One of the questions that I often ask banks undertaking major change programs is “Why are you doing this?” — it seems like a simple question but it can often be difficult to answer succinctly because of the number of mandates and often competing objectives assigned to these initiatives.
A great answer is often along the lines of industrializing the bank and preparing it for an anticipated period of consolidation, disintermediation and changes in consumer preferences.
Under increased margin pressure, growing consumer channel demand, and requirements to scale banks won’t be able to afford the artisan approach to banking products for long.
Looking at parallels in the automotive industry: there was a time when each car was made by hand in a small shop, and then came the factory. Now we have global automotive platforms where one chassis is engineered to service multiple markets and marquees. By comparison, most banks are still creating products by hand, a few have built small factories but fewer still have created product platforms.
Developing a banking platform strategy requires understanding and organizing the banking products and then delineating product features that are market facing versus those that are servicing relevant. Once the products are understood they then need to be engineered to fit into platform categories. These categories allow for consistent servicing behaviour with a high degree of flexibility on market facing feature attributes. The more features you are able to realize on a single platform, the more efficiency in distribution and cost can be achieved.
Currently, most banks are experiencing a 1:1 ratio where each set of product attributes are map directly to servicing relevant settings — as banks move up the industrialization ladder this ratio should increase. A higher ratio allows for multiple products in the market with a single servicing platform, which allows for lower operating costs and change costs. Ideally, servicing systems are flexible enough to manage entire families of products (i.e., all deposit and lending accounts) within a single product platform and allow for many market attributes.
This concept challenges some of the fundamental assumptions of what banking products are all about. Why is that product defined as a checking account? Because it has the attribute of being able to handle item processing associated with checks. But if it has an overdraft associated with it, we don’t consider it a loan account – yet it could go into a negative balance and even have a dunning process associated with arrears on overdraft amounts.
Banking products are complex – but banking solutions can be designed to separate attribute complexity from system complexity
At a fundamental level, an account is an account. The ability to connect to a debit network, process items, handle overdraft, compute interest, associate collateral, and produce statements are all examples of account attributes. Banking solutions designed with this in mind will be much more resilient and flexible while allowing for lower operational costs and systems complexity.
With banking “platformization” the only difference between banking products may be the equivalent of headlights, badges and bumpers.