Tag Archives: Venmo

Lasting Impact of Plaid’s Innovation

Six months ago, Visa acquired Plaid for a cool $5.5 billion, instantly making the fintech company a legend among technology startups – and its founders, investors and early employees very rich.

While the money is fun to consider, it’s not my key takeaway about Plaid, whose software provides the plumbing that lets startups connect to users’ bank accounts and has been employed by peer-to-peer payment app Venmo, mobile investing app Robinhood and many others.

As the CTO of a startup – one developing a technology platform for insurance carriers – I’m finding the real topic of conversation among my peers, as well as among my company’s investors, partners and prospects, is Plaid’s technology approach and its ramifications.

Plaid’s decision to focus on application programming interface (API) development vs. application development is a natural starting point for such a discussion. (The main point being that Plaid didn’t set out to build all the financial apps itself; instead, it provided a key interface that others, like Venmo and Robinhood, could exploit.) But there’s more to the story. And while it has already become fashionable to describe certain companies as “the Plaid of (fill in the industry),” I don’t think Plaid will be remembered as the face that launched a thousand API ships.

Not to say that the “API-ification” of the enterprise isn’t upon us. We’re seeing it in insurance and more broadly across financial services, as more processes within and across companies plug into each other via these software interfaces. But that trend started before, and is bigger than, Plaid. Conversely, Plaid’s significance extends beyond its APIs.

So what then can Plaid teach us? What can startups, and the technologists helping build them, learn from this early 2020 success story and carry forward into the young decade?

Here are four key takeaways:

1. Empower Builders

Any time a company develops a technology that makes it possible for others to do something they couldn’t do before, that company has the makings of a hit. Many companies succumb to the temptation of trying to own too much of that innovation’s value rather than putting some of that value creation into the hands of others.

Consider Google Maps. Prior to Google Maps, it wasn’t easy for a company to build a dynamic map into its customer experiences. Yet with the Google release, retailers could put all their locations into their web experience so consumers could find them without having to go to a specialized third party service. Now dynamic maps are an integral part of an array of experiences from retail and restaurants to real estate and travel.

If Google Maps had insisted on being the destination of all things maps, i.e., “Find My Retailer,” “Find My ATM,” “Find My Restaurant,” etc., and owning the entire value proposition, the proliferation of map-enhanced experiences across the internet would not have been as quick or as pervasive.

Even a company of Google’s size recognized that that approach would have put the burden of application-layer innovation on one company, one set of developers and one team of product managers. Instead, Google famously developed dynamic maps to be an embeddable component that can fit into any other application, enabling a variety of developers to innovate for their particular markets and end-users.

That’s something Plaid got right. In developing its APIs, Plaid unlocked banking data that had never been available and usable before, but the company was smart enough to keep the focus there and let others – Venmo, for instance – innovate at the application layer. Plaid’s approach brings so many more companies into the innovation mix, which in turn spurs more A/B testing, ultimately yielding more robust and varied applications – the true benefit of best of breed.

2. Love Your Hacks

Plaid did a lot of things that business school won’t teach you. One of them was embracing the hack. Experience has shown that many of the most successful tech companies have used hacks to get their businesses off the ground and deliver their first positive results. Airbnb and Uber come immediately to mind, and so does Plaid.

This is important, because banks were never in the business of exposing their data in a clean way – they didn’t have nice open APIs with clean documentation. That meant that Plaid had to crack the code on its own, figuring it out for itself every step of the way. How do we get access to Bank of America data? to Chase? to the next big bank?….

The moral of the story is they did it. Sure, initially they did it with workarounds and solutions that were laughed at on forums and dismissed as insecure. But they stuck with it and built big enough engineering and data teams to make the company, its approach and its solutions sustainable over time.

But first came the hack. Before becoming sustainable, before scalability even enters the equation, Plaid was getting its hands dirty showing the value of its work, no matter how unsustainable the approach. In this regard, I see Plaid as embodying Paul Graham’s famous admonition to startups: “Do things that don’t scale.” I would just add: “until they do.”

