As a services industry, banks are putting their customers centre stage. Customers value positive interactions with bank staff that hinge on attributes such as knowledge, responsiveness and fair treatment. Lured by developments in other service industries, customers expect banks to excel in these attributes. To satisfy and please their customers, bank employees must tap premier banking products and services that are surrounded by well-thought business processes. Genuine value breeds in a virtuous cycle, where banks come up with a richer set of high-quality offerings; a well-educated and equipped sales force caters to the needs of increasingly sophisticated and demanding customers; these customers are happy to pay intermediation margins at a premium; and banks reinvest their earnings growth in perfecting their products and services. As good gets better, happy customers are a great source of repeat business and referrals.
Holistic product strategies
Oblivious to internal divisions by functional, product and geographic lines, customers have a habit of aggregating, in their own pockets, all their business with a bank. Catering to the financial needs of their retail, wealth management and corporate customers, banks may offer a broad array of credit, liquidity, payments and investment products.
Besides their bank, customers do business with merchants, electronic service providers, telecommunications and manufacturers. Customer value may ultimately reside in the provision of goods and services rather than in the financial means, so this raises a question about ownership of the customer. Do customers respond to banks or to the adjacent industries? While other industries may or may not fulfill financial services functions, they still capture the mind of the customer.
As economic value shifts gradually from manufacturing to services industries, banks are challenged to rethink their business scenario and model new products and services that appeal to a more comprehensive range of customer needs. Banks should ponder the business purposes behind their interest rate arbitration, trading, and fee-based products. For mature products, there is a continual ebb and flow of narrowly defined features that fill in short-lived windows of opportunity.
Out of the mould
Innovative banks may attain a much greater market impact by breaking out from confined products and features. The proliferation of internet access and mobile technologies, as well as multimedia kiosks, is giving increasing importance to service-oriented architectures and self-directed channels. In a networked value chain, banks reach out inside and outside the industry to accelerate their time to market and create long-term value in new fields.
Indirectly, the excitement generated by such innovative drive and extended service capabilities may add to the value of the banking relationship and foster customer loyalty. Cross-segment offerings in partnership with other industries are particularly appealing to upscale and technology-minded customers. Creative product packaging within an holistic service proposition leads to breakthrough offerings and generates incremental net new revenues.
Accelerating product development
Within individual business lines, banks employ technology solutions that embed built-in, pre-configured product features. These features are either dormant in the product processing system or triggered automatically, eg. price schedules that respond to market or usage parameters.
As many banking products become commodities, a defensive approach entails ‘tweaking’ product features – for example, establishing linkages between existing offerings, introducing variable schedules for interest and currency rates, providing dynamic mechanisms to allocate guarantees or collateral, and keeping tab of loyalty perks. Technology systems also bring increasingly valuable and granular information to delight customers and enable more effective cross-selling.
An holistic product development approach requires a cross-functional flow of information within an integrated technology platform. Business process management tools play a key role in tailoring products to fulfill both explicit and emerging customer needs. From a business process and technology perspective, the following steps are pivotal to the product development cycle:
- Target market. Banks establish who needs new products and services by mining data from existing and new customer segments.
- Stakeholder input. A statement of needs comes from diverse structured sources like voice of the customer and the employee, competitive intelligence, and regulatory mandates.
- Needs analysis. By tracking subtle metrics and shifting behaviours, banks identify emerging customer needs, preferences and risk tolerance.
- Value proposition. Based on the needs addressed and product content, banks model the actual and perceived benefits from the customer perspective.
- Financial profile. Decision support tools help in evaluating the product cash-flow, risk-weighted returns, and establishing mechanisms to account for the financial contribution.
- Service architecture. Integrated data models with simple, straight-through workflows that are personalised to the customer interaction preferences provide for a differentiated experience.
- Product fit. The expected margins are gauged against a product’s suitability in the bank product portfolio and the likely impact on the profitability of the customer relationship.
- Pricing model. Incentives and discounts, as well as benefit-sharing formulae are modelled to foster product adoption and avoid cannibalisation of existing products.
- Rapid prototyping. As an alternative to full-blown product development, some product systems enable the creation of experimental offerings for limited testing purposes.
- Enterprise integration. Banks must ensure that new products blend in the business mainstream, and are supported through the appropriate channels, service and control points.
- Delivery strategy. By evaluating what the right channels are for the target locations and customer segments, banks optimise the product adoption curve and financial results.
- Selling points. Customers are more likely to deepen a relationship during a positive service event, so revenue allocation and incentives empower internal and external channels.
- Operational support. Notwithstanding any automated or self-directed features, effective product support depends on the skills and training of the bank personnel involved.
- Compliance criteria. Besides meeting regulatory requirements and internal policies, new products must take account of customer privacy preferences and leave adequate audit trails.
- Technology development. Product breakthroughs may leverage new technologies and encompass significant efforts to build and test custom solutions.
- Pilot testing. Before rolling out new products and services across the entire customer base, banks perform controlled tests to verify results and fine-tune the offering.
- Campaign launch. Automated systems help in orchestrating, starting, managing, tracking and evaluating the results of the product programme.
Product and services success
To maximise value and encourage adoption, banks should inscribe their product development efforts in a cohesive programme. To create new customer value, leading banks are challenged to overcome the ‘not invented here’ syndrome and formulate multilateral product and service offerings that transcend their silo capabilities. These networked offerings demand a combination of advanced technologies with real-time architectures and a ‘high-touch’ personal interaction approach. Therefore, the adoption of an enterprise product framework (including process, people, technology systems, and infrastructure) is instrumental in integrating with external services and leveraging solution components.
Despite riding on state-of-the-art technologies, some products have a tiny marginal value in customers’ eyes and may offer little innovation potential. To create genuine and sustainable value, banks must avoid the temptation to introduce artificial subsidies to disguise lesser products.
In addition to these automated product development capabilities, banks find powerful competitive differentiators in a deep domain expertise in financial services, excellent client service, and a moral underpinning that reaffirms customer trust. If banks are remiss to upgrade their technology systems and extend the scope of their value proposition, other industries may step in. In the end, customers are free to anchor their financial and service needs in a trusted and capable provider of their own choice.
Guillermo Kopp is vice-president of financial services strategies and IT investments at TowerGroup. E-mail: gkopp@towergroup.com
