Part 2 - Perspectives on Banking - Some basic tenets

Continuing with some perspectives on Banking, I have jotted down some basic principles and truisms, that I always hold close when considering Banking activities and thinking about where Banking might go in the future.

Banking is a long-term business

Banking must be managed by Management Teams as a long-term industry, this should be inculcated into the culture of the Banks. This is likely to reduce banking risk over-reach (or indeed under-reach!) and result in a somewhat smoother transmission of money. We tend to look for short term “fixes”, we are programmed to be paranoid, particularly around technology and digitisation, that if we don’t rollout, introduce, implement this or that feature by the end of the year we will have fallen hopelessly behind the competition. Not true!

The Data Curve

Banking has been based on intermediating on a “money curve” between borrowers and lenders/depositors for centuries. Banking is now also intermediating on another curve, the data curve. ?Banks still hold more data and more valuable data on customers than any other industry, product supplier etc, and are still trusted significantly to manage that data. That data is valuable, if permissioned properly and used intelligently, it builds rich insight into customer needs and wants, behaviours and affordability, and can be therefore utilised in the service and enablement of the customer. The data curve will be more important than the money curve in the future, the data curve will drive the money curve, e.g., credit approval algorithms, AI, IoT, geo-spatial, biometrics will drive the fundamental banking offerings of lending and accepting deposits.

Customer care

Customer care, consumer duty, customer outcomes, customer protection, call it what you will, depending upon what jurisdiction you are in, but having the customer at the centre of everything a bank does, is the only way forward. ?This starts with culture and training, “what do we do when no one is looking?”. ?Again, it comes back to Banking being a “long game”, no short cuts. If you look after the customer, the customer will look after you. This is particularly critical in that Banking and Finance is such a fundamental part of our lives, probably next to health care. Being able to participate in society and economy generally requires access to a medium of exchange and a store of value. That typically falls to the Central Bank and Commercial Banks to provide, (although as we will discuss, in the web 3 world of decentralized services, that may change somewhat!).

Customer Value Management (CVM)

I am a huge proponent of CVM, providing the customer (and the Bank) with value through every phase and stage of the customers (financial) journey through their lives. This requires good on-boarding, good products, great retention, great customer care and data, and again a long-term perspective on how a Bank “makes money”. ?A Bank can only be sustainable if its customers stay with it over the long term. The product offerings are almost always long term, so a short-term approach to engaging with customers and managing the Bank is exactly the wrong approach! As I get older, more and more I wonder about bank “quarterly earnings” and short-term actions, the “urgent keeps getting in the way of the important”. ?This results in incorrect or confused ranking of priorities and resource use, (investment money, people, time). Great Customer Value Management involves developing good data (the data curve!), reliable, reusable, accurate, relevant, timely data. ?The Data strategy and Architecture are key cornerstones. This enables the building of the famous Single Customer View (SCV), a very difficult concept to actualise, the holy grail of CRM. ?With great CRM we can build great CVM, retention, loyalty (probably through rewards, as every customer wants to feel that their business is appreciated, the best brands make customers feel they are part of a club with a shared approach to things). ?Forgive me for allowing the assonance to flow !, but this is where the “anytime, anyplace, anywhere” customer culture and service will flourish, and now for some alliteration !, the “complete, consistent connected” set of propositions and services will result in great customer care (because you are looking after the customer through onboarding, approval, drawdown, repayment, and maturity) and YES !,…the oft described “Share of Wallet” (SoW) , which is basically about a Bank growing its relationship and earning? the trust of the customer so that the customer will consider the Bank for more and more relevant services. ?As the Bank continues to build this virtuous loop (data, relationship management, product sales and services, retention, the bank becomes better at describing, predicting and prescribing relevant Next Best Actions (NBA’s), (basically products and services), and the Bank should confidently do that, i.e., present these products and sell them, “sales” needs to stop being a dirty word in Banking. Banks must sell to stay in existence, (or more nicely put “to be sustainable”!), just like every other company in every other sector. But the selling is done within the comprehensive guardrails described above, thus providing the customer with Intelligent Personal Financial Services (IPFS). Yes, we have an acronym for everything! (the acronyms have kept consultants and executives in jobs for a long time!). ??Overall, it sounds pretty easy this CVM approach! ?Of course it is incredibly difficult to build the culture, tech stack/data, products and propositions and CVM strategic approach, but it is the bar that has to be jumped if a Bank wants to be successful. ?If you are not exhausted by this, and still with me, please read on!

