Credit: Kevin Dooley, Lightbox and foter.com

You get what you pay for

How “unbundling” is leading the way to better products, more transparency, and greater accessibility.

Earlier this year Google announced Project Fi — a program aimed to reinvent the wireless experience for consumers with fast and easy wireless wherever you go. As with most Google announcements, Project Fi came with a buzz of innovation and disruption surrounding it. Significantly, with Project Fi, Google is unbundling mobile data plans: customers will only pay for data they use and be able to access the best wireless network available regardless of their current location.[1]

In addition to the disruption this could pose for legacy companies like Verizon and AT&T, the unbundled pricing of the offering is also significant. As services become unbundled, consumers benefit from an à la carte model where they pick what we want to use or buy. The à la carte model shifts the power away from companies deciding what people should get and back into the hands of the consumer to decide what we want.

Whether it’s mobile plans, cable TV, or financial services, when consumers get to choose what to use and pay for, they are given a voice that companies have to listen to. The innovation of unbundling products and services means more than just a greater number of choices, it also means better choices, because products will have to stand on their own and provide demonstrable value. As consumers get to compare and choose what they want, transparency will increase. Finally, by not being packaged as a “one-price-fits-all” bundle, the individual services are made more affordable, making them increasingly accessible to everyone.

Thanks to unbundling, rejoice with better products!

If the à la carte model provides so many benefits to consumers, then why haven’t we all moved to that model? The short answer is that it is happening, but it takes time, especially in industries dominated by a handful of large, stagnant players. The disruption that has taken place over the last decade in the cable TV industry is a great example of change that brought about significantly better options.

Years ago, cable TV subscribers were paying for archaic, bloated bundles. Whether you were going to watch all the channels or only a handful, you had to pay for the entire package. Kevin Martin, the former FCC chairman, pointed out that the average cable subscriber paid for more than 85 channels that he or she did not watch![2] When services are bundled and provided as “all-or-nothing” choices, the power tends to stay in the hands of companies that are not incentivized to provide better offerings. In fact, oftentimes the choices become progressively worse: from 1995 to 2005 the average cable bundle doubled in size.[3]

If there’s an “old” model, then surely there is also a “new” model. Look no further than our computer screens (or TVs) to see one of the biggest modern successes in the unbundling race — Netflix. Launched in 1997, Netflix helps consumers choose exactly what we wanted to watch — and not just channels, now we choose the exact shows we want to watch, when we want to watch them. Unbundling cable TV gave consumers a bigger voice to make their opinions heard, and as a result, Netflix continuously offered better products that consumers actually wanted, such as original shows. While it has taken time to disrupt cable TV (nearly 20 years since Netflix launched), it’s no surprise that Netflix has grown to over 65 million subscribers.[4] Thanks to the à la carte model, many tech savvy consumers have access to better options and no longer remember the dark days of bulky, pricey cable packages.

Much of what consumers demand is transparency

Netflix unbundled cable TV and in turn gave consumers a voice to talk about what we wanted to use. This voice also spurs companies to be more transparent about products as consumers ask questions while comparing and choosing.[5]

We are seeing the results of better transparency in the food industry. Consumers want and are willing to pay more for healthier foods. With an unbundled à la carte model, along each step of the decision process consumers can ask questions like, “Where is our foods coming from?” In order to meet consumers’ demand, food companies have to provide better answers to these questions or risk their products not getting purchased. The nation’s food industry (including both companies producing the products on our supermarket shelves and restaurants) has been pressed to offer insight into how food was grown, sourced, and made.[6] The result? More transparency about our food.

Innovation that provides access

Not only does unbundling create better choices and transparency, but it also helps industries become more affordable and accessible.

Airbnb is great example of how moving away from the hotel industry’s “one-price-fits-all” model creates more affordability and better access for everyone to find and rent lodging. The company empowers consumers to rent out their homes, apartments, or spare bedrooms (that would otherwise sit empty) while giving travelers more options than just those offered by the limited “one-price-fits-all” hotels.