3. Trust the Size of Your Market (and the Defensibility of Your Solution)

Technologists and entrepreneurs have to develop thick skins. We hear “no” more than “yes,” and often find ourselves answering the same questions: What is the size of your market? How are you going to monetize your innovation? How defensible is your solution?

Here, I have to tip my hat to Plaid. As a trailblazer, the company had to argue for a big market that didn’t exist yet, because no one else was monetizing access to financial data – and the generation of apps that would use that data so successfully had yet to be created.

Of course, Plaid was right. Other companies would use its APIs and multiply their value many times over. But before Plaid was right, it believed. The size of its conviction ultimately enabled it to create and fuel a multibillion-dollar market. And while it believed, it minded its knitting, focusing intently on innovating and letting great software speak for itself.

Did that answer investors’ initial questions about defensibility? At first, probably not, but as the number of successful hacks mounted, and as it became clear that the problem it was trying to solve was sufficiently complex and the competitive landscape it inhabited sparsely populated,  the company earned enough breathing room to deliver each successive, successful result. By 2018, Visa and Mastercard were in on the company’s $250 million raise, and the rest is history.

See also: Insurance Innovation — Alive and Kicking

Getting there took some swagger, perhaps even a little arrogance, that Plaid could solve something no one else had dared attempt. That attitude may have been its best line of defense.

4. Guillotine Your Platform!

As I mentioned, the temptation to try to do too much, to own all the value and innovation at every layer of a solution, can be fatal, and is something Plaid brilliantly avoided. Plaid will be remembered for focusing on APIs and powerful administrative functionality, leaving the user interface (UI) and user experience (UX) layers for others to perfect and deploy.

In this case, Plaid serves as a powerful example for the many “platform” developers across the startup landscape, mine included. Platform developers want to solve it all, but Plaid is helping us not to. They deliberately chose not to provide the full vertical experience of their service, leaving it up to developers outside their company to figure things out for themselves and provide their customers their own distinct experiences.

This “headless” platform model is quickly gaining traction among startups and other solution providers, as well as among big companies hoping to accelerate or complete their digital transformations. These companies don’t want their tech providers to own any portion of the customer’s journey and experience; they just want the value, and they want it expressed natively within their own digital footprint.

That shift, and tech startups’ ability to deliver on it, may be Plaid’s most lasting legacy.

It’s Time to End Appeals Based on Fear

Consumer attitudes toward the insurance industry are changing faster than ever. Millennials make up the most populous generation today, and with many of them entering their mid- and late thirties, they are shopping for insurance in higher numbers. This tech-savvy generation expects personalized services and demands greater control over their experiences and decisions. Millennial consumers are calling the shots in almost every B2C industry – and insurance is no exception.

The insurance industry traditionally relied on the fear of the unknown as its most powerful sales enabler, but with millennials making decisions based on brand experience, insurers need to turn to emerging technologies to transform and customize the way they reach customers. The status quo is simply unsustainable if they want growth. Forward-looking insurers know that the key to attracting and retaining clients is to leverage predictive technology and provide them with the seamless, smart, digital-first experience they need.

But for this future to become a reality, companies need to implement and use predictive analytics in a way that truly enhances the customer experience. Here are the steps every insurer needs to know before embarking on that journey:

Collect the Right – Not the Most – Data

Knowing the ins and outs of customer needs and behaviors is essential in operating an insurance business, but it is not enough to know the general needs of a customer base. In fact, the majority of consumers are willing to share personal information in exchange for added benefits like enhanced risk protection, risk avoidance or bundled pricing. To deliver personalized service, insurers must collect data at the individual level – and quantity does not always mean quality. The accuracy of predictive analytics relies on the certainty and relevancy of the data those systems are fed. Before doing anything else, insurers must determine exactly what information drives business decisions and collect that data on both individual and grand scale as efficiently as possible.

