Rethinking The Financial Services Value Chain: A Q&A With Abhijoy Gandhi

October 25, 2018 Leah Hoffmann

Abhijoy Gandhi is a senior strategy consultant and executive who helps clients in the financial and business services industries adopt and leverage the latest FinTech tools, drive ROI through financial and operational initiatives, and identify new opportunities for growth. In our latest expert Q&A, he talks about how these companies can redefine value, address digital disruption, and take a page from the Amazon playbook by using emerging technologies to focus on customers, not products.

Your consulting practice focuses on the intersection of financial services and business services. What does that mean?

Financial services is exactly as it sounds, namely everything along the four corners of our clients’ balance sheets. Banking, lending, insurance, and retirement—all four converge during the life of a customer. If you wanted to add the institutional cut to it, there’s investment banking, mergers and acquisitions, and the different trading and research desks.

The financial services value chain has been disintermediated into front, middle, and back offices. And a large share of middle- and back-office functions are now fulfilled by business services firms, who have, in the past couple decades, grown to be Fortune 1000 companies in their own right—and have become an indispensable part of how financial institutions transact, operate, and fulfill client needs. We focus on this B2B nexus to serve both constituencies.

That’s a very broad remit.

It is. But what’s been happening recently, especially with emerging technologies, is that large pieces of the value chain that used to be manual are getting automated. My firm has followed that trajectory, and we’ve built skills to help both parties build effective partnerships. We help business services firms develop new capabilities, and we help financial services firms better value and leverage those capabilities, so that they can, in turn, create a wallet view of their end clients and customers and meet more of their needs.

What’s a wallet view?

We’ve worked very hard, over the years, to help financial services firms adopt consumer-friendly self-service technologies and thus shift their focus away from product management and towards client delivery through segmentation and share-of-wallet management. Essentially, this helps them refocus from product management related metrics to ultimate customer satisfaction. Every customer is an ecosystem with many needs. If you proceed from that hypothesis, you can basically aggregate your customers into segments based on their needs, provide them autonomy through self-help tools, and offer them customized suites of products and services that fulfill their needs in a seamless way, all while collapsing cost-to-serve and speed-to delivery. It does sound a little utopian, but it is now increasingly possible to execute with the right leadership support at the top of the house.

Every customer is an ecosystem with many needs. If you proceed from that hypothesis, you can basically aggregate your customers into segments based on their needs, then offer customized suites of products and services that fulfill their needs in a seamless way.
What are the implications for your business services clients?

Business services firms are being asked to take the headache away from their clients—financial institutions—by building capabilities to execute on non-core functions that currently reside within financial institutions. We therefore encourage them to build more offerings through a product platform. By creating a marketplace where, either through proprietary tools or through alliances, they fulfill more client needs, they can streamline their service delivery, establish more value and market power and ultimately make clients’ lives easier.

How does the drive towards automation you mentioned earlier figure into all of this?

Technology is now enabling disintermediation that was earlier neither possible nor scalable. Machine Learning is now steadily delivering lower errors than the best performing teams for repeatable tasks. Along with Neural Networks and Deep Learning, Artificial Intelligence now has mainstream business applications, and the resultant automation and digitization enable us to collapse speed-to-delivery and cost-to-serve. Customers want everything tomorrow, and there’s nothing wrong with that. Our goal, therefore, is to make our client’s tangible assets “sweat” more, either by delivering more units within the same period of time or by creating proprietary digital assets to replace them.

What other trends are shaping the industry?

One big trend in the B2B space is that the definition of “good” is converging across industries. Clients used to have very siloed expectations about what a good customer experience looks like. Now, thanks to the Amazons of the world, people suddenly know what to expect, and it’s no longer okay for, say, clients of a basic materials or mining firm to receive shoddy customer service. That has never been the case before, especially in B2B, where stellar customer service was close to non-existent.

