Consumer Finance - The Way Forward.

A colleague who follows my blog suggested that I share my views on Consumer Finance (CF) industry. Consumer finance companies across the globe today hold the second-largest share of consumer installment credit (after commercial banks).

Having keenly followed- the consumer credit processes and trends in the Indian market, key forces shaping the region's consumer credit business, and understanding the functional capabilities of a successful business model, I decided to take a 'helicopter view' in terms of what went wrong with Consumer Credit Industry (India story in particular)? But more importantly, the way forward?

So let me do a quick brain-dump of questions/challenges (I instead see them as opportunities) for the Consumer credit industry…… (Not in any order of importance)

• Reality check: What is the current state of the industry? What are the challenges to expect, and where are the growth opportunities? Defining the strategy for profitability, surviving, and thriving amid market volatility and a slowing global economy. How will the industry shape up in the future?
• Problem Identification- It is critical to understand correctly the factors currently impeding growth and operational capabilities required to become a first-class consumer credit player.
• Managing risk: Understanding the chances that the CF industry is potentially exposed to in today's economy -The rising default rates, How much trouble is worth taking?;  Especially in the absence/presence of 'developing' credit bureau(s). Also, regulatory risks should be factored in.
• Addressing atrophy –reluctance to change. Question the past practices and reinvent the business strategies. This requires finding people who believe in re-inventing the business. Re-evaluate the entire business model.
• Revisiting the company's cost structure (if big business has no cost advantage, there will be more firms of various sizes unless the entry is artificially restricted). 
• Cost management: Where do you slash costs? How do you determine what is unnecessary?
• Erosion of Market segmentation in consumer financial services in recent years inevitably raises the issue of future industry structures( Commercial Banks and Microfinance players)
• Creating winning strategies/Positioning- move from Product to solutions. (The customer wants 'why' not 'what,' different solutions for different people). Niche markets and customized product offerings. Fee-based vs. interest income. Maintaining profitability in difficult times, Re-positioning portfolio, and maximizing revenues. Other strategies for different businesses- cards, mortgages, auto finance, sales finance, Cash loans, etc.
• Focus on the customer's lifecycle- (not loan tenor). What are different ways to acquire customers,  more importantly, to retain the client? Revenue contribution? X-sell process and cost structures. Engaging the customer: Increasing the share of wallet and constructing a stronger relationship with their clients.
• Leveraging technology: How speed, convenience, and technology translate to higher revenues and greater customer loyalty. The world is moving online: How changing demographics and advances in technology turn potential into reality.

It is time to study the current scenario and develop a solution plan. As President Obama said during his inauguration speech on January 21, 2009: "It's time to pick ourselves up, dust ourselves off, and begin the work of remaking ..."

I will write some more posts related to this very shortly and will also try to share my research paper on the same .... Next post will be on Banking 2.0

Do send emails and leave your comments.

Facebook retracts?...but why?

Something very interesting happened yesterday….

In a late-night blog post responding to the recent outcry over a recent change to Facebook's terms of service, CEO Mark Zuckerberg said the social network's TOS will revert to a previous version.

So what really happened? If you dig deep, you will notice the real reason behind this retraction. Facebook found itself in an unenviable position in the face of strong public activism. Now this public/consumer activism is not something new, but of late this silent force has gathered quite a momentum with advent of technology. So here we had 80,000 + facebook users signing up for People against the new Terms of Service’. Facebook certainly was not prepared for this backlash from its own user base.

Most organizations today are grappling with a force that they don’t understand, one that is growing all the time. This force is broad, ever shifting, ever growing, and it is global. It encompasses blogs, discussion groups, Wiki’s, You tube... Consumers whom we have never met are rating the company’s products in public forums that we have no experience with or no way to influence.

The real crisis? We stopped being wise

How are you different?

Thinking about Future..... read a very interesting quote today. "Any piece of knowledge I acquire today has a value at this moment exactly proportioned to my skill to deal with it. Tomorrow, when I know more, I recall that piece of knowledge and use it better." - Mark Van Doren.

Truth be told , this statement succinctly captures the essence( and future) of knowledge worker. How will you differentiate your self in future? Is it on the basis of information you hold(or have access to)?

Fundamentally speaking information will cease to be the differentiator.Everyone would have access to any(read same) information that one needs. Google is just a step in that direction( any information/or the source of information is just a click away); Web 2.0 will look at creating more interactive tools for the Users.

So what is it, that will differentiate a Knowledge worker?

The economics of giving it away

Tough time calls for questioning!....especially in a period when ‘free’ goods and services online are becoming more and more popular…what are the challenges that entrepreneurs & business leaders face today ? Why the ‘zero-sum’ model doesn’t work alone?

How to monetize services when you are operating in a ‘freemium economy’- An economy where ‘few’ pay but ‘many’ use?. Imagine would some of the larger web 2.0 companies be around if it wasn’t for free services. Would consumers pay for Facebook, MySpace or Digg? I think the answer in most cases is ‘no.’

I think online businesses will have to look at providing real value to the users. Paid subscriptions can work only where there is true additional value provided. (LinkedIn is a good example)

So with the changing marketspace, Web startups now are having to comeup with a business model that brings in real money while they are still young.

Chris Anderson has a very interesting take on ‘the economics of giving it away’. He talks about the rapid shift in business model (mostly online) and why now ‘cash-flow’ is the king. I think this is a good read for anyone interested in online space. Chris has an advice for all would be entrepreneurs – ‘it’s now time to innovate, not just with new products but with new business models’.