See also: 3 Ways to Optimize Predictive Analytics  

This is where the Internet of Things (IoT) steps in. As one of the most ground-breaking technologies on the market today, IoT has only just begun to realize its potential in the insurance industry. IoT sensors attached to infrastructure, cars, homes and other insurable items, can feed real-time data back to providers with unprecedented accuracy. Not only does this live feed of data prevent emergencies by identifying potential problems before they arise, the highly precise information acts as a foundation for analytics at a customer-specific level in the next phase of the process.

Get Personal With Predictions

Once insurers are collecting relevant, accurate and individualized data, the next step on the road to customer satisfaction is applying machine learning and AI to that information. The outcomes of this analysis not only determine truths about the current status of an asset or situation but reveal patterns that enable insurance companies to predict what is in store down the road. For an insurer, this predictive knowledge means more accurately being able to evaluate, price and plan for risk – whether evaluating individual portfolios or aggregating data to foresee larger trends in the marketplace.

But as predictive technology becomes more mainstream, the true value of digital foresight will be its ability to offer the millennial customers the deep personalization and hyper-relevance they crave and expect from all their services. By transforming the industry into a predictive and even preventative experience, insurance companies are changing the status quo of fear-based customer relationships and instead leverage technology to make insurance feel tailored and assuring.

Engage With Emerging Technology

The insurance industry is not and never will be based on static, one-time decisions. As risk is calculated on various constantly changing variables, it is essential to continue evolving customer predictions, recommendations and prices based on incoming information. Analyzing both existing and new data from IoT sensors allows companies to pivot strategies in the face of new predictions, enhance underwriting, reduce claim ratio and remain agile to meet the needs of their customers today and tomorrow.

See also: What Comes After Predictive Analytics  

Just as predictions do not stand still, neither should an insurance company’s methods for determining them. In an era of hyper customer relevance, with disruptive players like Uber, Venmo and Mint, millennials have come to expect services that are not only predictive but get deeply personalized in accuracy and usability overtime. The insurance industry has traditionally lagged behind other B2C industries in terms of adoption, however, due to its changing customer base it will have no other choice than to evolve rapidly over the next few years. Placing emerging technologies like AI, machine learning, automation and IoT at the core of business operations now will be key in setting insurance up for continued progression in the future.

Appealing to the new generation of insurance customer is all about offering tailored experiences that cater to their needs and expectations. The insurance industry is in for an acceleration of change to accommodate their new millennial consumer – a change fueled by technology that creates bonds of loyalty and trust via personalization, not fear.

Why Mobile Health Must Be a Priority

Mobile has drastically changed the way we shop, travel, pay our bills and even pay each other. But there’s one area of our lives that it hasn’t changed enough: the way we manage our health.

Mobile-focused health represents one of the biggest challenges – and opportunities – facing the healthcare industry. As more consumers connect their homes and lives across devices, particularly their phones, healthcare professionals must harness mobile health technologies and move toward a complete, mobile-optimized user experience. While most insurers already offer mobile apps, they often fail to create an experience that is both functional and intuitive.

As our 2016 Digital Healthcare Survey revealed, digital health resources have been embraced by Americans of all ages, especially by younger Americans, with 82% of Gen Y and 67% of Gen X having accessed at least one digital health resource in the past 12 months. Of the digital resources offered by health insurers, mobile apps have the greatest potential to enhance Gen Y and Gen X member understanding and autonomy, but awareness of the apps and their functionality is low. Many Gen Y and Gen X members consider mobile access to their insurance a key resource, but only one-third (32%) are actually aware of whether their insurer even offers a mobile app.

This represents a significant missed opportunity, for insurers and consumers alike.

