Paul Ricard: Hi everyone, and welcome to Oliver Wyman's Reinventing Insurance podcast. I'm your host, Paul Ricard. [Intro Music] Hi everyone, and welcome to the latest episode of the Reinventing Insurance podcast. I am your host, Paul Ricard, and I have the pleasure of welcoming Beth Costa, who's a partner at Oliver Wyman and leading our payments practice for the Americas. Welcome, Beth.
Beth Costa: Thank you, Paul. It's great to be here. I'm Beth Costa. I'm a partner in payments and financial services at Oliver Wyman, and I've been in payments for my entire career.
I've been not only as a consultant, but also as an operator in the industry and as an operator, have worked around the stakeholder group 360-degree view of payments. So, at a bank, at a merchant company, a technology company with a network. So, I have had the opportunity to see payments from a number of different angles.
Paul: So Beth, we are on the Reinventing Insurance podcast. I'm sure there's a few folks asking themselves, why are we talking to someone about payments? And I think there's a few different reasons for this, so why don't you tell us about it?
Beth: Yeah, for sure. I'm sure that there are a few eyes that may start glazing over as we mentioned the word payments. People might think of it more as an operational or a technical or pretty nerdy topic, and it certainly has complexities.
But what I like to think about with payments is a broader view of the flip side of payments, which is that it's incredibly dynamic and exciting because every time somebody does a payment transaction, they are engaging in commerce. And commerce is something which is evolving so dramatically these days, especially over the last 18 months with the pandemic.
Every time a transaction is done, someone is buying something. Over the last 18 months, we have seen an acceleration into digital that it was unprecedented and probably sped up that shift by about 10 years.
And so the opening of that digital chasm, if you will, and so many consumers operating in it now in terms of the commerce side, really brings a different lens to talking about payments and related financial services.
Paul: The last 18 months have certainly felt like 10 years and looking forward to discussing this. And I like your spin on commerce as a broader theme and I think there's a lot of things we can unpack over the next few minutes together.
And to your point, we're talking about Reinventing Insurance, we're bringing payments and commerce experts into the series. And as you hinted at it, there's a lot of interesting parallels, a lot of interesting lessons learned.
And also frankly, you're talking about nerdiness, I would say there's actually a lot of nerdiness in insurance too and a lot of Insurtech, huge Insurtech wave that's been coming up in the last few years and a lot that is progressively changing. And so maybe starting there, we would be interested in your view on some of the big things that you've seen happening in the payments in the commerce space.
Beth: So, at a high level, as you noted, the payments in commerce space, like the insurance space, is complex with many stakeholders, multiple business models being used in the market, many types of products and solutions and different ways of coming at this complex space.
There's a lot of regulations that govern behaviors and make for complexities in operations. And what we're seeing more and more in payments and also in insurance is that there are new innovators that have come into the market. In payments, it's been, I would say over the last 10 years especially, where we have seen these fintech companies come in and initially focus in areas that are not being served and then they have just ballooned.
And so a really good example of that is Square. Square is just 12 years old, relatively new company. You remember way back when they started that they were that white square dongle that you would stick in your many generations ago iPhone now.
Paul: That's right.
Beth: And it was really helpful for a plumber or a taxi driver or whomever that had not been card-enabled before. And now with that little dongle and if you had a phone, you just swipe your card and voila, you are a card accepting seller, merchant, whoever you might be. Now they've grown into, 12 years later, this amazing organization, huge organization that's over a $100 billion in market cap and plethora of products.
Paul: On this podcast, we talked a lot about being customer first and starting from the customer needs and the customer demand back. And this is a very good example that you just brought up. A company like Square has expended its reach and its use cases beyond what it was usually doing.
It seems like across financial services we're really seeing a lot of that ecosystem of fintech, Insurtech, right, and players that started with something very specific that was addressing a need and expanded from there.
And frankly, in the Insurtech space, we're seeing quite a bit of that as well, where players will start targeting a specific type of insurance or specific need and expand from there will also expand across the value chain. So maybe interested in getting your broader reaction and your broader perspectives on this.
Beth: For sure. And the FinTechs, the new technology companies, they're innovating and changing the game. And why are they able to do that? A number of the companies that are in this space are not offering anything that different, right? At the end of the day, they're enabling somebody to accept a payment, credit card, debit card, whatever, or they are giving a loan to a small business or they are allowing a buyer to pay over a term, a certain time period.
We have products for all of those things that have been provided by the traditional organizations. Maybe a bank for example, already provides lending to a small business. A credit card allows you to spread payments over time.
