Retail Banking Business Models - Module 3

Module 3: Retail Banking Business Models - Introduction to Retail Banking

• Candidates will understand the relationship between a retail bank's strategy and business model and how the operational model influences it, as discussed in the Customer Management Module.
• Key features, advantages, and disadvantages of different business models used by banks will be identified.
• Drivers of change in retail banking that force banks to review their business models will be examined within the context of ensuring survival and growth.
• The importance of customer trust in financial services and how business models can enhance or diminish that trust will be explored.
• Banks' challenges related to claiming to be customer-centric while operating a different model will be explained, along with the case for adopting a customer-centric model.
• This module helps understand different business models for creating, delivering, and capturing value for various stakeholders (investors, customers, employees, community).
• The past two decades have seen banks evolve into "financial supermarkets," offering a broader range of products and services.
• Recent changes include new players (e.g., Revolut) that threaten traditional models by unbundling services and providing niche products, which can be expanded into wider offerings.

Module 3: Retail Banking Business Models - Business Models

• Key features of different banking business models, including their advantages/disadvantages, are explained in context of retail banking's future.
• The drivers of change forcing banks to re-evaluate their models in the retail banking environment are identified.
• This module examines the reality that many organizations purport customer-centric practices yet operate in product-centric ways, emphasizing the challenges in achieving customer objectives (acquisition, growth, retention).

Module 3: Retail Banking Business Models - Business Strategy and Models

• The importance of effective business strategies and models for business success.
• The concept of aligning business strategy with the business model is fundamental to achieving business objectives; specifically, for retail banks to achieve strategic objectives.
• Three common business models for retail banks are: product-centric, channel-centric (delivery-centric), and customer-centric.

Module 3: Retail Banking Business Models - Comparison of Business Models

• Key characteristics of product-centric, channel-centric, and customer-centric models are compared and contrasted.
• Product-centric models focus on defining the bank through product and service offerings, not customer needs.
• The channel-centric (delivery-centric) model prioritizes cost-effectiveness of delivering products/services through various channels.
• Customer-centric models focus on understanding customer needs and designing products/services to meet them.

Module 3: Retail Banking Business Models - Product-centric, Channel-centric, or Customer-centric?

• The product-centric model is driven by a lack of customer insights and data, focusing on product superiority, sales maximization, and market share.
• Financial supermarkets are examples of banks operating with a product-centric model.
• Banks may want to offer the best product, but sometimes these products may be complex and expensive, which doesn't solve the customer's problem.
• Customer-centric models go "outside in;" they look at the customer's needs and try to solve those needs through their products.

Module 3: Retail Banking Business Models - Drivers of Change and Un-bundling the Bank

• Customer expectations are changing, requiring respect and personalized experiences.
• Digital technologies are changing customer behaviour, giving them more access to information and product comparisons.
• New digital banks/fintechs are offering "unbundled" services, creating more choice and pressure on traditional banks.
• Customer centricity is becoming critical for competitive advantage.

Module 3: Retail Banking Business Models - Customers

• Customers judge banks on their performance, influencing future purchases.
• Positive experiences boost loyalty and business growth.
• Customer data is increasingly valuable, and customers expect ethical and transparent use of their data.
• Open banking may allow the reconfiguration of individual financial services.

Module 3: Retail Banking Business Models - Banks Have Lost Trust

• Customer trust in banks has declined.
• Consumers show a preference in seeking financial advice from friends and family rather than banks.
• Short-term profitability can decrease trust in products/services and negatively impacts long-run customer relationships.

Module 3: Retail Banking Business Models - Customer-centricity can rebuild trust

• Customer centricity is paramount to rebuilding trust by deeply understanding customer needs, desires, and behaviours.
• Customer understanding through lifecycle considerations is essential in the customer experience for building trust and positive relationships.

Module 3: Retail Banking Business Models - Making the Case for a Customer-centric Business

• Businesses that claim to be customer-centric may not achieve the desired benefits if evidence and demonstrable customer-centric practices are not demonstrated.
• Several benchmarks exist for defining success in a customer-centric business experience, showing how different customer experiences bring in significantly more revenue.
• Executing a customer-centric model will likely present additional costs in the short term; hence, a strong justification of why or how it will increase revenue and decrease costs over time is critical.

Module 3: Retail Banking Business Models - A Customer-centric Business Model Offers a Solution

• Customer behaviour affects revenue & costs; self-service channels, customer advocacy, and retention of existing customers are crucial variables.
• Banks need to understand their customers' needs, problems, dreams, and behaviours to effectively craft a customer-centric model.
• Understanding and addressing customer experiences at each touchpoint – the customer journey – is essential in developing and maintaining trust.