See also: A Road Map for Health Insurance  

Fortunately for insurers, creating a mobile app doesn’t need to be overly complicated. The fundamental function of a health plan app is to provide members with access to the resources that are applicable to and useful for the mobile experience. However, many apps present far more than this – plan information, including balances, claims data and ID card information as well as coverage and benefits rates for health services, profile and account management options and customer service centers. For most customers, mobile apps don’t need all the resources and attributes of full sites – customers just want a mobile health experience that is intuitive, functional and fits in with their daily routine.

So, what functionalities should insurers be looking to include in their latest mobile app versions?

Take a page from financial apps, such as PayPal and Venmo, and offer a way for consumers to pay with ease. Incorporating payment features for claims and premiums, as well as push notifications alerting members to coming bills, would likely lead to more timely payments. UnitedHealthcare is one of the few providers that allow members to pay for a claim on its app directly by entering bank account information and then pre-filling most other important information, such as amount and payment recipient.

Create visual representations, such as charts, graphs and progress meters, to help consumers better understand aspects of their plans like deductibles and coinsurance. Presenting plan balances and claims data not only improves the aesthetics of a page, but also provides members with a summary of data that may be easier to process. For example, rather than displaying how much of the plan’s deductible and out-of-pocket maximum the member has met, has remaining and has in total within a list format, use an interactive chart or graph to provide expedient summaries of data without sacrificing any detail – a particularly important feature on a mobile app given the limited space.

Integrate health data from wearables to mobile apps (and vice versa) to encourage consumers to exercise regularly or eat healthy. Health assessments and connecting fitness apps to track movement are the most commonly rewarded activities, currently recognized by a majority of insurance platforms. Some insurers, such as UnitedHealthcare and Humana, are ahead of the curve, offering separate health and wellness reward program apps that employ push notifications to remind members to keep up with goals, such as “remember to get between seven and eight hours of sleep tonight” and “you have 2,000 more steps until you reach your goal for today.”

See also: A Road Map for Health Insurance  

While the healthcare industry overall still has a long way to go, digital health companies and startups have leveraged advancements in technology to enhance the mobile health experience for consumers. As functionality continues to improve and usage increases among younger members, the need for effective member support will become critical. Insurers should take note and make mobile health a priority – including functionalities and resources to help members better manage their health. We’ll all be better off as a result.

FinTech: Epicenter of Disruption (Part 2)

This is the second in a four part series. To read the first article click here.

To help industry players navigate the changes in the banking, fund transfer and payments, insurance and asset and wealth management sectors, we have identified the main emerging trends that will be most significant in the next five years in each area of the FS industry.

Overall, the key trends will enhance customer experience, self-directed services, sophisticated data analytics and cybersecurity. However, the focus will differ from one FS segment to another.

Banks are going for a renewed digital customer experience

Banks are moving toward non-physical channels by implementing operational solutions and developing new methods to reach, engage and retain customers.

As they pursue a renewed digital customer experience, many are engaging in FinTech to provide customer experiences on a par with large tech companies and innovative start-ups.

Screen Shot 2016-04-08 at 2.03.03 PM

Simplified operations to improve customer experience

The trends that financial institutions are prioritizing in the banking industry are closely linked. Solutions that banks can easily integrate to improve and simplify operations are rated highest in terms of level of importance, whereas the move toward non-physical or virtual channels is ranked highest in terms of likelihood to respond.

Banks are adopting new solutions to improve and simplify operations, which foster a move away from physical channels and toward digital/mobile delivery. Open development and software-as-a-service (SaaS) solutions have been central to giving banks the ability to streamline operational capabilities. The incorporation of application program interfaces (APIs) enables third parties to develop value-added solutions and features that can easily be integrated with bank platforms; and SaaS solutions assist banks in offering customers a wider array of options—which are constantly upgraded, without banks having to invest in the requisite research, design and development of new technologies.

The move toward virtual banking solutions is being driven, in large part, by consumer expectations. While some customer segments still prefer human interactions in certain parts of the process, a viable digital approach is now mandatory for lenders wishing to compete across all segments. Online banks rely  on transparency, service quality and unlimited global access to attract Millennials, who are willing to access multiple service channels. In addition, new players in the banking market offer ease of use in product design and prioritize 24/7 customer service, often provided through non-traditional methods such as social media.

