FinTechs offering financial health-oriented solutions are
making inroads into consumers' trust and showing the industry that
companies can do well by doing good
REDWOOD CITY, Calif.,
Oct. 23, 2018 /CNW/ -- Omidyar
Network, the impact investing firm established by Pierre Omidyar,
the founder of eBay, and Oliver Wyman, the global management
consultancy, today released "Breaking New Ground in FinTech: A
Primer on Revenue Models that Create Value and Build Trust." The
research report maps out a new set of practices by consumer FinTech
firms, who are aligning their revenue strategies with real value
creation for consumers as a competitive advantage to increase
customer traction and future-proof their business.
![](https://mma.prnewswire.com/media/773528/Omidyar_Fintech.jpg)
Today, nearly 140 million adult Americans struggle with some
aspect of their financial lives, such as paying bills on time or
saving for emergencies. At the same time, these same households pay
roughly $175 billion annually in fees
and interest for financial products and services, which too often
fail to improve their situations. The study has found, however,
that using the right combination of financial health-focused
FinTech products can yield the average household with a median of
$45,000 in post-tax income at least
$2,000 in savings annually. In order
to provide this benefit at scale, mass-market FinTechs must design
revenue models that are both economically sustainable and that
reinforce consumers' trust rather than threaten it, a tricky task
in an industry that is ranked by consumers as the least
trusted.
"Being the newcomer in an industry that is often plagued by
'gotcha' fees and with the lowest levels of trust among consumers
is not an easy task for FinTechs, and is a reason why aligning
incentives with consumers' real needs is crucial for success," said
Tilman Ehrbeck, partner at Omidyar Network. "Embedding this
principle early in the business culture is key to building and
retaining consumer trust over time, a lesson that, if put in
practice from the get-go, will avoid fixing fundamentals
later."
"Breaking New Ground in FinTech" offers a simple framework for
thinking of revenue models, defined by what value is
created, who will pay for it, and how they will do
so. It outlines the three basic payer options—consumers themselves,
third-party sellers who want access to consumers, or third-party
beneficiaries who derive value from better-served consumers (for
example, employers who see productivity gains from financial
wellness programs). It also evaluates eight payment models that
have reached traction, identifying keys to success relevant across
all of them.
"Many current financial-health tools offer products for one
specific need. So building strong linkages to other companies that
provide broader solutions is a win-win," said Aaron Fine, partner at Oliver Wyman. "Trusted
referrals provide great additional value to the consumers as well
as a source of revenue that the firm can feel good about—avoiding
conflicts of interest."
The report highlights trends from data compiled from 350 leading
FinTechs, 11 case studies from frontier firms, advice from founders
and investors collected during interviews and workshops with more
than 50 entrepreneurs and sector leaders, and focus groups and
digital diaries with dozens of consumers across income ranges and
geographies. The research distills approaches on how to embed
commitment to financial health into the company's core strategy and
how to mitigate the risks of their revenue models to customers.
The analysis of the market landscape found that:
- Sixty-five percent of FinTechs charge consumers directly for
their services.
- Approximately, 3/4 of FinTechs rely on one material source of
revenue (such as charging consumers directly). One quarter of
surveyed companies rely on multiple sources of revenue and,
interestingly enough, have raised on average twice as much investor
funding.
- FinTechs that have raised the most funding to date build a
lower cost (and often better) version of an existing financial
product that consumers already pay for today, not a new solution
with an unfamiliar value proposition.
- Mass market-focused providers were more likely than the average
FinTech to rely on consumer income.
"One of the important trends we uncovered is that successful
FinTech firms are not shying away from charging consumers directly
for their services," explained Sarah
Morgenstern, investments principal at Omidyar Network. "The
key difference is that they go above and beyond the established
mindset around fee transparency to hit home to consumers what the
real value-add is for them—a bolder way to build consumer
trust."
According to the report, common traits of the FinTech firms at
the forefront of mass market solutions also include a more curated
approach to selecting third-party seller relationships. They rely
more on referral models that shift from advertising to advising,
which helps to resolve potential conflicts between the interests of
sellers and the financial health of their consumers.
In addition, FinTechs that use third-party beneficiary models
are changing the conversation from how their solutions benefit
consumers, to how they benefit everyone. For example, by showcasing
not only the impact of their solutions on employees, but also on
the financial prospects of their employers, FinTechs are unlocking
new revenue pools. The report shows that FinTech firms serving
mass-market consumers are forging the path for others in the space,
with 43 percent of them adopting revenue strategies that charge
third-party beneficiaries against 26 percent of broader consumer
FinTech companies.
The report also identifies challenges ahead for the industry.
While the report anticipates that viability of specific revenue
models will continue to evolve, competition is poised to
significantly increase, especially as new players such as the
social media and e-commerce platforms enter the field. New
technologies and the shift from "unbundling" to "rebundling"
FinTech solutions may also shape the feasibility of different
revenue model approaches.
The full report can be downloaded at:
www.omidyar.com/insights/breaking-new-ground.
About Omidyar Network
Omidyar Network is a philanthropic investment firm that invests in
and helps scale innovative organizations to catalyze economic and
social change. Established in 2004 by eBay founder Pierre
Omidyar and his wife Pam, the organization has committed more than
$1.3 billion to for-profit companies
and nonprofit organizations across multiple initiatives, including:
Digital Identity, Education, Emerging Tech, Financial Inclusion,
Governance & Citizen Engagement, and Property Rights. To learn
more, visit www.omidyar.com, and follow on Twitter @omidyarnetwork
#PositiveReturns.
About Oliver Wyman
Oliver Wyman is a global leader in management consulting. With
offices in 50+ cities across nearly 30 countries, Oliver Wyman
combines deep industry knowledge with specialized expertise in
strategy, operations, risk management, and organization
transformation. The firm has more than 4,700 professionals around
the world who help clients optimize their business, improve their
operations and risk profile, and accelerate their organizational
performance to seize the most attractive opportunities. Oliver
Wyman is a wholly owned subsidiary of Marsh & McLennan
Companies [NYSE: MMC]. For more information, visit
www.oliverwyman.com. Follow Oliver Wyman on Twitter
@OliverWyman.
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SOURCE Omidyar Network