Another trend has to do with regulations. In the same moment, we’re becoming a global village, but we’re also subject to more governance at each step. In this increasingly complicated world, the firms that build a strong GRC—governance, regulation, and compliance—capacity are starting to use it as a competitive advantage, because it affects speed-to-market and overall cost of doing business. A firm like Chase, which has a fantastic GRC framework, can seamlessly navigate in India, China, Vietnam. Wells-Fargo, on the other hand, does not have the same level of cross-border experience, so as they start to expand internationally, it will take longer and be more expensive.

Then there is the need to refresh the industry’s understanding of value. This is a little nebulous. In the past, the value that vendors added was very easy to estimate, because products and services were point-solutions, and it was easy to identify when demand was fulfilled. That’s not how things are anymore—each service has multiple components and is underpinned by multiple technologies and alliances. In a network-effects world, it’s no longer easy to estimate the value of a vendor, and this reflects in their inability to price in a transparent way. A lot of vendors that are doing well are thus giving away a lot of value to clients due to this inability to price for it. So there’s a lot of interest in being able to disintermediate what value is and finding ways to re-estimate and re-price it with new tools.

In the past, the value that vendors added was very easy to estimate, because products and services were point-solutions, and it was easy to identify when demand was fulfilled. That’s not how things are anymore. So there’s a lot of interest in being able to disintermediate what value is and finding ways to re-estimate and re-price it with new tools.

The last trend on our radar, which we think may have the biggest macro-impact on financial services per se since the creation of the internet, is Blockchain. We are more interested in the applicability of Blockchain—rather than the crypto-currency piece of it—because, at a fundamental level, blockchain technology, if executed well, can become a trustless, costless peer-to-peer system that does away with intermediaries. So incumbents need a lot of help playing defense and learning how to leverage and incorporate this technology in their everyday operations to continue to remain relevant.

Can you walk me through an example of how you’ve helped clients take on one of these challenges?

We recently worked with a payroll services provider that was a market leader for the past 30+ years. Payroll is a complicated business—every state has its own regulations, and in cases like New York and San Francisco, a bunch of cities do, too. This company’s go-to-market strategy relied on having extremely well-trained service specialists to help clients install and manage their offerings.

But technology has started to disrupt things. Startups began building algorithms that could very easily compute withholdings across different states and cities, automate time and attendance through geo-fencing, auto-populate the information into client payroll systems and so on. Thanks to the emergence of these newer, infinitely scalable tech-based platforms and point-solutions, industry price points are beginning to crash.

Unfortunately, this dominant incumbent was challenged to believe that the tech platforms were nothing more than ankle-biters, and they ignored them for the longest time, especially because they had a flanker brand that was also a digital platform. About two years ago, we helped them come to the realization that one of the Google ventured-backed startups was poised to overtake their flanker by 2020. So they recognized that the rate-of-change and adoption was acceleration and they finally needed to act.

How did you approach the problem?

The first thing we did was to size the technology challenge. The accepted wisdom at the company was that these platforms were never going to disrupt their service-led business model. Through cross-sectional analysis, we proved that 60%+ of their clients in fact actively wanted self-help tools, and up to 25% of the company’s business was at risk of migrating.

Then, we began to educate executives about the FinTech solutions that had disrupted adjacent industries. We showed them how industries such as consumer lending and retail banking were being disrupted, we showcased how the time to execute on a mortgage could be collapsed from six weeks to four hours, and we showcased how an insurance policy could be written online in a few minutes. We brought to them the reality of Robo-advisors, who attracted attention from a fourth of all retail investors. We showed them how something as tangible as real estate is being disrupted with the Redfins of the world. This helped them understand that they weren’t an exception and needed to participate in the transformation.

Finally, we did a new-space analysis on what end clients were expecting, and we demonstrated how antiquated their onboarding systems were. Clients couldn’t navigate their platform without a lot of help from sales and service people. This really wasn’t consistent with what the company was calling “service,” as the help clients were receiving was more to bridge the gap in their technical capabilities, as opposed to delighting people. On newer platforms, that help was not required, because the systems were intuitive, and customers could self-navigate through self-help tools. We’re now in the process of helping the company redefine service. This is all ongoing, and it will take a while. But they have created an MVP for a capability that will compete head-on with the technology plays. This is a huge departure from what they’ve done—so we consider our role to have been impactful. It took eighteen months, but there are no quick fixes when it comes to changing mindsets and behaviors.

