Dr Ross Honeywill's presentation on the Desire Economy as part of FinTech Melbourne meetup 30/6/2016

1. DISRUPTING FINTECHS
“TOWARDS ZERO FRICTION”
An evidence-based analysis of the drivers
behind the fintech phenomenon

2. FRICTION, NOT FINTECH, IS THE REAL THREAT TO BANKS?
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For hundreds of years, friction
surrounding any type of transaction has
been hindering business growth: goods,
money and data are never transferred
fast enough.
For hundreds of years the same problem,
and for hundreds of years the same
answer: “More”. More manpower for
more goods, more bank counters for
more money, more keyboards for more
data.
Simple. Costly. Absolutely not practical.
Completely unscalable.
Fintechs are
now on a
mission
to solve the
“friction,
money and
data problems”

3. SMART STARTUPS ARE MOVING TOWARDS ZERO FRICTION
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4. BUT THEY ARE SUPPLY-DRIVEN NOT DEMAND-DRIVEN
Their entrepreneurs confuse technology with insight:
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“We’re focused on millennials, in part based on the
realization that the they’re just entering their acquisitive
years and the majority of their purchases leave the type of
digital exhaust that allows you to collect info on their value
and track changes over time.”
Scott Walchek
Founder TROV

5. WHY IS FRICTION A THREAT TO BANKS?
The real driver of the fintech phenomenon is the exploding consumer shift “towards zero friction”
Fintechs are moving “towards zero friction” by removing process steps AND removing traditional banks from the
process
So, deep disintermediation is imminent, not by fintechs but by the mega platforms taking consumers “towards
zero friction”
Facebook, for example, will use lending to make its ads more valuable – click on the ad and buy the thing, taking
you from ad to purchase with zero friction. It might even give away the credit to lift revenue from ads & commerce
Even the value of Google AdWords will be under siege – AdWords generates revenue for Google via cost-per-click
& cost-per-acquisition fees. Frictionless payments will make clicking an advertiser’s link & shopping trolley
payment platforms obsolete
In the “towards zero friction” customer cohort, traditional banks can forget originating revenue, credit card fee
revenue, loan fee revenue, interest revenue, deep share of wallet, loyalty & lifetime value
Remove friction and customers can forget money – choosing life experience over transaction
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3. Roy Morgan Single Source, Dec 2015. n=255,777

6. WHAT IS THE SIZE OF THE THREAT TO BANKS?
The real threat comes from knowing (or NOT knowing) which customers are the most likely to be
impacted by digital disruption and to have an appetite for zero friction – threatening share of wallet.
They will most likely be:
Younger (under 45)
Urban
Tech savvy
Tertiary qualified
Big spenders
Comfortable with debt & leveraging assets
Dissatisfied with big banks
Unhappy with the traditional banking system
Unhappy with the corporate / institutional branding of traditional banks
Open to digital disrupters
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7. WHAT IS THE SIZE OF THE THREAT TO BANKS?
In what is known as the Desire Economy, the 4.5 million high-value consumers are:
Younger – 62% are under 45 years-old cf. 52% of the population
Urban – 71% live in Australia’s capitals cf. 63% pop
Tech savvy – 39% are early adopters cf. 17% pop
University qualified – 50% have a degree cf. 31% pop
Big Spenders – 91% are in the top third of discretionary spenders cf. 33% pop
Big savers – have (mean) savings & investments of $275K cf. $181K pop
Comfortable with debt – 40% cf. 31% pop
Dissatisfied with big banks – 16% more than pop (more likely to be with smaller brands)
Unhappy with traditional bank branches – 64% of them: 28% more than pop
Open to digital disrupters – UBER 109% more than pop, Spotify 87%, Skype 55%
Unhappy with the corporate / institutional branding of traditional banks – the Desire Economy mantra is: Think
small. And stop shouting, we can’t hear you
The share of wallet of 4.5 million banking customers is at risk
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Source: Roy Morgan Single Source, Dec 2015. n=255,777

8. BUT IS FRICTIONLESS ACTUALLY AN OPPORTUNITY FOR BANKS?
Fintechs are just supply-side technology platforms delivering products entrepreneurs consider relevant
Fintechs targeting ALL Millennials is a good example of technology without insight. Only Desire Economy
Millennials are valuable …
When the credit cycle turns and rates rise, first generation fintechs will be at risk (e.g. defaults on higher-risk
loans)
The real banking threat (or opportunity) is from the digital mindset coming to life and demanding truly relevant
experiences via frictionless technology. Fintechs are merely stimulating this awakening desire to ‘forget money’
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Roy Morgan Single Source, Dec 2015. n=255,777
Australian
Population
All Millennials Desire Economy
Millennials (1.5m)
Traditional Economy
Millennials (1.8m)
Early Adopters 17% 27% 52% 8.2%
Big Spenders 33 38 90 5
ABs 20 24 40 10
University Degree 28 41 53 9

9. CREATE FRICTIONLESS UX – AUTOMATE EVERYTHING
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And do it on mobile
Personal Loan Origination
Business Loan Origination
Mortgage Origination
Payments
Portfolio Management
SMSF
Customer Dashboard

10. WHAT IS THE DESIRE ECONOMY MINDSET?
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A peak experience is one that surprises
us, stays with us, changes us, inspires
us and thenbecomes the norm
A Desire Economy consumer
is 2.6 times more valuable
than a traditional consumer
The Desire Economy is a sanctuary from the
traditional orthodoxy of product/price
marketing.It’s where Desire consumers &
SMEs gather & yearn for a ‘peakexperience’
Typically, Desire Economy accounts for more thantwo-thirds of
a bank’s premium or affluentsegments, whileaccounting for half
the mass retail segments. But they arenot another segment
In fact, they arenot taxonomic at all, they are dimensional. Inother words,
they can be identified,mappedand measuredwith surgical precision, but
their ‘dimensional mindset’ transcends conventional classificationor
segmentation
This mindset modelling
integrates seamlesslywith a
client’s own customer
segments

11. Desire Mindset is
defined by 194 factors:
12 elective spending
82 attitudinal
100 behavioural
WHAT IS THE DESIRE ECONOMY MINDSET?
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The $600 billion Desire
Economy is fuelled by 4.5
million high-value consumers
with 194 Desire mindset
attributes
The Traditional
Economy is constituted
by 9 million consumers
with a low-spending
transactional mindset

12. HOW DO WE KNOW THIS WORKS?
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$45:1 ROI using predictive
analytics to reveal & target most
valuable customers (Qantas)
780%
revenue uplift in value-added
products using precision targeting
for most valuable customers
(Energex – Retail Energy)
20%
sales growth using peak experience
creative for most valuable
customers (Lexus)
$2m
lift in sales using a brand & value
proposition for most valuable
customers (Australian ski resort
client)
$2m
saving in advertising spend
optimisation for most valuable
customers (Qantas)
$80m
discovery of hidden value using
predictive analytics on just one
customer segment (Telstra)

13. HOW DO WE KNOW THIS WORKS?
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Following an exhaustive evaluation across the USA
Desire Economy algorithms were accredited by KPMG (USA)
as world’s-best-practice

14. A DATA AND EVIDENCE-BASED END-TO-END PROCESS
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Business Goals
Predictive
Analytics
Client’s highest-
value-potential
customers
High-value
Mindset
Modelling
High-Value
Strategy for
actual + desired
customers
‘Frictionless’
Customer
Experience Design
Precision Reach
Channel + Media
Desire Economy
Content + Creative
Digital
Measurement
across all devices
Evolve + Adapt
Unlocking hidden value from consumers with the highest-value-potential

15. 15
TOWARDS ZERO FRICTION