Financial consumerism gets personal in the digital age
As the world turns to digital – a process highlighted by Covid – increasingly more services and products are becoming personalized
"The issue of privacy poses a difficult dilemma for us all – whether and how much we want companies providing us services to get to know us. On the one hand, in-depth familiarity can enable them to offer us optimally personalized services, consumer products and financial products (such as insurance and pension). On the other hand, some feel uncomfortable with the exposure of their privacy which does not always have clear boundaries,” says Dror Bin, CEO of the Innovation Authority. “If we add to this the regulatory requirements regarding cybersecurity and privacy, we are faced with a challenge that necessitates a combination of technological depth, business thinking and behavioral economics to create an infrastructure that will provide a fitting response to this challenge,” added Bin.
"After twenty years in the world of finance – in insurance and banking – I realized that people don't understand and don't manage their finances "logically", says Yossi Yarkoni, Founder and CEO of the startup Robinhood Pro. "Take for example, a person with a positive balance in his bank account who takes a loan and loses twice: he doesn't receive any interest on his balance and pays expensive interest on the loan. Or another popular mistake – people who buy a car from a car dealer and sign without comparing deals on a loan to complete the deal. They are happy that they have a new car but fail to realize that the seemingly low monthly repayment is at a very high interest rate and that, in practice, they are paying 4 or 6 times the price that they could have paid if they acted wisely".
The essence of Robinhood's app is to translate financial language into consumerism language, in order to make decisions in the world of pension and insurance more accessible. For example, to point out double insurance policies that are not just superfluous and expensive but also detrimental.
"If someone has two insurance policies for the same thing, it's reasonable to assume that he will end up emptyhanded because the insurance companies will make him run between them for payment", Yarkoni emphasizes. In many cases, you cannot receive payment twice for the same insured event. People don't buy double car insurance but do buy superfluous health insurance policies. This is not just throwing money away but also impairs their ability to receive money quickly. We wanted to make all these things more accessible for people and to enable them to conduct their finances cleverly via an app.
"In today's insurance world, the insurance agent's interests are self-serving because that's his livelihood", says Yarkoni. The chance of receiving a phone call from your insurance agent informing you that he is cutting your insurance premium by half is very low. Some still say that the human element is necessary, but I think that an objective perspective and monthly monitoring is important".
Yarkoni calls this the "objectivity revolution": "The wise customer using our app will receive indications that his insurance is too expensive. An objective digital tool that is easily accessible and which uses simple language solves the problem of not understanding the professional terminology. We know how to break down products according to investment, risk level and insurance coverage and provide a recommendation on what action should be taken. Once there is an objective digital tool that compares my genuine needs and the price I'm paying, I can save a lot of money".
The quality of service is also taken into consideration by the app via the rating of the Ministry of Finance's service index. This index checks how quickly companies respond and pay claims. "If someone sells for 90% less but you wait another 30 seconds on the phone, that's not so terrible. But if he sells for 5% less and you need to wait for two days for a response, the service is not as good, even if it's cheaper", Yarkoni says.
The same principle applies to yield – two companies may earn the same yield in a particular year, but one does so while investing our money at a high-risk level and the other at much lower risk. Obviously, for the same yield, we will prefer the company taking the lower risk. "So, we have parameters that consider seniority, size, the timing of money coming in and going out, volatility, the risk level of investment management and the quality of service. The computer can calculate all these parameters in the most objective way and issue recommendations", Yarkoni says. "We can input business insights from the sector and prevent a situation where we relate only to the cold figures without looking at the qualitative data".
'We run processes that are called RPA (Robotic Process Automation) that enable the computer to conduct hundreds of thousands of necessary actions. First, due to cybersecurity and regulatory requirements, we perform a stringent identification process to ensure that the person receiving our service is indeed the person who signed up for it", Yarkoni explains.
"The second step is the RPA. Among others, there is a series of data gathering actions. We are connected to the national data service – data.gov.il – and receive all the data about the performance of all the mutual funds' different investment verticals and risk levels. During the next stage, we operate the layer of AI that includes an analysis of the data and a recommendation of the funds with the best market surveys according to an analysis of 17 different parameters", Yarkoni says.
