Digital Marketplaces Unleashed
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Particular care is demanded in the handling of customer data here. Business models in which losses are supposed to be prevented by the ‘positive’ behaviour of the insured assign a new role to the customer – as a partner who is prepared to divulge extensive information about themselves. Unlawful use of personal data, for example the misuse of data to select risks, may bring with it not only fines for the insurer, but also significant reputational damage.
Customers have to be sure that the data that they provide is used in their best interests and not in order to discriminate against them or to force them from the market. The discussion on the employment of new technologies thus has an important ethical component. An important instrument in active data protection is clear communication between the company and the customer. What data is collected? What is it used for? Only someone who acts openly will encourage the acceptance of digital innovations and increase customer satisfaction – and will be able to take advantage of a positive image to implement better prices. Yet how can all these changes be put into practice in the day‐to‐day business operations? And in such a way that changes in the market can be reacted to quickly, without putting functioning work processes at risk?
Existing IT systems are not suitable for many of the requirements of the digital world. They allow customers to be addressed in equal measure across all relevant channels (omnichannel capability) and digital ecosystems to be developed only to an unsatisfactory extent. On the other hand, new systems are expensive and launching them is time‐consuming and risky. The establishment of two‐speed IT allows existing systems to be continued and new, agile processes to be saddled up. Digital technologies can be quickly adapted, the stability of conventional processes is retained (see Fig. 34.3).
Fig. 34.3Two‐speed IT
Old and new systems are uncoupled in this process: the digital IT as the ‘agility layer’ lies on top of the mature IT as the ‘stability layer’. Various user interfaces can be integrated through the agility layer. Existing specialist functions and the primary data storage remain in the old systems.
The newly designed processes will be integrated through an integration layer, in which process and control logics are separated. This structure allows adjustments to be made quickly and cost‐effectively without any need to interfere with the old systems. Workflows can thus be swiftly developed and put into executable practice. This integration layer also offers the possibility of incorporating external service providers quickly and flexibly within a digital ecosystem.
The majority of management boards of insurance companies have understood the need to act. For example, Dr Thomas Blunk of Munich Re for example says: “We cannot wait for the structural changes to occur before we start moving; we need to address these changes now if we hope to offer the business new growth opportunities over the next 5 years.”[14] Measures such as formal channels for generating new ideas or the co‐operation with external stakeholders are regarded by the vast majority of executives as important or very important for the successful implementation of innovations. According to KPMG’s CEO Outlook, disruptive technologies are already employed in more than half of the companies surveyed, primarily in the interaction with customers [14].
34.4 Manoeuvring Change
The business model of insurance companies is undergoing a radical change: The customer is better informed and more demanding than ever. They expect transparent information at all times wherever they are and demand customised products that meet their individual needs. Depending on the requirement, they select digital or analogue channels to get in contact with the insurer.
New technology‐driven companies increase the pressure to act on both the product and the sales side. Newcomers are especially agile, because they come to the market without the baggage of mature data and IT systems.
It is clear to see that old borders between industries are fading away. Companies must be prepared (and able) to co‐operate across industries in order jointly to develop new and attractive products.
These trends require a fundamental realignment of the corporate culture: traditionally more risk‐averse insurance companies will have to learn to embrace experimentation – without escalating the financial risks. KPMG’s global study ‘The insurance innovation imperative’ describes a ten‐point roadmap that insurance companies can use as a guide before and during this realignment: 1.Drive change
The change that insurers are facing is massive. The size of the task and pride in one’s own traditions frequently lead to a failure to take the necessary steps. A fatal error. Companies should analyse in detail how technological advances influence their own organisation – and draft a dedicated action plan in which digitalisation and innovation are given a prominent role.
2.Apply agile and dedicated leadership
New mindsets can take root in a company only when the top management lead by example. Innovation is a leadership issue. The appointment of a chief digital officer who initiates processes and provides the resources required for the implementation is an important step here. The company should additionally train its staff and provide incentives to develop new ideas and put them into practice in the organisation. This includes questioning approaches that have been practised for decades.
3.Adapt structures
For many insurers, the introduction of innovation management means a break with their culture. Organisational structures must be made more transparent, slimmed down and co‐ordinated more closely with each other in order to pave the way for new products and business models that serve the customer’s interests.
4.Develop talent
Innovation takes place in the staff’s heads. It is important to identify talent that can develop ideas to simplify processes and drive new business models. Flexible working hours, the option of working from a home office, more frequent changes of job or team are examples of measures that can be taken to anchor a ‘new mindset’ among staff and to allow their vision to extend beyond the boundaries of their own department. Inventive models help to increase the willingness to innovate.
5.Encourage entrepreneurship
Innovation is not an end in itself, but must pursue entrepreneurial goals. The success of any action should be measured, the risk should be spread over time. A strict entrepreneurial attitude is important: anyone who wins a budget for an innovative project should treat this as their own business and share financially in the any successes.
6.Observe the competition
The decision to restructure an organisation is not a single act. Strategies have to be reviewed and business models adapted at fixed intervals. This requires constant comparison with competitors.
7.Learn from others
Co‐operation – also with companies outside the industry – is the key to success for insurers in a digital world. This is a new experience especially for large organisations. But it is unavoidable if new products with major customer benefits that will play a part in deepening value added are to be given a swift kick‐start.
