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With the launch of its banking-by-shoebox service, Amsterdam-based bank Insinger de Beaufort created an elegantly simple offering that overcomes the barriers of time and skill that limit consumption of financial services.  While Insinger’s shoebox service targets high-end consumers, could the model be altered to create a low-end disruption?

Here’s how the service works: After meeting with a private banker to discuss financial planning goals, Insinger’s customers receive a shoebox by mail into which they can drop everything from tax return forms, speeding tickets, insurance-related forms, bills to be paid, investment statements, and bank statements.

On a monthly basis, Insinger collects the box via courier service, processes all the paperwork inside, and sends the clients a notice of the resulting transactions within three business days.  Once every quarter, clients receive a full report outlining the status of their transactions, accounts, spending patterns, and overall financial position. This information serves as fodder for annual discussions between the client and his/her banker to assess changes in financial position and planning.

The shoebox service addresses functional jobs, such as “Pay my bills on time,” “Ensure I don’t miss any payments,” “Remove the hassle of handling my finances,” and “Have more time to do what I enjoy.” Just as critical are the emotional jobs addressed by the service, such as “Reassure me that my financial affairs are taken care of and nothing has slipped between the cracks,” and “Know that someone is keeping track of my spending and investments to help me make good financial decisions.”

In its current form, the shoebox service is a sustaining offering, given that it targets the most profitable, demanding banking customers with a high-cost service (rumored to run €415 to €850 per month, depending on service level).

However, many of the jobs and barriers addressed by the service are ones also found amongst low-end non-consumers of financial services.  While the low end of the market may not have as many jobs related to investment management, these potential customers are also constrained by time and skill when trying to satisfy jobs related to bill payment and financial management.

Could a similar service have disruptive potential at the low end of the market by using a different business model? At Innosight, we would ask the following types of questions to assess the feasibility of such a model:

• Which components of the service are critical for meeting the jobs most important to low-end customers and, therefore, need to be retained? Which components can be cut without diminishing the value to low-end customers? For example, could the personalized financial planning service be stripped out and replaced with templated trend reports of a customer’s spending and investments, along with automated recommendations based on those trends?
• Could the service be offered through a low-cost business model relative to Insinger’s labor-intensive, personalized approach? For example, could the transfer of documents, bill payment, or trend analysis be automated to avoid the costs of couriers and manual processing?
• Are there distinct jobs and barriers for low-end consumers that should be considered in designing the product? For example, is there an additional job of, “Make sure I don’t overdraft on my bank account” that is related to the cash-flow challenge faced by many low-end consumers and is important/unsatisfied for this market? Could this job drive development of a new feature to provide a credit cushion to customers or otherwise prevent overdrawing on accounts, or is the cash-flow challenge a big enough barrier to prevent such a service from taking hold with the masses?
• Are there potential partners with capabilities that could minimize the investment required for an initial service offering and that would be motivated to support the model? For example, would Intuit (maker of TurboTax) be interested and able to provide automated report generation capabilities or input on selling the service as a subscription or as a software product?

If the questions above can be answered favorably, a viable opportunity may well exist for a disruptive product that could enter the low-end market and eventually develop into a good-enough alternative to more traditional, expensive financial services.