"The next stage is automation of all the bureaucracy. This means that the user is not required to complete all the forms to move his savings or to change insurance company. Instead, the app fills in all the paperwork for him and the user merely checks, confirms, and fills in any missing details. At the click of a button, the paperwork moves from one company to another without the need to physically sign any form. It is all done via the app.
From Israel to the World
Robinhood used Israel as a beta-site to prove the technology's stability. "The app is operational in Israel, and we've learned a lot from the insights", Yarkoni says. "Our advantage is that we are close to the clients and if we learn that they like something, we can make it happen for them. When we sit with large international clients, we can say what customers prefer, for example, to take a picture of the ID certificate at the end of the process and not in the middle of it, because then you have to get up and take it out of your wallet.
The company has reached two hundred thousand clients in Israel. According to Yarkoni, this shows that the company knows how to operate on a large scale. "We have now branched out overseas", he says. "We have introduced a leading global company – Howden – as an investor in the company. Howden helped us make a change from B2C to B2B2c. In other words, instead of selling to end customers, we will sell to insurance companies, brokers and banks that will use the technology and make the product accessible to millions of customers simultaneously under their own brand. This allows us to focus on developing the technology and expanding the number of users, because we don't have the marketing power that the banks and insurance brokers have. We therefore leverage our neutral and impartial model to many users outside Israel.
"Like every startup, we have angels that supported us, the Israel Innovation Authority that gave us grants, we had a crowdfunding campaign to raise the sum necessary for matching the Innovation Authority's grant, and we have Howden as a strategic investor, so you can say that we have utilized all the available fundraising tools.
"What I am about to say seems negative but is, in fact, very positive", Yarkoni says. "Many startups are wary of approaching the Innovation Authority because of the bureaucracy involved, both when submitting a request and when reporting after being awarded support. Startups have limited time and supposedly wasting it on bureaucracy is perceived negatively, although ultimately, the order it imposes mandates the integration of control and management tools into your tight schedule that are very helpful for a startup to continue growing".
"If you know exactly what the yield of "x" and "y" were every month because you are obligated to report it, and you have all the activity and yearly planning in place, then you have a business plan. When you meet an investor, who sees the control and management ability "imposed" upon you, it's a tremendous asset, no less than the money you receive. In other words, it's specifically the bureaucracy when dealing with the Authority which is perceived as a burden, that becomes an asset. This is something I believe in very strongly.
"Fortunately, there is now the whole world of R&D rights that enables an R&D partnership to invest exclusively in a company targeted by the Innovation Authority. This has an additional benefit whereby anyone meeting the definitions of the Innovation Authority's professional committee has access to a new avenue of funding. R&D rights have another advantage in that they need to be very organized. A situation has been created whereby institutional investors are also investing in organized and promising startups, to the benefit of all. We know that 95 percent of startups fail and here, by virtue of this order and organization that is forced on anyone seeking to become a player in this arena, there is an added chance of success. R&D partnerships are the tool of the future in my opinion. It is a tool that provides startups with market focus in a particular field along with the Innovation Authority's seal of quality. This is a field in which I strongly believe and invest".
A Positive Regulatory Experience
"Covid has made it clear to everyone that digital is here to stay", says Yarkoni, and there are already agents in Israel and around the world who are shaping themselves in a smart and new role of advisor that has more value than just filling in forms, because they understand that computers do this much faster and better. This role constitutes a holistic view of the customer's needs – does he have a mortgage? does he have savings against which he can receive a loan? – in other words, being a financial advisor and not just someone performing technical tasks.
"Quite a few entities are already at this point, and I believe that increasingly more smart agents will adopt this role for themselves, thereby changing our viewpoint. The State of Israel is more advanced than over 80 percent of other countries as far as its financial sector is concerned", says Yarkoni. "The ability to quickly move policies or savings like our app does is down to the digital infrastructure created by the State of Israel: the 'Mislaka Pensionit' (the national pension funds clearing house), 'Har HaBituach' (The Ministry of Finance website that displays a person's insurance policies) etc. Everything is digitized and instantaneous".
"Our experience with regulation is relatively positive because we are helping to realize the regulator's vision in a competitive market. We work with, not against, the regulator. The Capital Market and Insurance Authority helped us with many things, for example, by encouraging digitization".