8.Leverage new technologies into the current business
Flexible IT systems make it easier to introduce new technologies and to link up with external partners. The streamlining of routine processes such as administrative tasks or claims processing frees up resources for developing new business models and adapting additional user interfaces. Information for staff and customers can be made available on demand using cloud computing, something that facilitates the scalability of processes and reduces fixed costs. Insurers are accorded a special role in publicly advocating for this technology to be meaningfully employed.
9.Create transparency
The increasing analysis and processing of customer data that accompany digitalisation requires a high degree of openness when communicating with the insured. Companies must make clear to custo
mers what the benefits of evaluating personal information are – very much in the sense of customer centricity. The insurance industry is called on to conduct this discussion in public in order to be perceived as a credible partner. The goal must be to create maximum transparency without losing the benefits of asymmetrical information.
10.Question business models
Size alone does not help a company survive on the market. The players who will benefit most from the change in the insurance industry will be those who are able early on to combine developments, identify trends and throw out old business models. Developing and maintaining this innovative capability will in future make up the true strength of a company.
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© Springer-Verlag GmbH Germany 2018
Claudia Linnhoff-Popien, Ralf Schneider and Michael Zaddach (eds.)Digital Marketplaces Unleashedhttps://doi.org/10.1007/978-3-662-49275-8_35
35. FinTech and Blockchain – Keep Bubbling? Or Better Get Real?
Nils Winkler1 and Björn Matthies1
(1)CoCoNo GmbH, Hamburg, Germany
Nils Winkler (Corresponding author)
Email: nils@winkler-online.org
Björn Matthies
Email: bjoern@matthies-online.org
35.1 FinTech – the Emperor’s New Clothes?
FinTech stands for Financial Technology. It is an economic industry composed of companies that use technology to make financial services more efficient. Financial technology companies are generally startups trying to disrupt incumbent financial systems and challenge traditional corporations that are less reliant on software [1]. The segment is significantly clustered and a lot of buzz‐words float in the discussion. Helpful to grasp the magnitude is a mind‐map created by fintech.info. See Fig. 35.1.
Fig. 35.1Mind‐Map showing the complexity of todays FinTech eco‐system. (Source: www.FinTech.info)
FinTech is a trend – no one will deny that. But how is it different from other trends in the “startup business”? We have seen waves of excitement and euphoria over things that passed or became “normal” – unreasonable bubbles, which have propelled industries or industry sectors to become a new hype.
Who does not remember the times of AOL buying Time Warner and everyone believing that the “new economy” would take over the world? At least this is a concrete example of an unheard‐of business transformation of a traditional, dinosaur publishing company and a traditional, dinosaur Internet access company – both being threatened by the Internet itself. But does MySpace ring a bell? Or Biotech? Or Marketplaces? Or Messengers? Or Photo sharing platforms? Or social platforms? Any and all of these trends have in common that there has been one player standing out, coming up with a new idea in a space that was overlooked by the venture investors. Money needs a place to go and it tends to flow toward the direction of a success. Or at least it tries to. So, when venture capital investors see that something works and that they have not seen it yet (where there is little or no competition), they will pump it up with cash. Old measures like a quick return on investment are no longer relevant. Size matters. Ease matters. Scaling the business and taking as much space as possible. Because, what happens next is that other investors will see that they missed something and push a “me‐too‐product” – a copycat. And there you go – you have your hype. I admit this is a simplified view but nevertheless a view that can be validated by a simple Google search.
One major trend is that big corporations add “disruptive elements” to their portfolio by purchasing start‐ups that have proven a point in something. Pharmaceutical companies buy biotech start‐ups with promising new drugs in their portfolio (saving their own R&D cost by spending money on something they can already validate). Forbes asked in February 2015: “Are M&A replacing R&D in Pharma” [2]? – an interesting aspect stated is this: “The spike in mergers and acquisitions in Pharma is beginning to make the industry look more like a pyramid where more companies develop drug molecules at the bottom than they commercialize drug products at the top. This shift has many in the space wondering what exactly is happening and how it will affect health care in the short and long term.”
Google, Facebook and the others do it the same way. While some exciting huge and visionary projects are kept in‐house, like for instance the idea of bringing Internet to remote areas on the planet with balloons in the stratosphere in the case of Google – they are surrounded by a large number of start‐ups that build product enhancements. For instance, things that work with Google or Apps for Facebook –work only in those environments. Or Apps that enhance mobile operating systems, like navigation apps did before navigation became an integral part of the maps solutions of the mobile operating systems. The benefit of the big internet players is that they can see whether something is successful and works for large audiences without spending a single cent, and then incorporate it in their environment when they see the value. Google is “building a start‐up ecosystem” around itself, as the CEO and Founder of TraitPerception, Juan Cartagena, puts it [3]. This tend
ency sometimes, as we all know, is not even driven by an immediate urge to build revenue – but by the urge to make their footprint bigger and get access to additional audiences or data. Take the acquisition of the extremely popular WhatsApp by Facebook, followed by Facebook making it free of charge for everyone.
The same applies for Trends in FinTech, which is not so much “tech” after all when you look at it. In so many cases it is really just the Emperors new clothes. Most of the things FinTech startups do were possible before, but even more in this (partly) regulated environment than in overall “tech startups,” it is evident that the old way of interacting between a solution provider (which might be a bank) and its customer has been somewhat clumsy (even though we were happy campers and used to it), and can be made so much more convenient. In an industry in which trust, history and reliability are strong values for consumers, convenience may not be the number one factor though. In Germany, a study by VuMA [4] shows that over 66% of the consumers in the country prefer to have their personal bank accounts with savings banks or cooperative (mutual) banks, which have a big network of outlets and interactions with real human beings.