So what?—Put the customer at the center of operations

Traditional banks may already have many of the streamlined and digital-/mobile-first capabilities, but they should look to integrate their multiple digital channels into an omni-channel customer experience and leverage their existing customer relationships and scale. Banks can organize around customers, rather than a single product or channel, and refine their approach to provide holistic solutions by tailoring their offerings to customer expectations. These efforts can also be supported by using newfound digital channels to collect data from customers to help better predict their needs, offer compelling value propositions and generate new revenue streams.

Fund transfer and payments priorities are security and increased ease of payment

Our survey shows that the major trends for fund transfer
and payments companies are related to both increased ease and security of payments.

Screen Shot 2016-04-08 at 2.03.52 PM

Safe and fast payments are emerging trends

Smartphone adoption is one of the drivers of changing payments patterns. Today’s mobile-first consumers expect immediacy, convenience and security to be integral to payments. In our culture of on-demand streaming of digital products and services, archaic payment solutions that take days rather than seconds for settlement are considered unacceptable, motivating both incumbents and newcomers to develop solutions that enable transfer of funds globally in real time. End users also expect a consistent omni-channel experience in banking and payments, making digital wallets key to streamlining the user experience and enabling reduced friction at the checkout. Finally, end users expect all of this to be safe. Security and privacy are paramount to galvanizing support for nascent forms of digital transactions, and solutions that leverage biometrics for fast and robust authentication, coupled with obfuscation technologies, such as tokenization, are critical components in creating an environment of trust for new payment paradigms.

So what?—Speed up, but in a secure way

Speed, security and digitization will be growing trends for the payments ecosystem. In an environment where traditional loyalty to financial institutions is being diminished and barriers to entry from third parties are lowered, the competitive landscape is fluid and potentially changeable, as newcomers like Apple Pay, Venmo and Dwolla have demonstrated. Incumbents that are slow to adapt to change could well find themselves losing market share to companies that may not have a traditional payments pedigree but that have a critical mass of users and the network capability to enable payment experiences that are considered at least equivalent to the status quo. While most of these solutions “ride the rails” of traditional banking, in doing so they risk losing control of the customer experience and ceding ground to innovators, or “steers,” who conduct transactions as they see fit.

Asset and wealth management shifts from technology-enabled human advice to human-supported technology-driven advice

The proliferation of data, along with new methods to capture it and the declining cost of doing so, is reshaping the investment landscape. New uses of data analytics span the spectrum from institutional trading and risk management to small notional retail wealth management. The increased sophistication of data analytics is reducing the asymmetry of information between small- and large-scale financial institutions and investors, with the latter taking advantage of automated FS solutions. Sophisticated analytics also uses advanced trading and risk management approaches such as behavioral and predictive algorithms, enabling the analysis of all transactions in real time. Wealth managers are increasingly using analytics solutions at every stage of the customer relationship to increase client retention and reduce operational costs. By incorporating broader and multi-source data sets, they are forming a more holistic view of customers to better anticipate and satisfy their needs.

Spread Out

Given that wealth managers have a multitrillion-dollar opportunity in the transfer of wealth from Baby Boomers to Millennials, the incorporation of automated advisory capabilities—either in whole or in part—will be a prerequisite. This fundamental change in the financial adviser’s role empowers customers and can directly inform their financial decision-making process.

