mobiliar’ and ‘UBS also breathes new life into the former one-stop finance concept and offers life insurance for mortgage customers’ – these are just a few of the press releases from the second half of 2020.
A look back
Those who have long been familiar with the Swiss financial centre will rub their eyes in astonishment, however, as they recall very different headlines from 2006: ‘Rejection of the one-stop finance concept’, ‘Credit Suisse and Winterthur, like Gotthard Bank and Swiss Life, realise that banks and insurance companies simply don’t mix’ or ‘End of an adventure’. During the financial crisis of 2008 and 2009, when particularly complex (international) financial conglomerates offering one-stop finance were among the hardest hit, these and other advocates of one-stop finance eventually turned their backs on the idea. The characteristic feature of these earlier cooperations was that due to the physical rather than digital opportunities, they usually took the form of shareholdings or subsidiaries and were thus capital-intensive and cumbersome.
The basic idea behind one-stop finance was that customers would obtain all the financial services they needed from a single source and thus not have to seek out several companies. One-stop financial advisors were therefore supposed to offer customers the widest possible range of financial products (usually banking and insurance products). Customer contacts, advisory and sales processes were (at least partially) merged, and the revenues generated were shared.
The main reasons behind the failure of one-stop finance can ultimately be summarised as follows:
- Lack of demand from customers for combined offers
- Consultations have always been conducted with – often long-standing – persons in a position of trust at either the bank or the insurance company
- Dependence on physical contacts
- Lack of integration of services on the part of providers
Now it’s back: one-stop finance or ‘bancassurance’, as it’s called today.
New wine in new bottles
In 2021, however, the initial situation is completely different to that of the one-stop-finance boom of the late 1990s.
Everyday life and thus customer needs have changed significantly, driven primarily by better online offerings and in particular by the triumphant advance of smartphones and new technologies. Customers now have access to far more information, are able to obtain offers with just a few clicks and can compare terms and conditions with practically no effort. On the whole, there has been a considerable decline in customer loyalty: customers want to be more independent and free to put together a package that suits them. They expect digital offerings to be available at any time, enjoyable to use and good value for money. Advice is still important, but customers want to determine the scope, level of detail and channel.
Technological developments have made it easier to present and broker banking or insurance products, while intelligent processes also permit greater automation and thus offer improvements in terms of cost-effectiveness and security.
Attentive readers may well have noticed that despite the popularity of the term ‘bancassurance’, the term ‘one-stop finance’ is used here. This is because we firmly believe that other types of provider besides just banks and insurance companies should also be integrated into the ecosystem. Current cooperations are predominantly between banks and insurance companies, between two or a small number of parties, and still largely limited to offering their existing services in a bundled form. Each party wants to use the other’s channels and minimise its own risks in the hope of generating additional margin. The greatest potential lies in generating new products or being much more open to including other market participants.
Our summary table (available here) provides an overview of selected current cooperations and also shows that such cooperations can take many different forms. From concluding contractual distribution agreements to acquiring shareholdings, entering into joint ventures, setting up special distribution companies or merging operations under a single group umbrella, all variants are possible. The predominant structure is now a contractual cooperation or distribution company, which offer the major advantage of lower capital intensity and higher flexibility. Fintech and insurtech companies are also increasingly getting involved. This is a pleasing development, as this symbiosis will benefit the most important players, namely customers.
Combining their offerings enables banks and insurance companies to benefit from an expanded customer base, gain better knowledge and understanding of their customers and offer them simplified access to suitable solutions designed to meet their current needs. The goal is to be the primary point of contact for customers in order to foster the highest possible level of customer loyalty. Alongside the ‘new gold’ of customer data, this will be the most crucial aspect from a strategic point of view.
Since already tight margins do not get bigger by sharing them, however, it is advisable to look for forms of cooperation that are as lean as possible and adopt positions that are strategically as close to the customer and innovative as possible. Irrespective of the chosen form of cooperation, there are therefore a number of key takeaways to bear in mind:
- Secure the customer interface and loyalty, and focus on data and how it is used
- Use information to provide customers with a wide range of suitable offerings at the right time/occasion, with a focus on simplicity and efficiency
- Engage in strategic partnerships; deal with partner exclusivity vs open cooperation
- Carry out due diligence of all material risks (especially legal, regulatory, operational and financial) before launching any such cooperations and adapt processes, controls and training accordingly
- Implement intuitive IT solutions with a focus on straight-through processing and make processes as digital as possible
Will digital ecosystems provide the breakthrough?
In recent years, changing customer requirements combined with the technical possibilities and new opportunities of ‘open finance’ have increasingly given rise to digital ecosystems. Notable developments in Switzerland, for example, include various comparison platforms offering purchase features, crowdfunding platforms, fintech marketplaces and discussions regarding a digital pensions portal. In addition to the positive effects of these platforms for providers and consumers, the platform operator also receives valuable data that can be used to provide optimised customer-centric advice.
Market participants would do well to be more courageous and much more proactive in seeking out and entering into numerous suitable cooperations. The potential structures mean there is always a fundamental risk that cooperation partners or other ecosystems might poach customers. However, companies who do manage to provide customers with simple, transparent and if possible even entertaining access to a broad range of products and solutions relating to finance, day-to-day administration, lifestyle interests, etc. have every chance of being able to build customer loyalty.