But what these startup companies have done is changed the game because they listened to what the customer was looking for, what the need was, and then they tapped into that and kept expanding.
And we see that that has been a recipe for success across the last especially 10 years in payments. And what we're now seeing is that those companies that had a foothold in payments, had a foothold in one particular area, are now setting their sites on super apps. So what have they done?
Klarna, for example, has taken their Buy Now, Pay Later product, which was a very specific fit for purpose spreading of payments over a number of four payments or 18 months or whatever. And Klarna now in their various additions to their suite of solutions is seeking to be a super app.
And a super app is sitting at the center of the customer's life, whether it's their financial life or their health life or maybe it's even broader than just a single realm. And they want to sit there and be able to interface with their customer across these different spaces.
And that's a different mental thought process, business model approach to talking to the customer's use of data. All of those things come into that equation. And those companies that started with a different mindset have that flexibility to be able to grow.
Paul: I want to double click on that super app idea that you're bringing up. It's really fascinating and, in a way, you can also go beyond payments and commerce and even financial services.
And I was reading, for example, that in the last couple of years, as you can imagine, food delivery has become greater than ever and the Uber Eats versus DoorDash versus Grubhub are all competing with each other.
And what's interesting, for example, with an Uber, and I think you and I were talking about this a few weeks back, is well, started with picking up people, offering different tiers, different types of services, speed, luxury, then shifted to delivery, and now is getting into grocery and what's the next frontier. The question that I have for you is: how much space is there in financial services for these different super apps and where are the incumbents at?
Beth: The winners that we're seeing today are those organizations that have inserted themselves in the right places where the consumers are with the need. And this is often we were talking about some of the traditional providers.
The traditional providers, as I say, have all of these products, but they are coming to the consumer, I'm going to send you a co- brand credit card offer. And that's an individual kind of an interaction that is around a particular product that the bank, say, is offering.
That's how they're structured, and they've got these particular silos. Instead, organizations that are interacting with the consumer more in the consumer's life, in the course of their day-to-day life, are not seeing it as a product led thing, but as a consumer need led.
So, if you think about, for example, insurance is a product that you could go to a customer and say, wouldn't you like to buy life insurance? Or wouldn't you like to buy, to a small business, wouldn't you like to buy property and casualty insurance, say? And often that's not top of mind for them or they're not thinking about it.
But if you are interacting with them in the course of an engagement in something else where that's a relevant part of that decision the consumer is making to buy something like a trip from New York to Tokyo, would you like to spread that out over time, there and perhaps ensure if you decide to make a change in your trip, you ensure the price of the trip gets refunded?
Paul: Yep.
Beth: That's peace of mind. That's insurance just like any other kind of insurance is where it gets tacked onto something the consumer is already considering to buy and you are able to integrate it more into a natural decision that the consumer is making.
Paul: And that's interesting, right? I'm going to lump together millennials and Gen Z, which are populations that in insurance are not necessarily or are rarely top of mind. I mean this is not where proportionally the most affluent people are. This is not where the greatest awareness around insurance is.
And so, therefore this tends to be a challenge because if you want to go after a population like this, in the spirit of meeting them where they're at, there is a need for insurers to transform essentially their definition of product, which is today, and you see this in banking and in payments, it's a regulated product that is filed and regulated in 50 states.
But here it's really exactly what you just mentioned. The experience, the embedding of the experience into a partner app or a partner website is part of where the insurer needs to experiment and test and introduce new solutions. And that requires the mindset change that we were talking about earlier.
What else have you seen out there, players that have done it well or any guidance you would have for insurance to make that leap to go after millennials and Gen Z and others?
Beth: Yeah, for sure. And I would say that there is definitely a change in, it's not a product. There's also a change that may be required in the perception around the company brand and also the interaction model.
So, there's kind of three areas there that we can learn from millennials and Gen Z, they are really redefining commerce as we know it. And insurance is something that is purchased. So, I lump that into this commerce umbrella and they, Millennials and Gen Zs, these are people under 35, made up 42% of the population last year.
So, it's a very big chunk and they are aligning their purchasing decisions, their way of shopping more with values and convenience and digital interactions than ever before.
And so we see the customers, for example, preferring cash and debit use to credit cards. They prefer a Buy Now, Pay Later product, which is an installment payment product. They prefer that to overusing a credit card. I've heard many people in the payments industry say, “Well, they're the same.” I'm worried about my Buy Now, Pay Later product cannibalizing my co-brand.