So what?—Withstand the pressure of automation

Automated investment advice (i.e. robo-advisers) poses a significant competitive threat to operators in the execution-only and self-directed investment market, as well as to traditional financial advisers. Such robot and automatic advisory capabilities will put pressure on traditional advisory services and fees, and they will transform the delivery of advice. Many self-directed firms have responded with in-house and proprietary solutions, and advisers are likely to adapt with hybrid high-tech/high-touch models. A secondary by-product of automated customer analysis is the lower cost of customer onboarding, conversion and funding rates. This change in the financial advisory model has created a challenge for wealth managers, who have struggled for years to figure out how to create profitable relationships with clients in possession of fewer total assets. Robo-advisers provide a viable solution for this segment and, if positioned correctly as part of a full service offering, can serve as a segue to full service advice for clients with specific needs or higher touch.

Insurers leverage data and analytics to bring personalized value propositions while managing risk

The insurance sector sees usage-based risk models and new methods for capturing risk-related data as key trends, while the shift to more self-directed services remains a top priority to efficiently meet existing customer expectations.

Together

Increasing self-directed services for insurance clients

Our survey shows that self-directed services are the most important trend and the one to which the market is by far most likely to respond. As is the case in other industry segments, insurance companies are investing in the design and implementation of more self-directed services for both customer acquisition and customer servicing. This allows companies to improve their operational efficiency while enabling online/mobile channels that are demanded by emerging segments such as Millennials. There have been interesting cases where customer-centric designs create compelling user experiences (e.g. quotes obtained by sending a quick picture of the driving license and the car vehicle identification number (VIN)), and where new solutions bring the opportunity to mobilize core processes in a matter of hours (e.g. provide access to services by using robots to create a mobile layer on top of legacy systems) or augment current key processes (e.g. FNOL3 notification, which includes differentiated mobile experiences).

Usage-based insurance is becoming more relevant

Current trends also show an increasing interest in finding new underwriting approaches based on the generation of deep risk insights. In this respect, usage-based models—rated the second most important trend by survey participants—are becoming more relevant, even as initial challenges such as data privacy are being overcome. Auto insurance pay-as-you-drive is now the most popular usage-based insurance (UBI), and the current focus is shifting from underwriting to the customer. Initially, incumbents viewed UBI as an opportunity to underwrite risk in a more granular way by using new driving/ behavioral variables, but new players see UBI as an opportunity to meet new customers’ needs (e.g. low mileage or sporadic drivers).

Data capture and analytics as an emerging trend

Remote access and data capture was ranked third by the survey respondents in level of importance. Deep risk (and loss) insights can be generated from new data sources that can be accessed remotely and in real time if needed. This ability to capture huge amounts of data must be coupled with the ability to analyze it to generate the required insights. This trend also includes the impact of the Internet of Things (IoT); for example, (1) drones offer the ability to access remote areas and assess loss by running advanced imagery analytics, and (2) integrated IoT platforms solutions include various types of sensors, such as telematics, wearables and those found in industrial sites, connected homes or any other facilities/ equipment.

So what?—Differentiate, personalize and leverage new data sources

Customers with new expectations and the need to build trusted relationships are forcing incumbents to seek value propositions where experience, transaction efficiency and transparency
are key elements. As self-directed solutions emerge among competitors, the ability to differentiate will be a challenge.

Similarly, usage-based models are emerging in response to customer demands for personalized insurance solutions. The ability to access and capture remote risk data will help develop a more granular view of the risk, thus enabling personalization. The telematics-based solution that enables pay-as-you-drive is one of the first models to emerge and is gaining momentum; new approaches are also emerging in the life insurance market where the use of wearables to monitor the healthiness of lifestyles can bring rewards and premium discounts, among other benefits.

Leveraging new data sources to obtain a more granular view of the risk will not only offer a key competitive advantage in a market where risk selection and pricing strategies can be augmented, but it will also allow incumbents to explore unpenetrated segments. In this line, new players that have generated deep risk insights are also expected to enter these unpenetrated segments of the market; for example, life insurance for individuals with specific diseases.

Finally, we believe that, in addition to social changes, the driving force behind innovation in insurance can largely be attributed
to technological advances outside the insurance sector that will bring new opportunities to understand and manage the risk (e.g. telematics, wearables, connected homes, industrial sensors, medical advances, etc.), but will also have a direct impact on some of the foundations (e.g. ADAS and autonomous cars).

