Sandy Weill, the former Chairman & CEO of Citigroup, famously pioneered the concept of the financial supermarket. Analogous to big box retailers, the financial supermarket construct was designed to provide retail and business clients with convenient one stop shopping for their banking, investment, and insurance needs. The business rationale behind the financial supermarket was grounded in the belief that gaining the ability to holistically serve a client’s financial needs would allow for elevated economies of scope and scale, profitable cross selling opportunities, and increased customer loyalty. Weill’s vision of a financial supermarket manifested itself in Citigroup, as decades of acquisitions created a conglomerate with the scope to provide the full palette of financial products. Despite Citi’s wide ranging capabilities, it failed to develop the necessary synergies across its business units. The customer centric model and its associated highly profitable cross and upselling opportunities never came to fruition; instead Citi became a sprawling and disorganized bank characterized by customer fragmentation and unprofitable business units. In the wake of the 2008 financial crisis, Citi was dismantled and along with it the financial supermarket model. Critics were quick to attack the validity of the universal banking model, citing two major intertwined and insurmountable hurdles preventing its success: the first being siloed and competing business units, and the second the inability to collect, display, and transmit client data. Although these hurdles ultimately proved insurmountable for Citi, they do not prove that the financial supermarket model is inherently flawed, but rather identified problems that can be solved by the tactical implementation of financial technology — ultimately bring to fruition the financial supermarket model and its promised benefits.
Siloed/Competing Business Units
The financial supermarket model was notorious for its siloed and competing business units, a result of decades of a product-centric business model that itself is primarily a result of the design of compensation plans. Financial service firms typical pay their sales reps based on how much of a particular product or service they are able to sell to a client and not on how much revenue the firm receives in totality from a client. For example, a financial advisor is compensated based on the amount of a client’s AUM she manages, whereas an insurance agent is compensated based on the type and amount of insurance he sells. It is likely that the insurance agent has clients that would benefit from advisory services and vice versa. However, rarely does an insurance agent or a financial advisor every introduce their clients to one another. Why? Neither receive any meaningful compensation for their cross selling efforts and they place in jeopardy their respective book of business. Getting back to our example, if the financial advisor makes a mistake with the insurance agent’s client, it raises the possibility that the insurance agent may lose his client. The insurance agent is not meaningfully compensated for his cross selling efforts nor is he compensated for the risk. The possibility of lost business incentivizes sale reps and relationship managers to guard their book of business and not engage in...
cross selling opportunities. Because compensation plans award sales reps for only the revenue they generate and do not adequately compensate or incentivize sales reps to cross sell, it results in siloed business units that not only significantly reduce the profitability of a financial service firm but also make it impossible to implement the financial supermarket model. Fintech can help solve the siloed business unit problem because it replaces individual compensation plans with a firm relationship compensation plan. Let’s take a look at our previous example, but with the client onboarded and the relationship maintained by technology. Rather than utilizing an insurance agent, the client completes a digital insurance onboarding process. The client’s data is quickly analyzed to see if he would be a good fit for any other services. The software decides the client would be a good fit for its digital wealth management service. The client is sent an email invitation or prompted to sign up for the digital wealth management service the next time he/she logins to his/her account. The lack of an individual sales plans removes friction caused by competing interests and allows for the seamless cross selling of additional products and services — this in turn makes the financial supermarket possible.
Lack of a Central Client Data Service Hub
Past financial supermarkets were characterized by fragmentation of client data and insights. Client data was stored on multiple CRM systems, poorly tagged, and not readily shareable. This forced clients to have to undergo multi step processes and reshare information when switching between products — resulting in a cumbersome user experience. The central client advantage of the financial supermarket, one stop shopping was unattainable. Clients could not view their financial life on a single login or statement, they found the experience to be disjointed and frustrating. On the financial services side the inability to effectively collect and distribute client data prohibited the promised benefits of cross/upselling. Without client data the customer service and sales reps were forced to operate independently resulting in operational redundancy and increasing costs of sales. Fintech offers a solution to the client data collection, display, and distribution problem. The fintech solution is twofold: providing the client with a single sign on dashboard and implementing an intelligent enterprise CRM. A single sign on dashboard allows a client to easily view all of their financial products and view their entire financial picture. They can easily click on a particular products to learn more and contact the appropriate interface/person for help. The implementation of an enterprise and intelligent CRM allows sales and customer service reps to understand a client’s financial situation and view most recent activity. They can identify targeted sales opportunities and proactively service clients. An enterprise and intelligent CRM allows financial supermarkets to leverage client data and real time analytics to deliver personalized, dynamic, and unified services to their customers.
The financial supermarket’s demise was the result of siloed business units and lack of a central client service hub. Fintech offers a solution to these problems. As more financial service firms incorporate fintech into their product offerings we could see the rebirth of the financial supermarket, this time with the associated benefits.