They're actually very different in the consumer's perspective because consumers do not see Buy Now, Pay Later as a loan. They see it as a money management tool. And so tapping into, how do they see a form of payment or a financial service, is a very important lesson to learn.
Paul: The Buy Now, Pay Later enables you to tack on some extended warranty protection and all these things that not only are way more seamless, but are presented as, “Oh, it's not that weird insurance product that I don't really like interacting with. It's part of my subscription or my monthly payment that I'm contributing to and that I'm totally comfortable with.” And that's a very different way of engaging.
Beth: That's right. Convenience, frictionless experience, seamless experience is really paramount because they have become accustomed to that way of interacting in the digital world. And so that is a very important design requirement as you're thinking about how to interact with millennials and Gen Zs.
The other thing I would say as it relates to insurance specifically is the Millennials and Gen Zs may not sit around all day talking about what kind of life insurance they want to buy or what kind of auto insurance they have. That may not be a topic they discuss a lot, but being safe is, being healthy is, caring for your family is actually something millennials do talk about, whether it's for their kids or their parents, they're on both sides. Even being able to return a purchase is a guarantee for peace of mind in commerce.
So, if you think about insurance in a different way, those topics are all areas where insurance can factor in one shape or another. And so thinking about the convenience, the values they have, the peace of mind, those are all elements of tapping into then that millennial group, which is a huge opportunity area for insurers.
Paul: And I want to use this as a transition to another area you were talking about that's very interesting, which is small businesses.
Beth: Speaking of huge opportunities, that's a huge opportunity area as well. There is, as you noted, a wide variety of small businesses, organizations that are, whatever, five million in revenue say is a small business, but so is a seller or a maker on a marketplace.
And we are seeing an increasing number of that lower end in size small businesses if you will, as people are thinking about being a maker or entering into the gig economy in some way. And those are typically companies that are underinsured and have unique needs and they are not going to have a finance department or somebody on their staff that's going to go research this for them
And so the ability for us to think about, what are their needs and how might we be able to meet those needs, things like supply chain now take on different meanings for these smaller companies. So supply chain disruptions, legal and performance liability because of cyber related threats, that's something we're seeing more of as well, where small businesses are really not covered for that.
Paul: You were mentioning the big companies, right? It's not uncommon in insurance to say, look, we cater for large companies, medium size companies, small businesses, and the game oftentimes is small businesses is, efficiency, scale, right, commoditization of the offerings.
Rather than, hey, every single small business is different – let's cater to that. It is hard. I'm not saying it's easy, but that's the bit of a challenge. So, interested in your thoughts and what have you seen there, what are your perspectives, what's the opportunity there?
Beth: And the distribution question that you were touching on there, it's a really important one for these smaller, you hesitate to even call them businesses because some of these sole proprietors or people don't even think of this as a business quite yet, but they're not going to be reached through your traditional agencies, your traditional insurance agents because they're not really at that stature yet.
But you could reach them through marketplaces, through places where they aggregate and congregate and then you would speak to them differently. You would interact with them in the context within which they're interacting with that marketplace or that place where they aggregate.
And so even the way you as an insurance company, a larger insurance company, you've got an agency network, but is there another network that you should be thinking about cultivating where you can reach some of these people, like you say, they're individuals, and help them and be a partner with them should something go wrong? Can you be my partner in each of those situations?
That peace of mind that, I will rely on you to have your arms around me in an increasingly digital world where you do not see your customer as a seller, if you will, that is very appreciated.
Paul: If we think beyond insurance, have you seen instances where players have gone after this small business or micro business segment and done well at flipping that mindset and really having the small business back?
Beth: Yes. And in fact, we don't even need to leave insurance for that example. I would maybe point to say Airbnb. One of the concerns that a host may have is, "I don't want to put my house on the Airbnb site and have unknown strangers living there doing, who knows what. I'm concerned they might wreck it, ruin it, cause some damage".
And rather than go to the host and Airbnb saying, I'll sell you an insurance policy, instead they have what, they didn't even call it insurance, they just called it host protection. What they've done is with that protection wrapped their arms around you and said, “Don't worry – if something should go wrong, we've got your back, we've got you covered.” And that gives you peace of mind then to list your house.
And so those types of changes in names, changes in interaction models, changes in points of purchase, and where in the conversation you bring some of that protection and peace of mind in is certainly an example. The ability to demonstrate a sensitivity to whatever their situation might be at the moment is really critical.
Paul: It's interesting because you're talking about buy now, pay later for example. And it's fascinating how quickly some of these convenience features have quickly become ubiquitous on apps.