Of course, it’s also critical for large companies to act with alacrity when addressing disruptive change.

The FinTech boom is not something many established companies fully understand. They call them “ankle biters,” but the truth is, there are a multitude of point-solutions being created in real-time that are disintermediating traditional financial services powerhouses. Savvy venture capitalists are rolling up some of these into platform companies, which are infinitely scalable platforms. On such online digital platforms, one can have a million clients or a billion clients with marginally incremental infrastructure investments—a big departure from the feet-on-the-street model. And given the rate of change, we’ve started to bash the notion that our incumbent client can build from within at the required rate. Big-firm culture just cannot move that quickly—understandably, because they have a lot more to lose, and their risk management structures are much more (rightly) robust than at smaller firms. But that has an impact on their go-to-market speed. So we’re promoting early-stage acquisitions as a key competitive advantage for the business-development function of large clients.

Big-firm culture just cannot move that quickly. So we’re promoting early-stage acquisitions as a key competitive advantage for the business-development function of large clients.
How else do you help companies build the case for change?

Most clients want to get straight to solutioning. And most consultants are also pretty eager to get there, because they know that’s what stokes clients’ fires.

But we’ve found that the biggest reason for under-performance is that the executive suite has a set of beliefs that are internally consistent but are disconnected with market reality. So before we get into solutioning, we try to pin down and quantify our clients’ beliefs about the industry, key trends, where they’re investing and why. That way, we have a baseline that shows executives how what we are finding in the market is at odds with what they told us initially—which then serves as a motivation and trigger for change. Otherwise, it becomes a sort of a continuum, where our findings incrementally merge with their previous beliefs, and they feel like they are already doing everything, anyway, and there’s no burning platform and cause for action.

You began your consulting career at McKinsey, where you served as an Engagement Manager. How do you see your work as an independent vis à vis the large consulting houses?

We’re now in a start-up world where things change quickly. So I’m a huge fan of not being locked away in a room, working on a deck that contains perfectly formulated solutions. I can’t tell you how many times I’ve seen those decks collecting dust. Frankly, given how far we go to deliver impact, a CEO’s pat on the back is simply not enough unless there’s also an accompanying discernable change in strategic vision and execution-path.

McKinsey is an amazing success story and is now bigger than almost 75% of the Fortune 1000 firms that it serves. BCG and Bain are also growing at a rapid rate. Given their premium partnership model, and at their current price-points, I think it’ll be increasingly difficult for McKinsey to serve the Business Unit president of a F800 company. If McKinsey comes in for a 3-month engagement, that’s basically a 5% hit to their EBIT for the year. So it’s a high-risk option for clients. And that opens up a big space for us.

Independent consultants with 20 or 30 years of experience have a lot of value to add and care about giving clients direction about what to focus on. They are better positioned to help clients choose ‘big rocks’ and can work at a pace at which the client can absorb information, as there is no pyramid structure or time-based delivery (i.e., the need to appoint partners to the firm bi-annually) to worry about. So they can roll up their sleeves, be part-consultant and part-operator, and really customize the solution to the client’s problem. To me, the disintermediation of the overall top management consulting offering to be much more specific to client need, and the customization therein, is what really distinguishes us. Given their fees or price point, how often can big firms have the luxury of tailoring their solutions to the client’s real needs?

What do you do when you’re not working?

I’m a voracious reader. I also have three kids, and we’re traditional about building strong family values, so we try and have quality moments addressing culture and the Gandhi-family way of doing things. Overall, I like what I do, so working on challenging problems makes me happy. I still build my own spreadsheets and conduct my own market research, and I keep my feet firmly planted to the ground in service of clients.

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About the Author

Leah Hoffmann

Leah Hoffmann is a former journalist who has worked for and The Economist. She is passionate about clear thinking, sharp writing, and strong points of view.

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