"If you take an area such as security and cybersecurity, both the Bank of Israel and the Capital Market Authority demanded that we implement a stringent identification process. In practice, after what happened to the Shirbit insurance company, I can say that it is fortunate that in a digital society it is mandatory to adopt security as a paramount value. The regulation forces me to adopt a level of cybersecurity which, if I conform to it, makes the chance of a breach extremely low. We don't just meet regulatory requirements, but also add further layers that enable us to sleep well at night".
Yarkoni admits that the pace of regulation is, at times, slightly slower than what is customary in the free market because of the need for ministerial approval that, in turn, requires government approval. There are several reforms which are currently stuck, but overall, the regulator is supposed to regulate activity, and both the Bank of Israel and the capital market are relatively very advanced and strongly in favor of a digital world". Consequently, in this regard, Yarkoni believes that Israel is among the world's leading five countries in adopting digital tools.
"I think that the world of insurance, that is lagging slightly behind the world of banking, is starting to close the gap", Yarkoni says. "I estimate that 60% of the startups we see in the next five years will be in the field of 'Insurtech'. We will see all-inclusive digital processes and new products on the market which are personalized thanks to digital tools – like insurance according to mileage or medical insurance according to personal lifestyle. Digitization will lead to a personalization of insurance products: a cyclist will pay much more for personal accident insurance than a bank clerk who travels to work by bus. Today one subsidizes the other, but people don't want to subsidize someone who has an unhealthy diet, rides a motorbike, and puts his life at risk".
Do You Have a Loyalty Program Card?
"Our product redefines the way in which companies manage relationships with customers in the context of loyalty programs", says Itay Kasre, CEO of Momentum Labs. Most retailers' loyalty programs today are not really built for consumer behavior in 2021. The programs are outdated both as far as their thinking and infrastructure are concerned. There are many technologies but not one of them provides a solution that connects all the dots like ours. The platform provides tools of infrastructure and Artificial Intelligence that enable our clients to build a smart loyalty program which transforms each member into a driving force contributing to the company's income".
Momentum was founded officially in August 2019 by Kasre and two partners – Eyal Oster and Ariel Luedi. "We joined forces with good synergy", Kasre says, "with a strong and experienced initial team which on the one hand directed complex technical processes and on the other hand brings invaluable knowledge in the field of sales, business development, market insights etc.
According to Kasre, most retailers make no use of the information gathered on their customers in order to adjust messages or to understand whether their customers are abandoning the company and if so, why. These retailers generally miss many opportunities due to laconic and generic messages that are not tailored to the customer. A lack of personalized messages to customers leads to dissatisfied customers".
According to Kasre's data, more than 70 percent of customers who are members of loyalty programs are dissatisfied. Each year, 98 billion dollars are left on the table because of customers' mediocre service experience. In the US alone, there are currently 100 billion dollars in registered points that no-one is using. More than a trillion dollars a year remain unutilized because companies simply don't know who their customers are or what to do with the information that they gather about them.
"These numbers enabled us to come and offer our platform which seeks to shed light on the world of loyalty programs. Beyond the infrastructure for launching innovative new programs via blockchain, we provide our clients with tools that enable to receive insights about customer behavior. For example, we can predict when a customer is about to leave before it actually happens, identify customers' preferences, forecast customer value (CLV – Customer Lifetime Value) etc."
Momentum's system is suitable for both smaller and extremely large clients of hundreds of millions of dollars a year: "For example, one of our clients is a pet store in Tel Aviv. Although their turnover is not in the tens of millions, we succeeded in improving it by 5 percent within three months from the time they installed our system. By using our platform, they succeeded in creating a better connection with their customers, identifying the less satisfied customers, and raised their level of satisfaction with the help of AI that recommended various ways of communicating and rewarding those customers".
For example, our platform can show that a certain customer likes shopping at the supermarket on Mondays and Wednesdays and usually buys healthy food and large quantities of raw products. We can derive insights from this information. This is a dynamic 'living' system that constantly thinks and attempts to understand customers' behaviors. This gives our clients a relatively large advantage over their competitors. When they contact the end customers, they have a set of tools and an understanding of who they are. Our system contacts the customer at the right and opportune time. We try and understand what will make them happy in being a member of the program. Our objective is to make the end customers happier so that they spend more".
