Warby Parker, Casper, Bonobos, Allbirds, and Glossierare some examples of an ever-growing list of consumer brands that have significantly disrupted the retail industry, largely without appearing in brick-and-mortar stores. These brands have found success using a direct-to-consumer model, meaning that they sell and market directly to consumers via technology such as e-commerce channels and social media (rather than traditional wholesale-retail distribution channels).
The direct-to-consumer retail model poses a real threat to well-established brands: One study from the Interactive Advertising Bureau found that Gillette’s share of the men’s razor market fell from 70 percent in 2010 to 54 percent in 2016 as direct-to-consumer razor companies such as Dollar Shave Club and Harry’s emerged.
Similarly, Casper and other direct-to-consumer mattress companies took five percent of the mattress market share in 2016 and were set to double that in 2017. A similar situation is brewing in financial services.
Traditional financial services companies face a potential loss of customers, particularly young ones, to technology-first service providers that more effectively connect with this critical demographic. A 2016 Bain study found that nearly a third of customers globally would change their bank if they could do so easily. With dissatisfaction that high, traditional financial institutions should look to emulate the branding strategies of direct-to-consumer retailers, rather than leaning on their well-established names, to engage with millennial and Gen Z consumers.
Users, not buyers
What the Warby Parkers and Caspers of the world understand is that companies selling “ordinary” personal products can still foster deep connections with their consumers. To do so, they position their customers as “users” rather than “buyers,” according to a recent study from SAP, Siegel+Gale, and Shift Thinking. Direct-to-consumer brands market their products as goods a customer uses repeatedly and develops a relationship with, rather than a one-time 
transactional purchase. As a result, a sense of loyalty to the brand emerges through the repeated use of its products. Like mattresses and eyeglasses, financial services may not be exciting, but they are personal.
Most financial services are used repeatedly, making a “user” approach well-suited to the category. Therefore, disruptive fintech companies emphasize building customer relationships instead of increasing individual transactions. Lending firm SoFi holds social events for borrowers who have paid off their loan (actually celebrating a potential end to the relationship, which is a powerful testament to their customer advocacy), and automated investing app Stash has a robust blog, LearnStash, that offers honest, straightforward explanations of financial concepts and advice, irrespective of how directly the advice applies to Stash’s own product line. Although a user approach is not yet commonplace in financial services, even among fintech companies, those that pivot their brands accordingly and concentrate on how customers use their services stand the best chance of competing in the new industry landscape.
Power of personalization
Research from BCG found that brands that create personalized customer experiences with technology and data can increase revenue by six to ten percent, and direct-to-consumer brands have capitalized on the benefits of personalization. Many direct-to-consumer companies hyper-tailor their offerings to customers, paying close attention to a customer’s location, age, past purchasing decisions, and personal tastes, and then customize their special offers and communication accordingly. For example, Glossier (a direct-to-consumer beauty brand that emerged from a blog) tracks visits to the “Into The Gloss” blog and the cosmetics site to target products at blog readers who have not made a Glossier purchase. With the vast amount of consumer financial data available to fuel personalization, including insight into consumer cash flow patterns and net worth across all accounts, incumbent institutions can and should do much more to personalize their services.
Ironically, financial institutions already hold some of the most powerful customer data (their financial habits), which can be further enhanced with adoption of aggregation services, yet they seldom leverage this data to form a deeper connection to the consumer. Financial technology companies already have a grasp on leveraging data-driven insights for personalization. Fintech companies such as Hiatus and Clarity Money offer tools to enable users to improve their personal financial habits and take control of their finances. To attract and retain younger customers, who are only growing more accustomed to receiving individualized financial guidance, industry incumbents must turn their wealth of data into targeted services.
Lower costs, bigger customer bases
Direct-to-consumer brands have also drastically changed price expectations. By cutting out the middlemen in their sales, they deliver quality products at a much lower cost than their established competitors. Dollar Shave Club, for example, allows customers to have razors delivered to their doors for as little as $6, as opposed to traditional razors that cost around $20 and a trip to a retailer to make the purchase – a superior customer experience that got the company purchased for $1 billion, only four years after its launch.
Many fintech companies’ value proposition is to leverage technology to provide less expensive financial advice, lower interest rates on student loans, or more fair and reflective insurance rates. For example, robo-advisor Betterment charges only 25 basis points for wealth management services and no minimum to enroll, as opposed to traditional financial advisors that charge one to two percent on assets under management and often require high minimum investments to qualify for on-boarding. To retain their clients and attract new young customers, incumbent institutions must offer more cost-effective products that can compete with the fintech companies that provide the same services at a lower cost.
Customer experience first
Lastly, direct-to-consumer brands prioritize customer experience above all else. Retail brands like Casper are digitally-native, as CEO of Bonobos Andy Dunn has stated, meaning they were born online and the internet is their primary means of customer interaction. Through online relationships, these brands ensure their customers’ entire experience is simple and convenient, so they return. Long lines, slow transaction times, and a lack of digital resources have plagued banks for years, while the very premise of many fintech companies is to deploy technology to make finance more convenient.
Positive customer experiences are important in every industry, but they’re critical in banking. A recent PricewaterhouseCoopers study found that 75 percent of bank customers base their purchasing decisions on whether or not they’ve had a positive customer experience at the bank. However, the same study also found a 20 percent gap between how important a customer felt having a positive experience was and how satisfied the customers were with their experience at the bank. In response to the rise of nimble fintech platforms that also take a digital-native approach, banks have developed websites and apps to beef up their own digital experiences. However, that is not enough. Banks need to adapt their practices to put digital interactions first, particularly for young customers, as to not risk alienating customers that could flee for nimbler fintech platforms.
Incumbent institutions have focused on keeping up with newcomers’ technology and product offerings, instead of on how they connect with their users. However, customer demands of their brands are stronger than ever: A 2016 Salesforce study found that 66 percent of consumers will leave a brand if they feel they are treated as a number rather than an individual. Fintech companies that are more in touch with consumer demands will only continue to emerge and impact the industry. Incumbent players must invest in developing connections with younger consumers through their brands—or else they risk losing much of their market share to startups that are already fostering these relationships.
Lowell Putnam is co-founder and CEO of Quovo, the leading provider of connectivity to consumer financial accounts. Today, hundreds of platforms and millions of end-users rely on Quovo’s technology for account aggregation, bank authentication, and ongoing insights to build better financial futures. Prior to founding Quovo, Lowell worked in the Investment Banking Division of Lehman Brothers / Barclays. At Lehman, Lowell worked in the Financial Institutions Group, specializing in consumer credit companies and structured finance transactions. Lowell has been named to the Investment News 40 under 40 and WealthManagement.com Top Ten to Watch in 2016 lists. He serves on several advisory boards for technology companies and non-profits. Lowell attended Harvard College and lives in New York City with his wife, Brynn, and his son, George.