I mean, you think about all the payments services that are just one click and that's it. You don't need to enter your credit card anymore and all these things. You see the same thing in the buy now pay later space. So, to your point, convenience is really key and it seems like if it's the right thing for the customer, very quickly it becomes adopted by every big player out there and it becomes ahead very quickly.
Beth: As we have the, often, FinTechs creating a new experience for customers that they love. It started with Uber, no click, I get in the car, I go where I want to go, and I get out. I don't pay for that. I don't have that cab interaction in New York City as everyone's tooting their horn behind you to get out of the car, I don't have any of that.
They created an experience that everybody loved. By doing that, they raised the bar for what is retail standard or what is the customer experience that everybody is starting to expect and you gradually get there. And the time between adoption then by the next merchant, they're all trying to get that no click payment checkout experience for example.
So, the expectation of consumers is continuing to ratchet up and that's why it's so important to have that seamless convenience, frictionless interaction be there where the consumer is so that you're in the commerce flow wherever, whenever they see something they might want to buy. That's all important and new versus how you thought about it, say 10 or 15 years ago.
Paul: And we talked about this quite a bit without necessarily calling it out this way, but embedded insurance is definitely the talk of the town. And ultimately that's very much the combination of all the things we talked about, right? Meeting people where they're at. Convenience, convenience, convenience, and certainly valuing the experience in your product as much as the actual product that's sitting behind this.
Beth: And valuing the need that it is meeting. That's where you're able to price it. You price it based on the need that it is meeting, which, when you're solving that need, that pain point, that itch, whatever it is, you're then able to identify what's it worth to you to have this itch scratched or this pain relieved.
And that's very different from perhaps a traditional way or the way a traditional provider would've thought about one of these products.
Paul: One of the things I like to bring up is the risk aspect of all these things. And so, we love to talk about the fact that it's very important to de-risk your journey to these fast paced breakthrough innovations. Can you tell me a bit about maybe how some of these players have tackled this, right? And what are some of the ways to go at it and de- risk that journey to innovation and to meeting customers where they're at?
Beth: There are some hurdles which are solved with technology. There are other hurdles which are in place because of regulation that are not solvable with technology. But the way organizations in payments, for example, solve them is by outsourcing the piece that they don't want to do and keeping the piece that they do want to do.
So, in payments, for example, a piece that is regulated often has to do with the money movement aspect, access to the monetary system and moving money. And that's where banks have privileged access. And FinTechs could apply for money transmitter licenses or a banking license, but most of them choose not to and choose to partner with a financial institution for that piece of money movement, say.
But they are keeping that front end interaction with the customer. They are keeping the customer experience, the interaction and messaging, marketing, the product definition, if you will, the way they are constructing the solution stays with them.
Paul: For example, in the insurance industry, we've been seeing a lot of similar things where exactly what you described happens, where in a way you start close to the customer on the distribution side, moving to the underwriting.
We see a lot of managing general agencies or MGAs that are handling all of this distribution, connecting with the customer, having that relationship, having the data, being able to provide a better experience and a better product through that data, exactly what you were describing.
First, partnering with the more traditional carriers that have that infrastructure and working their way through the value chain over time as they're getting more of a foothold into the market and are able to grow into this. Any final words of wisdom from you, Beth, for our audience?
Beth: We've talked about these themes throughout this time. Customers still have needs around commerce, around insurance. Their needs are still there, but their behavior is increasingly motivated by some of these non-product specific choices.
They're solving for not only the product needs, but the non- product needs, trust, value, service. And so, it's important that you create a frictionless, anywhere, purchasing across channels, across social platforms, the experience is omni-channel, omni-market, omni-present for them.
And we're seeing successful companies moving to integrate themselves more fully into the lifestyles of customers, creating connections to survive and thrive in this new age of commerce.
Paul: Great. Well, Beth, thank you so much for your time. That was fascinating to talk about commerce, payments, insurance, small businesses, millennials, a lot of stuff that we unpacked together. So thanks so much for your time. That was really fascinating. Thanks everyone for listening.
Beth: Thank you, Paul. It was fun.
Paul: That was Beth Costa, who's a partner at Oliver Wyman and leading our Americas payments practice. I am Paul Ricard. Thanks for listening and I will talk to you next time. For more information about our Reinventing Insurance series, you can find everything on our website at www.oliverwyman.com/reinventinginsurance. Thanks for listening and I'll see you next time.
This transcript has been edited for clarity.