Using Data to Create More Income
"From a technical perspective, we enable companies to convert loyalty programs into blockchain", Kasre explains. "The great advantage is that blockchain provides a significant layer of protection against fraudulent attacks, unjustified transfers, and a limited ability to track who received what. Blockchain is a source of truth that, by definition, can be trusted.
"Furthermore, thanks to the blockchain, it is much simpler for our platform to create collaborations between companies – for example, between airlines. Usually, the main obstacle in such agreements between companies is in trusting the other party. With blockchain, you don't need to trust anyone because of the zero-trust environment. In general, the parties to these agreements don't even need to talk to each other at any stage.
"On top of this is an infrastructure of Artificial Intelligence, insights, and analytics. In an initial integration process done with the customer, we connect to his system to receive data about sales and use at points from which we can gain interesting insights such as customer abandonment, movement between groups within the loyalty program, and others. The system operates entirely in real-time. We don't wait for overnight data processing, and we have advanced and pretty impressive user-friendly dashboards.
"Above the insights layer is a layer where we let the client define his customers' various interfaces with the loyalty program in the form of a flow chart. They can, for example, define what will happen if the customer arrives at the checkout, buys a product, enters a website, receives notification of having purchased a product in the store, and receives a discount. This whole process can be defined in a flow chart via 'drag and drop' tool which is also cool and innovative".
"Some of the triggers for these flow charts are based on Artificial Intelligence", says Kasre, who adds that one of their clients is a coffee stall which is interested in sending notifications to its regular customers each time they don't come to collect their coffee. This way, the small business gains an advantage in its competition with the big chains".
"We can evaluate a company's expected income with great precision and provide metrics about the use of the loyalty program. We provide tools that enable decisionmakers to push the business forward, to create income from the data and insights they receive from us – something most companies lack", says Kasre.
The strength of our system is in the ability to learn about the consumer behavior of each customer regarding a specific brand. At this stage, because of limitations due to privacy laws (the GDPR), we don't truly know who the customer is. Likewise, we don't have information about the connection between the consumption of different brands by the same customer, although this is a capability that we want to achieve as development progresses, with the customers' agreement of course. The idea is that the data ultimately belongs to the client.
"As far as regulation is concerned, we are limited by the GDPR and therefore need to ensure that we are conforming to all the relevant laws and giving the customers the option to erase all their data. This is the main issue with platforms that want to gather information on customers in order to gain insights about them".
The Vision: Fixing the World of Loyalty Programs
"As entrepreneurs, we saw a big advantage in creating a Blue and White Israeli company with Israeli employees and an Israeli economic base", says Kasre, and stresses that this was their choice. The company began operating as part of the Nielsen Incubator in Caesarea. Kasre mentions the Innovation Authority's contribution as a factor that enabled him as an entrepreneur to receive state investment (even though the project embodies a certain level of risk). "The Authority's assistance allowed me to build a product and a company and to develop something with great potential which, if successful can ultimately benefit the Israeli economy. Kasre adds that during the Covid crisis, the Authority's backing constituted a safety net that enabled the company to continue operating normally and he makes special mention of the Authority's transparency and caring attitude towards the entrepreneurs.
"We have completed the incubator program with Nielsen and are presently near the end of the process of capital raising with the aim of releasing our cloud service in the very near future", Kasre says. "In general, the company's primary goal is to release the product to the market in cloud form, thereby opening other sales channels. The next goal is to conquer a further share of the market. From a strategic perspective, we want to initially focus specifically on small/medium clients, to accumulate interesting use cases, and to prove that small companies can also use our platform and gain added value from day one. As far as goals are concerned, we are planning to reach 50 paying clients by the end of 2021", explains Kasre whose vision sees the company leading a process that fixes the world of loyalty programs, both on the educational level and that of the tools and platform that are currently available to companies.
The article was written in collaboration with the Israel Innovation Authority, responsible for the country’s innovation policy. Its role is to nurture and develop Israeli innovation resources, while creating and strengthening the infrastructure and framework needed to support the entire knowledge industry.