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How Innovation May Have Prevented The Flight From Middle Market

Rear View Mirror

Under-banked, Under-insured Or Just Under-understood?

The rear view mirror is a tricky thing. You look in it, you see something, and then you talk about it. And then others will say, yea, but hindsight is 20/20.

OK, you got me there.

But we do learn from past experience, and that is good for building the future. And experts in innovation know that failing is the path to success, so the faster the better.

As I think about what is happening in the banking world post the credit crisis, the economic crisis and Financial Regulatory Reform, it is hard not to think about the impacts to the everyday consumer.

Banks are going to lose significant fee revenue as a result of caps on fees post FinReg. They have to figure a way to make it up. They are likely to go where the money is: up market.

Even before FinReg, a large proportion of consumers were “unbanked,” and relying on check cashing services instead of traditional banks for their everyday needs. While these services are not necessarily cheaper in the end, they are better trusted.

A recent Wall Street Journal article published this chart, which is very curious. The majority of unbanked households are in what would be labeled racial minority groups. However, they are also, according to the U.S. Census Bureau, the fastest growing segments of the population.
US Household without a Checking Account

The same holds true for insurance companies. While insurance companies have moved up market as a result of regulation, shrinking distribution and other industry dynamics, the middle market remains underserved and a source of angst for finding a formula that works and is profitable. A lack of trust exists, and in both directions.

And the emphasis in these industries has been around finding the “product” that cracks the code.

But could it have been a misguided insight that product was the answer? Perhaps there was something else that could have been innovated in order to help the market understand the benefits?

What was the tension? Did these industries understand it? Did they ignore it? Did they just tolerate it and move forward? Or is it truly not an opportunity? Well, if others are serving it, then it is…or was… an opportunity. Check cashing services, Wal-Mart, PayPal, telecom companies and others are touching that money, or getting ready to.

Perhaps the missing components here were the right mindset and the right research. The mindset would have to be one of somewhat childlike curiosity and wonder versus fear.

The research would be not just about demographics and geographics, but the attitudes, behaviors and beliefs of people who are of different backgrounds and experiences. It’s identifying the discreet differences in segments and solving for those tensions.

While today’s market is one thing, sustainability of brands is going to depend on knowing where the makeup of the market will be 20, 30 or 50 years in the future. If you don’t feel you understand your market deeply, it may be time to take a step back and become a student again.

September is coming. Can you smell the corduroy?

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