Radically rethinking financial products from the core – 5 examples

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Under increasing pressure from disruptive fintechs and changing customer expectations, the banking landscape has changed dramatically. Over the past 5 years, the banking sector has evolved from a cautious and very conservative sector to one of the most dynamic and innovative sectors in the world.

Such innovation can be found all over banking, mostly related to improving the customer experience, removing friction (e.g. in customer onboarding or payments),
integrate financial actions in end-to-end user journeys or offering new value-added services aimed at
increased purchasing power.

Rethinking financial products from their core

Unfortunately, most of these developments focus on innovating how users interact with banking channels or with financial products or services, rather than improving the products or services themselves. For example, for savings or current accounts, or for investments or loans, we find the same underlying financial products as 20 years ago. At Capilever, we believe there is a huge opportunity for banks and fintechs to radically redesign financial products from the core. By redesigning these financial products, the main reason why people interact with a bank can be improved, i.e. people will use banks more to outsource their financial worries and financial risks. Historically, banks ensured that your money would not be stolen or lost and in addition they paid interest on these deposits. Today, it is expected that banks have gone further in improving the management of the financial health of their customers, but in reality this is not always the case. In fact, with guaranteed maximum deposit limits and negative interest rates (or at least less and less negative purchasing power, subtracting inflation from interest), the financial aspects a client has to take taken into account have further increased.

Furthermore, it is always up to the customer to decide carefully how much money to put in their current, savings or investment account, or to choose the right credit product to finance their projects.

We believe that banks should help their customers more in this financial health management and (at least partially) take charge of the management of the various financial risks, such as liquidity risk, interest rate risk, counterparty risk, etc. .​

Not by adding a sophisticated layer on top, which allows simulations, predictions and recommendations, but by offering new financial products that support this risk management, thanks to the intrinsic design of these products. Similar to what structured notes or principal guaranteed funds do for market risk, but preferably cheaper and more flexible.

an interesting article in this context is shared by Rik Coeckelbergs of The Banking Scene, i.e. “By improving financial well-being, banks become healthcare companiesThis article describes that stress (and its negative impact on health) and financial stress are strongly correlated. If a bank can reduce financial worry and stress, it will ultimately help improve customer health.

5 examples of new financial products in 3 banking areas

This evolution leads to more personalized and flexible financial products. As these financial products will inherently cover some financial risks, they provide a value-added service to the customer by removing some of the financial monitoring and worries. As such, a higher commission may be charged, resulting in higher revenue for the bank. This means a win-win situation for both parties.

More specifically, we present new financial products for the following 3 areas:

  1. In the “Day-to-day banking” area, the notion of “Account” must be reconsidered. With interest rates on checking and savings accounts being nearly identical and banks allowing multiple accounts to be opened free of charge, it is clear that the concept of an account is outdated. Instead, clients should only have one account, in which a number of dynamic buckets are managed, allowing your money to be dynamically allocated. These buckets represent a goal for the allocated money, allowing to add rules (blocking or warning) to each bucket for its consumption. More details on these concepts can be found in the following blogs: “A bank account – A concept from the past“, “Can the digitization of currency provide more innovative monetary tools to governments?” Where “Prepaid cards – An outdated concept with a lot of innovation potential“.
    Additionally, banks should help protect their customers from financial problems resulting from trusting the wrong person or company to do business with (known as counterparty risk). Companies have extensive due diligence processes to manage this risk, but as an individual the best you can do is search Google, Facebook or LinkedIn. Capilever CPRA helps clients get a better idea of ​​a third party’s solvency, liquidity and reliability (by consent), which is exactly how clients can be supported in a high-level valuation of another party.
  2. In the “Credits” area, it remains very difficult for people to choose the right credit product; and when a credit product is chosen, the trade-off between flexibility and cost price is often very penalizing. As such, banks should seek more flexible products, while minimizing the risks for the bank and the cost price of credit. It is in this area that Capilever offers a number of innovative tools, such as LABL offering flexible but not too expensive credit based on the Lombard Credit principle, or FLEX allowing banks to provide a product to compensate for budgetary fluctuations at short and medium term. via a long-term contract combining a credit and investment component. Additionally, Capilever FINE helps bank customers select the right credit product(s). Additional examples of innovations in credits can be found in the blog “Aren’t credits too trivialized?“. A very good concrete example of another company trying to innovate in loans is Perenna, which tries to innovate on the real estate mortgage product.
  3. In the “Investments” area, various hedging techniques should also be democratized, making them simpler for the layman. This means avoiding specific investment jargon, but rather visualizing the various associated risks in a simple way, with options to self-hedge them (fully or partially). This is the objective of Capilever RSTT.

Many opportunities exist to help clients better manage their financial risks. As it is in fact the core business of a bank, we believe that this should be the key area in which banks should invest and innovate in the years to come. Fancy bells and whistles, which might attract the attention of the press and curious prospects, can certainly be interesting in the right banking strategy, but will never generate the same amount of revenue as fundamental optimization of the offer of banking commodities.

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