Banks are busy deconstructing in the face of competition, outsourcing key processes in the search for higher efficiency and lower costs.
Chris Skinner wonders whether they will end up becoming shells of their former selves.
In the mid-1990s, there was a flurry of activity as new entrants arrived in the banking markets. Retailers, airlines and telecoms were all launching some form of financial offer. Banks responded by partnering, improving services or hoping the new players would just go away. Ten years on and these new entrants are still here but their threat has not disturbed the banking sector as widely as anticipated. However, it has created the deconstructed bank.
The deconstructed bank is the bank that splits itself into pieces to outsource areas that are not core competencies. This development is fuelled by vendors offering outsourced services and banks seeking to improve efficiency and reduce costs. The outsourcing of core operations is now becoming accepted and banks are taking out non-strategic processes, such as cheque processing, and even strategic processes, such as back office processing and administration. Banks are taking out customer contact processes through offshore call centre outsourcing. There are even discussions of them selling branches to operate as franchised operations.
This trend has interesting implications for the long-term as the bank that lets front office, customer contact out of its control is potentially losing control of its customer base. Customers may end up dealing with someone who knows nothing about them or their country. For example, I recently rang one offshore call centre and was asked to spell “Essex”, which is one of the largest counties in the UK. I was not impressed.
The long-term impact of the deconstructed bank is that banks will split between service providers and product providers. Service providers will focus on front-end processes and may administer nothing – it will all be outsourced – but their multi-channel approach and strong brand will be the core competence. Product providers will focus on back office processes and may distribute nothing, but their infrastructure, processing systems and ability to administer products will be second-to-none.
Other players will provide specialist services, such as credit card processing or access to capital markets, to the service and product providers. The trick will be to ensure seamless integration of these services into the overall operation, from front office to back office, end-to-end.
The result will be that banks will become integrators of best-in-class services with only a few processes managed internally. In fact, some could exist with purely a brand and no internal operations at all.
Chris Skinner is founder of Shaping Tomorrow and chief executive of Balatro Ltd. Find out more at www.ShapingTomorrow.com or e-mail Chris at chris.skinner@shapingtomorrow.com
