A compelling bank value proposition has to be unique – differentiated with a clear justification to enter or expand the business relationship, combined with benefits and demonstrated return. But, unique differentiators have to be supported by unique business processes, technology and people, all of which reflect the spirit, values and brand of a bank.
This, my first blog, is a summary of the many discussions I have had with European and UK banks: and the big question is always “What should Transaction and Corporate Banking use as a high level checklist for growing internal capabilities, versus leveraging partnerships or outsourcing?” Or, put simply another way, should I grow my own timber, or is there someone else who can do it better?
Align your product with your commercial value proposition
Since the world of Transaction Banking is increasingly commoditised, the bank value proposition is often built on several layers of technologies and processes developed decades ago. For the bank that wants to increase market share, unique differentiation has to be the way forward, while keeping commoditised technology and processes up to the latest standards cost-effectively.
According to a Finextra Transaction Banking report 34% of those surveyed listed “increasing IT and system complexity” as the major challenge facing transaction banking, while “adding new products and services” remained the top strategic focus for banks in managing their transaction and cash management business over the next three years.
So, are your technology, processes and people aligned with your aspirational value proposition, or are they still heavily focused on the continual design, implementation and day-to-day operation of the supporting IT infrastructure and system complexity? In other words, how much effort and investment are you putting into maintaining and running your various Cash Management, Trade Finance, Channels, Online banking and Payments platforms compared to innovation and industry expertise? Have you commoditised the relevant areas internally?
My 5 tips on what you should do yourself vs where you should be partnering
- Products vs Commercial value propositions. Internal products or platforms are the life blood of a bank’s IT infrastructure; however their role is to support a commercial value proposition. Channels are not “sold” to provide connectivity or SEPA Mandate Management to manage mandates. They enable corporates to communicate with their favourite bank with high STP rates globally and seamlessly, without worrying about engaging with a new supplier, increasing complexity and risks associated with technology or new compliance rules. Let’s admit it; from a bank’s perspective, those internal products are a constant balancing act between client-specific requirements and generic economies of scale. As a rule of thumb, banks should first focus on decreasing the amount of major “bespoke” or “client-specific” business processes, IT components or technical functionality on their internal technology environment. A successful health check could start with an inventory of these and separate elements between the ones supporting directly the banking value proposition (the client-facing products and assets directly supporting the value proposition) and the ones supporting the lifecycle of the internal infrastructure. Success stories demonstrate that both external value propositions and internal products commoditisation delivered through alliances can create positive business outcomes.
- Don’t underestimate partnerships. Since demand is often driving the products and services portfolio, beware of investing hastily in in-house processes, technology and people for a single or very limited number of clients, no matter how large. In the last decade, the banking industry has new options to dilute upfront investments and share revenue risk; including strategic alliances, multi-tenant cloud services, outsourcing. These alternatives can provide more aggressive timelines and partners may actually bring customers along.
- Know how to bid for new business. In our competitive world, your client or prospect may be engaged with your competitors. Volumes and new functionality requirements are difficult elements to assess and commit to while bidding for a major contract. Are you benchmarking yourself often enough against what a partner could deliver on your behalf? Fruitful alliances often start as a one-off collaboration for a critical bid, sometimes they are tactical and bridge a gap so that the bank can catch up internally; sometimes they become strategic partnerships for unprecedented execution, customer retention and market penetration.
- Grow your own timber where appropriate. We hear the same story time and time again in both Transaction Banking and Bank 2.0 conferences: invest in internal, organic innovation for what you are best at: industry expertise, banking business processes, cash management, corporate banking.
- Maintain your awareness from other industries. No need to re-invent the wheel or react to your competitors’ new best practices. There is a good chance that a different industry has already maximised their return by adopting a new approach to their internal platforms, processes, how they exchange data with clients and how they manage to consolidate so much variety onto one simple technology stack.
The world of EDI and B2B integration is probably the best starting point for inspiring a more efficient Transaction Banking.