As most travelers know, hotels can be pricey, especially when taking into account that fact that travelers are often paying for amenities and services they do not use. Instead, Airbnb allows consumers to pay for what they want to use. A traveler can easily search for a place to stay based on the exact number of rooms, the ideal location, and the amenities wanted. An Airbnb customer only pays for what he or she needs and the à la carte model provides significantly better prices. According to Priceonomics, staying at an Airbnb apartment is on average 21% less expensive than staying at a hotel room, and a private room is almost 50% less expensive! It’s no wonder that nearly a million people a night stayed at an Airbnb this past summer — it’s less expensive and more accessible now to travel to a different city and find a place to stay.

The cable TV, food, and hotel industries are all examples of how unbundling helps consumers. When it comes to a call for better products, more transparency, and accessibility, another industry instantly comes to mind — financial services.

Financial services — going from a poor history with consumers to a bright future through unbundling

After the Financial Crisis in 2008, consumers asked for and demanded change from the financial goliaths. Consumers wanted Wall Street to be accountable for their actions, and this included making their products and processes more transparent.

Consider how many of the nation’s largest banks and financial institutions were caught up in reckless lending practices and excessive risk taking. At the core of the problems, there was a lack of transparency. Even when Lehman collapsed, no one could understand the bank’s trading risk. This resulted in a lack of trust throughout the industry, especially between peer institutions leading to a downward spiral of illiquidity. Banks no longer wanted to lend or trade with other banks. These same banks were involved in risking trading of their own, which meant that no one knew if any particular firm was going to implode next. As customers of these institutions, consumers were not given insight into how the institutions were run. Instead, consumers just bore the brunt of the consequences of these bank industry’s actions — home prices plummeted, unemployment skyrocketed, and taxpayers footed the bill for the unprecedented rescue.

After 2008, there was an incredible opportunity for real meaningful change to create better, more transparent products and processes. Unfortunately, many of the companies that were asked to change did not fully take the opportunity to empower consumers by giving better insight into their practices or their products. Instead they have chosen to protect legacy businesses with poor services and products that are oftentimes inaccessible to many people. What has begun to emerge is unbundled services in which companies are offering individual — or a handful — of products. In the new unbundled paradigm, each product offered must stand on its own merits.

The demand for transparency has brought forth a new sector of consumer-focused fintech companies bringing with them the next major industry shift with the potential to change the way we earn, spend, and save money. The positive ripple effect from these changes have the potential to transform how entire generations reach financial goals, especially for those who have the longest time horizons to those goals, like Millennials and Gen Y. Perhaps that’s why banking is considered the industry most likely to be transformed by Millennial consumers.[7] In addition to better products and more transparency, the industry will be truly transformed when a key effect of unbundling happens across the board — increased accessibility.

Let the unbundling begin: better choices, more transparency, and greater access

With financial services, accessibility can make the difference between being able to send your kids to college, or not. With such high stakes on the table, it is even more impactful that unbundling financial services results in more affordable and accessible products. In a sector like investing, we already see this happening. Fintech firms now offer unbundled online investment management services, with dramatically lower minimums and fees, and as a result, more people now have access to investing.

We are seeing firms chip away at other lines of business in financial services such as consumer lending or payments. At WiseBanyan, we too are taking advantage of this opportunity and unbundling financial services and offering products via an à la carte model. The beauty of technology is that it gives companies the power to rethink how industries should work. Now, with the backing and support of our valued clients, we are stepping up to the plate to meet the call coming from consumers: give the voice, power, and choices back to the client.

With à la carte financial products and services, you can choose to pay for what you need, want, and use. The greatest value of unbundled services is that we can move away from the all-or-nothing model where products were only available to an exclusive percent of people. Now everyone gains access to products and services to help reach meaningful financial goals.

At the end the day, when we unbundle financial services we are providing better products and services to consumers. As consumers are given a voice to demand and choose better products, companies will have to meet the demand to provide more transparency. Consumers will avoid companies that continue to be opaque. Most importantly, financial services will finally move away from the “all-or-nothing” model, which all too often resulted in “nothing” for consumers. Instead, products and services will be unbundled and offered à la carte, and good financial products and services will become increasingly accessible for everyone.

We believed investing would be free within five years and stood behind why investing should be a right accessible to everyone. Naysayers questioned whether it was possible (it was) or consumers wanted the choice (they do!). And now, this is why we at WiseBanyan are launching our first paid product — WiseHarvesting — unbundled, and à la carte.

You get what you pay for. And that’s great.