By Jack Hojnar
Nearly 6,000 new FinTech start-ups hit the Americas in 2019 representing one of the largest growth years for FinTech companies in the world. Across the rest of the planet, a staggering 5,000 more FinTech start-ups emerged. Add to the FinTech explosion is the smaller - but still significant - growth of InsurTech companies.
At the height of the InsurTech rush, between 2012 and 2016, there were anywhere from 10 to 15 InsurTech startups launching per month globally. InsurTech launches peeked in 2016, when 208 new companies hit the market. Move forward two years to 2018, and new InsurTech launches almost stagnated to only 12. Despite this, funds invested in 2018 have remained high, reaching the second highest value seen between 2008 and 2018.
Consider further the rise of Challenger Banks. These digital counterparts to traditional institutions are gaining more and more attention as they offer consumers enhanced services that outpace those offered from current stalwarts. Remember that Google, Apple, Amazon and other non-banks entered the financial services market as well.
Finally, as Citibank shocked many in the credit card space with its cancellation of nearly all insurance-based benefits of its card portfolios, consumers expressed frustration with the banking giant and expressed their intent to move to more benefit-friendly card products. Will this action be a forecast of future benefit retractions ~ or a time for banks to offer even more benefits to grab market share?
Let's take a look at some of the events expected to impact the credit card benefits industry:
1. The Return of the Co-Brand
During the 1990s co-branded credit cards popped up as quickly as tornados in Tornado Alley of the Great Plains. Retail giants could now offer both store card incentives with support of larger banks.
That tradition is now appearing again, though in perhaps a less-than-obvious fashion.
With Apple offering its new credit card, supported through Goldman Sachs, it now becomes a member of the credit card industry. Still, the card is currently nothing more than a co-brand card born out of the same energy seen in the 1990s. The Apple card specifically does not offer any travel or retail purchase protection benefits currently.
What distinguishes the new Apple card, as well as cards offered by Google and Amazon, is in the technology services the phone maker provides. This is the latest trend among new entrants - similar to Challenger Banks: features and digital interactions. Apple, much like others new to the card offer space, are providing mobile interaction mechanisms that traditional banks don't necessarily do in the same manner. But like any industry, the credit card space is a copy-cat market. Look for other banks to ramp up digital skills.
Will consumers require benefits on these new card offerings as well?
2. The Identity of Benefits
Consumers are increasingly aware of the details that encompass the features of credit cards. Sources such as The Points Guy, CreditCards.com and others make learning about card features simple. While the majority of the card-carrying public may not understand how to best leverage features on their cards to maximize points, for example, there is certainly enough available data for even the most modest of card users to become quickly educated.
More recently, benefits and perks have been combined into a single offering known as Card Services. Much as banks may try to combine these offers, consumers recognize the differences: Perks are near-term, immediate use gains such as discounts to ride share programs. Benefits are long-term tools used to protect Travel and Retail purchases.
The distinction between perks and benefits will continue into 2020 and cardholders will continue to evaluate the cards they use based on their awareness of these distinctions.
3. Fee Increases
Several banks have announced increases in annual fees and from several other online sources, this trend is likely to continue. News of Chase's recent $100 increase of its Chase Sapphire Reserve card brought consumers out in droves, most complaining that the increase is not fully justified by the the newly added perks; consumers know how to do the math.
As more banks issue increases to annual fees, consumers will aggressively question the moves and will likely migrate to cards – even those with fees – that provide a balanced offering that aligns with their type of card spend and financial priorities.
Consumers have expressed, as understood through cbsi social media analysis, that they would be willing to pay the extra fees for the chance to customize the perks and benefits provided by banks. Not all fee increases and their associated perks and benefits are either appealing or accessible by these cardholders. Instead, the ability to tailor the benefits and perks associated with fees may be the next step towards customer personalization for the banks.
4. InsurTech Brokerage
For the past few years, the role of the insurance broker started to dwindle. Some prognosticators indicated that the role of the broker may disappear altogether given the rise of Artificial Intelligence and its ability to find providers that brokers used to once provide.
Instead, and more recently, the brokerage community began to create or utilize the same AI tools provided by its competitor; this change altered the landscape making the role of the broker back on solid ground.
Several articles predict that brokerage services – now enhanced by InsurTech tools – will be on the rise in 2020. With better ways to price policies and process claims, brokers are making a return to the marketplace they once dominated.
Card benefits, in particular, will make a more aggressive showing through continued work with brokerage agencies.
5. Cyber MGAs
There is little growth right now in this fledgling industry that focuses on cyber criminality. However, it is gaining attention and many experts are curious to see where this industry goes, if at all.
Cyber Managing General Agents (MGAs) represent truly unchartered territory in supplementing traditional underwriting practices with real-time analytics and using tech-focused approaches for risk management.
It’s currently unknown if and how Cyber MGAs will interact with credit card benefit insurance processes. It is, however, worth watching in 2020.
6. The Coming of Age of AI
The concept of Artificial Intelligence (AI) has been in the marketplace for more than a decade and within the last three years its application in the credit card marketplace is undeniable. Credit card rewards tailored to your spending, travel options based on your past preferences, text prompts to shift some money over to savings and scans of your spending patterns to block fraudsters from using your card. All of this is happening right now through the use of AI.
As more banks and card issuers get familiar with the uses of Artificial Intelligence, the only limit to its application is the limit of creativity of the banks.
Benefits stand to gain even more traction with consumers and credit card issuers as AI enables processes in real-time benefit usage, claims processing and Point-of-Sale (POS) offerings. Consider also robo-affiliated Customer Experience (CX) interactions as well that are driven from AI processes.
Watch as more AI-related credit card benefit applications emerge throughout 2020.
7. A Few more Items …
Look for news on these topics as well:
- Increases in Digital Solutions: more banks, and Challenger Banks are the inspiration, behind an increase in Digital solutions for consumer interaction.
- Blockchain: It was huge a few years ago and lost a bit of steam recently; perhaps that was a good thing. Now, Blockchain applications are slowly starting to emerge in practical applications like contract servicing. It may start to move past its hype and into real usage opportunities.
- Regulation and Security: While often not the most attractive of topics, 2020 will incite the need for companies to understand and prevent security breaches and privacy events. Regulation, though eased a bit during the past three years, may see an increase as consumer protections gain more attention.