Blockchain: An untapped technology is rewriting the FS rulebook

Blockchain is a new technology that combines a number of mathematical, cryptographic and economic principles to maintain a database between multiple participants without the need for any third party validator or reconciliation. In simple terms, it is a secure and distributed ledger. Our insight is that blockchain represents the next evolutionary jump in business process optimization technology. Just as enterprise resource planning (ERP) software allowed functions and entities within a business to optimize business processes by sharing data and logic within the enterprise, blockchain will allow entire industries to optimize business processes further by sharing data between businesses that have different or competing economic objectives. That said, although the technology shows a lot of promise, several challenges and barriers to adoption remain. Further, a deep understanding of blockchain and its commercial implications requires knowledge that intersects various disparate fields, and this leads to some uncertainty regarding its potential applications.

Blocks

Uncertain responses to the promises of blockchain

Compared with the other trends, blockchain ranks lower on the agendas of survey participants. While a majority of respondents (56%) recognize its importance, 57% say they are unsure or unlikely to respond to this trend. This may be explained by the low level of familiarity with this new technology: 83% of respondents are at best “moderately” familiar with it, and very few consider themselves to be experts. This lack of understanding may lead market participants to underestimate the potential impact of blockchain on their activities.

The greatest level of familiarity with blockchain can be seen among fund transfer and payments institutions, with 30% of respondents saying they are very familiar with blockchain (meaning they are relatively confident about their knowledge of how the technology works).

How the financial sector can benefit from blockchain

In our view, blockchain technology may result in a radically different competitive future in the FS industry, where current profit pools are disrupted and redistributed toward the owners of new, highly efficient blockchain platforms. Not only could there be huge cost savings through its use in back-office operations, but there could also be large gains in transparency that could be very positive from an audit and regulatory point of view. One particular hot topic is that of “smart contracts”—contracts that are translated into computer programs and, as such, have the ability to be self-executing and self-maintaining. This area is just starting to be explored, but its potential for automating and speeding up manual and costly processes is huge.

Innovation from start-ups in this space is frenetic, with the pace of change so rapid that by the time print materials go to press, they could already be out-of-date. To put this in perspective, PwC’s Global Blockchain team has identified more than 700 companies entering this arena. Among them, 150 are worthy to be tracked, and 25 will likely emerge as leaders.

The use cases are coming thick and fast but usually center on increasing efficiency by removing the need for reconciliation between parties, speeding up the settlement of trades or completely revamping existing processes, including:

    • Enhancing efficiency in loan origination and servicing;
    • Improving clearing house functions used by banks;
    • Facilitating access to securities. For example, a bond that could automatically pay the coupons to bondholders, and any additional provisions could be executed when the conditions are met, without any need for human maintenance; and
    • The application of smart contracts in relation to the Internet of Things (IoT). Imagine a car insurance that is embedded
      in the car and changes the premium paid based on
      the driving habits of the owner. The car contract could also contact the nearest garages that have a contract with the insurance company in the event of an accident or a request for towing. All of this could happen with very limited human interaction.

So what?—An area worth exploring

When faced with disruptive technologies, the most effective companies thrive by incorporating them into the way they do business. Distributed ledger technologies offer FS institutions a once-in-a-generation opportunity to transform the industry to their benefit, or not.

However, as seen in the survey responses, the knowledge of and the likelihood to react to the developments in blockchain technology are relatively low. We believe that lack of understanding of the technology and its potential for disruption poses significant risks to the existing profit pools and business models. Therefore, we recommend an active approach to identify and respond to the various threats and opportunities this transformative technology presents. A number of start-ups in the field, such as R3CEV, Digital Asset Holdings and Blockstream, are working to create entirely new business models that would lead to accelerated “creative destruction” in the industry. The ability to collaborate on both the strategic and business levels with a few key partners, in our view, could become a key competitive advantage in the coming years.