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Old versus New

This leads me to say that I think it’s easier to start a Bank than transform one, it is of course very difficult to obtain a banking licence (rightly so), but it is easier to start with a blank sheet of paper and build a modern data led, micro services, open banking/API, cloud based, AI enabled organisation, than to plug, bridge, patch, retire, replace old legacy (of course generally stable) banking databases and platforms. ?That’s a tough gig, when you are dealing with something as sensitive and important as a customer’s money (“the artery of economy”) and data, (“who they are and what they do”). ?But that’s the challenge of incumbent banks, and it is a multi-decade challenge, and if anyone tells you it isn’t, then I don’t think they should be considered as credible. ?This comes back to the point, yet again, that there are no “quick fixes”. One of the questions often asked connected to all of this is “should the Bank upgrade and replace the current systems?”, a new mortgage platform, a new savings platform, a new investments platform, try to bring them all together in a SCV, or should the decision be to “buy a bank in a box off the shelf” ?, and book all new business in it from a Monday morning, and slowly, …very slowly (given the nature of banking !), wind the old systems down !. ?Sorry to sit on the fence!... but it depends,…I’d go with the one with the least bridges and interfaces between systems,…that’s the one with the simplest architecture technology design/stack, trying to get different systems to talk to each other securely and accurately and send data to and fro, over and back, is a killer!

Ecosystem banking/Marketplaces

Banking is very “cognitive”, it’s not very imaginative, money is boring, it’s very useful in our lives but it exists, as (well literally) a “medium of exchange”!... it gets you to where you want to go, or what you want to have. ?Most things we appreciate in life are more “experiential”, the satisfaction of achieving something, the joy of a holiday, the sadness of a setback etc. Many great brands and business can tap into this basic experiential nature through their products and propositions. ?Sadly, this is not very easy in banking. ?It is very utilitarian in nature. ?A loan is a loan, a deposit is a deposit, notwithstanding the huge efforts I see Banks’ marketing departments going to differentiate themselves, very few really do, and it so often comes back to the “lowest common denominator” of price, terms and conditions and the like. ?Is a first-time buyer, about to take the biggest decision of their lives thus far, more likely to go with the cheapest mortgage with the best terms, or the one from the “cool bank” with the great marketing campaign?? No need to answer! (so, I can continue my monologue!), but the answer is reflected in the fact that 65% of the (for example) UK mortgage market is broker dominated. Of course, the answer for Banks is to have excellence in everything they do, good and always fair pricing, great customer service, and a good brand well presented in the marketplace. But how does Banking become more “real”, money suffers from not being tangible (unless you have Euros or Pound notes in your hand, which more and more you do not!), yet, money, as created and circulated through banking and finance is the artery of economy and capitalism in our lives. ?It represents a medium to attain all our hopes and desires, (the house, the car, the university degree, the wedding, the extension, the medical bill, the holiday, the meal, the club, gym, concert). We need to make banking talk more directly to the experience it enables. ?I believe this is through “ecosystem and marketplace banking”, 100% enabled through digitisation. The Bank is running a marketplace, where all its products and services are on offer, they enable the presentation and selling of other “real life” products and services, lifestyle, day to day retail, household, capital intensive goods (like a new car!), etc. It is all brought together in a web of customer loyalty discounts and offers, where it is obvious to the customer that their business is appreciated. ?This encourages the customer to “open up” their data, enable it to be shared, because it is being utilised responsibly in their service, and enabling them. ?Money is in the middle, sloshing around, and the Bank is the spider in the web, a great loyalty and rewards programme across the ecosystem captures the appreciation of the customer’s business, “the two-way value”, and helps with the feeling of an experience. ?No other industry is so connected to almost everything we do, and the opportunity continues to be huge for incumbent banks that can crack this feeling of “safe space”, a “club”, this feeling of” win-win”, where there is always something happening, and the customer enjoys the gamification as well as the serious enablement and offers. ?Fundamentally this compels bankers, without losing the criticality of for example credit assessment, portfolio management or Asset and Liability Management, to start to think much more about being orchestrators of marketplaces, they are best placed to enable and achieve this, better placed than the company that sells shoes, or hotels, or whatever, but Bankers and Banks are usually lacking the raw sales and marketing skills. ?We beat the “sales” word out of banking after the GFC!. But, the prize of ecosystem banking, is the data curve and the money curve working seamlessly…. now you have a chance at earning the customer’s loyalty and share of business through their life cycle,...that’s customer value management.

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