I started thinking about these questions after reading Simon Taylor's excellent FinTech Brainfood Substack. He dedicated a whole newsletter to analysing Ping An, a huge and unique insurance business in China. So what can we learn from Ping An about creating an ecosystem strategy?
What is an ecosystem?
Ecosystems in business and technology are ever-evolving systems. After looking at a few different definitions, this one in MIT Sloan Review seemed to best capture the essence:
"The essential characteristics of business ecosystems are the following: They are multi-entity, made up of groups of companies not belonging to a single organization. They involve networks of shifting, semipermanent relationships, linked by flows of data, services, and money. The relationships combine aspects of competition and collaboration, often involving complementarity between different products and capabilities (for instance, smartphones and apps). Finally, in ecosystems, players coevolve as they redefine their capabilities and relations to others over time."
Key to the definition is multi-organisation involvement and the combination of both competition and collaboration. These are central characteristics of healthy open ecosystems. It allows the best products creating the most value for customers to connect and maximise value for everyone. No company has the resources, creativity or capacity to build everything. Providing platforms or points of integration helps inspire the collective imagination. The result is significantly more value across the long tail of customer segments and niches.
At the heart of every ecosystem is a re-usable platform. For Ping An, this is their Banking-as-a-Service (BaaS) platform One-Connect (for a primer on BaaS read this). Here is Simon's take on Ping An's use of BaaS:
Ping-An’s core technology has become so capable; they’ve spun it out and sold it to the market. Not unlike how Amazon, with its vast technology real estate, realized the rest of the market could benefit from that asset. Ping-An has taken an asset they had (in this case, their Fintech platform One-Connect) and made it available to more than 620 banks and more than 3,000 nonbank financial institutions. Ping-An did “Bank-as-a-Service” and embedded finance before it was cool.
The One-Connect platform, like any BaaS platform, provides a much quicker route to market for any company wanting to integrate financial services. Platforms like these are great for inspiring innovation for both Ping An and other businesses. Ping An think about banking as an enabling technology and this is also true of how they think about insurance. Ping An has a clear focus on “five ecosystems,”; financial services, healthcare, auto, real estate, and smart city. These ecosystems are the distribution networks for their insurance products. And a key strategy for selling commoditised products...
Commodity products in ecosystems
Insurance is a commodity product, subject to heavy price competition and has very low engagement. Given those inherent constraints, it's remarkable that Ping An has grown to more than twice the revenues of Facebook. It is a difficult business to grow, even with the scale of China's market. Yet, Ping An has achieved that by becoming more than an insurance company. It's built a technology and financial services ecosystem around their customers' outcomes. From Simon's analysis:
"Realizing this [insurance is low engagement], Ping-An finds any excuse to build engagement that has nothing to do with insurance at first glance and everything to do with insurance at second glance. Ping-an creates auto services, health care services, or even peer to peer lending services as an excuse to engage with customers."
Acknowledging that insurance is often a grudge purchase is important to maximising the value of insurance. People don't want the insurance, they want to de-risk and preserve the thing they are buying. This creates two challenges:
- Engagement is with the thing insured not the insurance
- Distribution of insurance is most relevant at the point of purchase/need not as a separate activity.
Even if the user experience of buying and managing insurance is improved, these challenges aren't going away. The lesson from Ping An is products like insurance are best sold as complementary to the product being hired for the Job to be Done. Taking this approach means they don't need to worry about low engagement and they have built-in distribution networks.
To understand the role different types of products play within an ecosystem, it's worth looking at it through a Jobs to be Done lens.
Building ecosystems around Jobs to be Done
Jobs to be Done is a theory that explains why customers choose one product or service over another. It helps us understand their motivations for pulling products into their lives to help them make progress towards the desired outcome.
Any business with an ecosystem strategy would benefit from looking at the value of their product through a Jobs to be Done lens. What value does my product create for customers? What experiences can I create that help customers make progress? How does my product fit into the ecosystem and connect with other services to build out more delightful end-to-end journeys for customers?
When thinking through these questions, what happens when the product is high utility, low engagement and price-driven? Like insurance! Recognising the kind of product you have is important to maximising its value within an ecosystem of products. From a customer's perspective there are two very broad buckets of products:
- Engagement Products. These are products you build experiences around. They help customers make progress and deliver outcomes customers desire.
- Enablement Products. These are commodity products. They are not the desired outcome customers are looking for but enable progress towards their desired outcome. Thus the more invisible and easy to activate the better.
For example, a mortgage is an enablement product to finding your dream home through a property market place. Similarly, car insurance is the enablement product for driving your kids to school.