This post was co-written by: John Shipman, Dean Nicolacakis, Manoj Kashyap and Steve Davies.

Traditional Insurance Is Dying

Finance. Taxis. Television. Medicine. What do these have in common?

They’re all on the long–and growing–list of industries being turned upside down by disruptive technology. 

The examples are legion. Once-sure-bet investments like taxicab medallions are at risk of going underwater. Bitcoin is giving consumers the power to bypass banks. Traditional television is at risk from online streaming.

Insurance Is No Different

In fact, innovative players have been disrupting the insurance market since before “disruption” was the buzzword it is today. 

Look at Esurance, which in 1999 rode the dot-com wave to success as the first insurance company to operate exclusively online. No forms, no policy mailers–it didn’t even mail paper bills.

By going paperless, Esurance told customers that it was the kind of company that cared about their preferences–and established itself as a unique player in an industry that places a premium on tradition. Insurance isn’t known for being innovative. 

Most insurance leaders operate under the assumption that if it ain’t broke, you shouldn’t fix it. And in a heavily regulated industry, that’s not totally unreasonable. 

But you only have to look at the scrappy start-ups that are taking down long-established players to understand what awaits the companies that aren’t willing to innovate.

Thinking Outside the Box

Take Time Warner–profit fell 7.2% last quarter as industry analysts foretold “the death of TV.” Meanwhile, Netflix’s profits are soaring beyond expectations–even as the risks it takes don’t always pan out. 

Remember the “Marco Polo” series that cost a reported $90 million? Neither does anyone else. But for every “Marco Polo” there’s an “Orange Is the New Black.” Highly successful programs on a subscription model show that Netflix’s willingness to take risks is carrying it past industry juggernauts.

The market is changing–and if you want to stay competitive, you need to use every weapon in your arsenal. Millennials aren’t buying insurance at the rate their parents did

To a consumer population weaned on technology like Uber and Venmo, the insurance industry seems positively antiquated. Facebook can advertise to you the brand of shoes you like–so your insurance company should be able to offer a product that you actually want.

The Information Importance

According to Accenture, “Regulated industries are especially vulnerable” to incumbents. When there are barriers to entry based on licensing requirements or fees, competition is lower. Decreased competition, in turn, leads to less incentive to innovate. This can leave regulated industries, such as insurance, healthcare and finance, in a highly vulnerable position when another company figures out a way to improve their offerings.

Other attributes that can make an industry vulnerable, per Accenture’s findings, can include:

  • Narrow focus: If a brand focuses entirely on cost savings, convenience or innovation, it isn’t effectively covering its bases. A disruptor that manages to offer two or three of these factors instead of just one has a near-immediate advantage.
  • Small scope or targets: Failing to expand offerings to all demographics can mean that industries or service providers aren’t able to replicate the broad reach of disruptors.
  • Failing to innovate: Disruptors don’t always get their product right on the very first try. Companies must innovate continuously and figure out ways to build continuous improvement into their business model.

Tech start-ups use information as an asset. How can you tell if information is a valuable weapon in the battle you’re fighting? 

“Big data” isn’t just a buzzword; industry analysts are calling it the wave of the future. At Citi, they’re talking about “the feed”: a real-time data stream that leverages the Internet of Things to reshape risk management. 

Auto insurers are turning to connected cars to let them reward safe drivers. Some life insurers are even offering discounts to customers who wear activity trackers.

It Can Happen to You

For most insurance companies, incorporating an unknown element into the way they operate is daunting. 

But talk to any cab driver, grocery store clerk or travel agent, and they’ll tell you that the only way to survive in a technology-driven world is to innovate.

Look at the insurance technology market to see what improvements you can incorporate into your organization, and think expansively about how you can use information: for agency management, to attract new customers and retain old ones, to expand your profit margins or to streamline operating costs. 

Your survival depends on it.