Wal-Mart's announcement this week that it is forging ahead with banking services -- despite having been denied a broad banking license due to lobbying by community banks -- seemed to shock some in the financial services industry. It shouldn't have. The company's move is firmly in line with how it approaches new markets, but the approach is quite distinct from how US financial services firms have traditionally functioned. Wal-Mart is circumventing its recent lobbying defeat by partnering with an array of third party firms, such as GE, to provide a wide array of services such as debit cards, low-cost check cashing, and money transfers. It will use its brick-and-mortar infrastructure to great effect, but will also leverage the convenience of banking while you shop and its reputation for offering excellent value (in a market where pricing can be more than a little opaque). The focus of its effort -- for now -- will be on the unbanked, including immigrants. The firm is laying the foundation of a highly disruptive business. It will offer simple banking services, without the frills of branches, nicely-dressed staff, and drive-through tellers. While consumers may give up these now-standard features of the banking experience, they will gain convenience, value, and access (including the ability to set up basic accounts without all the Know Your Customer paperwork that hinders many who are currently unbanked). Wal-Mart is attacking a market that most banks don't value very highly, and on turf where the firm's asset and brand advantages give it a clear Right to Win. These are all harbingers of success. The move may startle many in the industry, but it shouldn't. Wal-Mart has often outsourced the provision of services that require different competencies than its core, e.g. optician services and health clinics. And there is vast experience overseas, particularly in developing countries such as South Africa and Brazil, of retailers creating powerful banking franchises. These franchises often start with financing purchases at the store, perhaps using transactional data to supplement spotty credit histories. How will financial services firms respond? Likely, many community banks will focus even harder on their long-term customers, who tend to be significantly older than the national average. That is not a formula for long-term success. Check cashing shops may lower price and consolidate -- hard times ahead. Big banks may ignore Wal-Mart's move given that it targets customers they have not traditionally valued. More prescient big banks will realize that Wal-Mart's success at the low tiers of the market will give it every incentive to move up and to start attacking the critical mid-market. Each of these competitors needs to create business model innovation of its own to respond effectively. Business model innovation has become a fashionable term of late, but it is harder to execute than many firms perceive. It must start with the customer value proposition, and then work its way through to the profit system and the firm's resources and processes. Unfortunately, many firms get this backward, fixing the profit system, resources, and processes in place, and thereby severely constraining the type of business model innovation that can occur. They would be well-served to chart their current model in a disciplined fashion, recognizing the divergences that must happen for the company to thrive in the new competitive environment. Then, they can systematically liberate the constraints that remove degrees of freedom from their desired response. It is not easy, but if it were then it wouldn't be so profitable. Wal-Mart's move adheres closely to the model of successful business model innovations. In this case, it has the requisite profit system, resources, and processes already in place. For Wal-Mart, banking is as natural an extension as Internet sales were to a leading catalog retailer of PCs -- Dell. We shall see whether competing banks will be the new Compaq.

The Nobel Peace Prize was awarded to Muhammad Yunus and his microcredit institution, Grameen Bank, today, validating the notion that disruptive innovation can be a powerful driver of peaceful, harmonious development. Disruptive innovations often democratize or decentralize a traditionally restricted product or service, enabling mass consumption. This is of course an opportunity for companies looking to create new growth, but in many cases it can also be a liberating force for underserved segments of society, enabling radically new access to the tools and levers of the modern economy. Yunus? microcredit scheme ? which is spreading from his native Bangledash across the developing world ? is a wonderful example of this sort of low-end innovation. Financial services, particularly access to credit, provide the liquidity and leverage people need for enterprise and development. In much of the developing world there are no modern financial services designed for the poor, leaving people prey to loan sharks and stuck in patterns of indenture and poverty. Grameen solves this problem by focusing on what its customers actually need ? small loans with no fixed repayment scheme, delivered to villages by ?mobile bankers? on foot or bike and enforced by a communal structure that limits loan amounts to groups of people based on constituent members? repayment status. These microloans might enable a villager to buy a new cow or school books for a child while building a credit history without getting trapped in a cycle of spiraling debt. They are so well designed that Grameen has long been profitable and boasts a 99% recovery rate; all the microamounts ? from pennies to hundreds of dollars at a time ? have added up to $5.72 billion in loans since inception. A final note: the way in which Yunus happened upon his microcredit strategy is telling. He met a poor rural weaver who told him that she was virtually enslaved to her lenders due to the massive amounts of interest they charged on the tiny loans they gave her. Yunus then spoke to others in her village and realized that the lack of access to affordable credit was their primary impediment to development and enterprise. What?s more, the amounts needed by the villagers were miniscule ? the entire village needed just $27 of capital! He immediately put up his own money and asked the villagers to repay him whenever they could. Within a year they had all paid up, and the idea for a business was born. Going to villages and talking to people in need enabled Yunus?s insight. He listened to the frustrations in their lives and designed a solution to help make things easier. Yunus helped lift millions out of poverty and built a profitable business by understanding and addressing nonconsumers? Jobs to be Done. See: http://nobelpeaceprize.org/eng_lau_announce2006.html http://www.grameen-info.org/