In the past two years, the number of organisations offering direct-to-consumer financial services has boomed. The Retail Distribution Review (RDR) introduced in January 2013 has accelerated the trend for DIY investing as many middle-income investors have found themselves becoming ‘advice orphans’. This coupled with increasing consumer focus on the costs of financial advice and fees has helped further drive demand for direct propositions, many of which offer more transparent and lower-cost models.
For financial services firms, this is a double-edged sword: on the one hand it delivers a great opportunity to develop tailored services and ‘own’ a closer relationship with the customer, for many this is far preferable to relying on intermediaries; on the other hand a raft of direct-to-consumer propositions have been launched, making the market more competitive than ever.
So is there still an opening for financial services firms (and new entrants) to use direct-to-consumer platforms? Does the growth in online financial services and the boom in social media represent a live opportunity or highlight a saturated market ripe for consolidation?
On the first point financial services firms continue to invest heavily in online platforms, as two examples from last year demonstrate. Lloyds Bank announced a £1 billion investment into the digital transformation of its business by 2017 and Schroders was part of a group of investors placing $32 million into Nutmeg, arguably the UK’s highest-profile direct-to-consumer financial start-up.
So the big players certainly see the opportunity in online financial services but are new entrants joining the party too late?
While it’s certainly true that most established financial services providers now have a direct to consumer online platform, to assume that this means there’s limited space for new entrants would be a mistake. There are wider trends at play.
Metro Bank and other recently launched organisations including Orbis Access and SCM Direct all demonstrate that consumer demand for alternative providers remains strong.
The Internet, and social media, provide a perfect customer recruitment and PR channel for new entrants in the financial services space. They embody transparency and allow greater interaction by consumers, so they no longer get sold a product they buy into a provider which reflects their views of the world and investment or financial management philosophy.
The challenge is developing and pitching an offering in the right way that appeals to the broadest possible audience, capitalises on public thirst for a different approach while also ensuring that a cautious public has confidence in the brand.
If you look at recently launched online financial services brands they have common attributes: all offer a new approach to costs and fees (either reducing fees vs traditional providers or using new fee structures that guarantee certain returns); they commit to cut through the jargon and deliver sensible advice on understandable terms; they provide transparency as to their investment strategy and returns and they use online platforms to deliver 24/7 control to consumers.
The most successful new entrants to the financial services sector recognise that they’re not just selling financial products, they’re also selling knowledge. This isn’t the same as giving advice. It’s about creating and using content in new ways to empower investors and allow customers to make their own decisions.
Creating content and using it to market brands and knowledge is at the vanguard of social media marketing and doing it well is crucial to launching successful new propositions in the financial services industry. It’s not easy and many financial services companies have yet to get it right but the potential is clear.
According to Ofcom, two thirds of all adults in the UK are users of at least one social networking site, with 96% of adults under 24 engaging in social media2. This, combined with the proliferation of smartphones, means that brands are more able to reach anyone, anytime, anywhere. Indeed, smartphone usage amongst the young, 16-24 years of age is almost universal at 99% but ownership amongst 55-64 year olds has more than doubled since 2012, from 19% to 50%. Figures from
Shopify, the online ecommerce platform, show that in 2014 ecommerce orders coming from social media grew 202%.
As a result, marketing professionals around the world have changed the way they operate. There are a number of high profile examples of recent start-ups which have used social media to launch global brands with relatively minimal levels marketing and advertising spend. Uber, GoPro and AirBnB have significant followings on Twitter, averaging over 637,000 followers (with GoPro alone having 1.35m) and have tweeted an average of 19,000 times each. But they have done more than simply ‘tweet’. Their social media strategies have been at the core of building social trust with potential and then existing customers. This has then translated into word-of-mouth endorsement, but only for those brands able to demonstrate ‘social proof’.
When it works, a significant presence on social media drives brand recognition far faster than reliance on more ‘traditional’ media platforms such as newspapers (Figure 1 – based on Google News and Google Search results). But in the same way that brands can benefit from the buzz and connectivity of social media, a brand which is lacking ‘social proof’ by offering a mediocre or unpopular product, can be quickly demonised.
Building a financial services brand with a heavy reliance on social media is more difficult, not least because of the risk and compliance issues associated with ensuring that firms meet the FCA’s financial promotion requirements. In March the FCA published its guidance on financial promotions in social media saying: “Social media is already an important tool for industry to engage with customers and its use is only likely to grow. Financial promotions, whether on social media or traditional media, must give customers the right information and meet our requirements to be fair, clear and not misleading”.
Many financial services firms embarking on a social media strategy struggle to find an effective balance between adhering to promotional requirements and providing compelling content which will engage users. With trust in financial services still at an all-time low following the global
financial crisis, companies in the sector remain reluctant to use social media as a means to interact with existing and potential clients and customers.
Another fundamental challenge that financial services brands face when trying to engage via social media is that it is very difficult to standout in a very crowded sector and even more of a challenge making finance interesting. This is in marked contrast to the brands already mentioned which all offer fresh, unique and useful products, directly to consumers.
New entrants to the direct-to-consumer investment market such as Woodford Funds, Nutmeg and SCM Direct have all in their own ways disrupted the industry. At least one of the brands will be known to more experienced and knowledge investors but they are certainly not mass market brands. Whilst all three use social media to some extent (average 10,800 followers), they still lag far behind their non-financial services peer group.
So, overall it is easier to launch a financial services brand in 2015 than it was ten years’ ago due to enhanced connectivity between companies and their target markets. However, the greatest challenge remains moving to a point where there is genuine social trust in the brand and social media is used as a means for people to talk about the brand as opposed to companies broadcasting how fantastic they are. Until financial services firms start to listen to what their target markets are saying and then engage with them in a more positive manner, they will struggle to build mass market brands.
An indicator of success will be when people are talking about a new financial services brand in the pub and encouraging their friends to buy an App or invest in a particular product. We are still some way from that in the UK, but the opportunity is out there.
Andrew Adie and Alistair Kellie, Partners at Newgate Communications