Anyone familiar with Jobs to be Done will know to focus on the outcome of the Job. If you use a car (the product) to make progress on the Jobs to be Done of running your kids to school (and after school clubs... parties... and the list goes on 😅 ), how does insurance fit into customers' lives? Other than being that grudge purchase.
How products like insurance can be the differentiating factor
When customers hire and fire products their behaviour and decision making is influenced by four forces.
The customer moves from old behaviour to new behaviour or old product to a new product. The switch is influenced by the four forces; the push of the situation, pull of the new solution, the habit of the present and anxiety of the new. The need to pull a new product into their life is triggered by a struggling moment. The product selected is the one best equipped to fulfil the outcome customers seek.
BUT! Customers do not want insurance. In most instances, it is a mandatory or fear-based purchase. Yet, insurance is important. It serves a vital role in society and fulfils a basic human need around mitigating risk and reassurance. Framing insurance within the Four Forces model sheds light on the real value of insurance. It has a much greater value in facilitating the switch to a new product than trying to be the new product customers buy.
There are two roles insurance can play:
- Enabling the switch by reducing levels of anxiety. For example, when buying a house with a large mortgage, an insurance policy protects against loss of income or poor health.
- Becoming a pull factor as part of the experience of buying a high-value engagement product. For example, bundling insurance into the sale of a car is one less task a customer has to think about. It removes friction in the sales process and heightens the delight of the experience of owning, or even subscribing, to a car. I love the idea of a subscription model for cars. Not leasing, a flat fee all-inclusive subscription fee for a car. Sorry, I'm digressing...
In the context of ecosystems, the key insight from Ping An, is how "enablement" products and "engagement" products work together. While enablement products, like insurance, struggle for differentiation, they are a differentiating factor for an engagement product. In return, engagement products become the distribution platform for enablement products. It's an example of symbiosis, a key factor in biological ecosystems replicated in business ecosystems.
De-commoditising commodity products
When analysing Ping An, Simon highlights how it's products fit into its customers' lives:
"There is so much more value to be created for customers by getting closer to their journey and their context. Ping-An shows not only can this work, but it can be tremendously effective. It requires intense focus, skill, and a deep understanding that customers don’t want your bank. They want a better version of themselves."
Ping An has been successful because it recognises that insurance is an enablement product. Customers don't want insurance or other commodity financial products like lending. The outcome customers want is the house or the car, not the insurance. By recognising this, insurance becomes less susceptible to commoditisation and price competition.
For example, the bundling of the insurance removes the price competition as the customer is attracted to the convenience. They will probably pay a little extra for it bundled as part of the experience. The alternative would be buying the car and then sourcing the insurance from a price comparison service. Something to avoid given the fierce price competition and the disjointed customer experience.
Looking at this from a customer perspective it makes more sense for products like insurance to become API led, instead of brand led. Focused on plugging into the experience of products they're insuring rather than being direct to consumer brands. In a digital ecosystem, insurance can be offered intelligently, contextually and in real-time. With these digital superpowers at its core, there is a greater opportunity to offer microinsurance. More frequent, lower value insurance at the point of need. Interestingly, this would increase the customer's engagement with insurance products.
The importance of open healthy ecosystems
One of the most exciting things about fintech is the healthy diversity of businesses in the ecosystem. Many of them have strong API strategies and integrations with fintech and non-financial services brands. Banking as a Service will accelerate this trend and open up so many interesting opportunities to create new value for customers. A case in point is the recent announcement that Killer Mike is building a digital bank for the black community. A segment of the market that is poorly served by the financial system. With Banking as a Service and the ecosystem of service providers available, these inequalities can be challenged.
These inequalities are much harder to challenge in unhealthy ecosystems. We're currently living through the effects of an unhealthy ecosystem: the marketing duopoly of Google and Facebook. When power, data and influence become concentrated, even governments struggle to challenge them.
The challenge for Ping An is their size and dominance in the ecosystem. They have been very successful in building up a vast business through an ecosystem strategy. As Simon points out they are very unique in the financial services space because they control so much of that ecosystem. Whilst good for business in a market like China, this is not healthy for innovation and customers long term.
- There's a lot to learn from analysing companies, not in the mainstream conversation, like Ping An
- Ecosystems work best when they are allowed to organically evolve without too much dominance from one provider. Competition and collaboration is essential for value generation across a broad range of customer types
- Ecosystems work best when designed around customers' Jobs to be Done.
- Understanding if your product is an enabler or an engagement driver is important to getting your ecosystem strategy right.
- It's hard to create differentiation for commodity products like insurance. Embedded within the experience of an "engagement" product they become less commoditised and more of a value driver.
There's a lot more to think about and it feels like this is the start of the conversation. More to come on the subject.
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