Pillars of banking

The first and main pillar of banking is trust.  It can be built and maintained by sticking to moderate risk taking – both in  lending and recommending invest “products” – reputation building.  Trust improves customer retention – even when new entrants try to enter markets with often overly aggressive pricing.  Customer retention improves the stability in the deposit base –  de-facto long term natural and stable funding is increased – a second pillar. Then it is also possible for the bank to rely to a higher degree on interbank and money market funding. A banking sector with a high degree of trust is then able to better perform its key task in the economy – turn short term deposits and liquidity into long term financing – enabling investments.

But this is not enough in today’s world where customers are bombarded with convenience-adding technology from all corners of a global open market. To keep its share of the market a bank has - more than ever before – to think of how it can make life more convenient for customers in their private and corporate roles (it is the same person). Convenience has become a third pillar for customer retention – of growing importance. It is built of simplicity of language, clinically simple user interfaces, similar user experience for all services and all roles,  active recommendations (e-banking direction turned..), mobile omnipresence, prefilled forms, mobile notifications, no paper needed (instant agreements) etc.

A fourth pillar for customer retention – especially in the enterprise sector – can be built by paying attention to commercial value chains. Payments are the most important link here and it is clear that banks should look deeper into future of the networked economy and technology. Customer’s need to serve their customers and authorities with more structured and increasingly standardized data on a global scale. In the past the focus has much been in the procurement area – upstream from the payment – but now it has become apparent that the downstream area holds much more productivity improvement potential. This is the case because the largest sector – SMEs can benefit here – and they stand for over 60% of the enterprise sectors turnover, have only started to benefit from automation (have the biggest potential for improvement), will further automation in larger trading counterparts and especially in the public sector. Banks are well placed to serve in the fuller value chain – with solutions for payment automation, mobile notifications, account statement integrated accounting, VAT-reporting and payments, automated invoice financing, fronting archiving, risk mitigation services (globally with TSU/BPO). This is especially important as banks are used to work with strict and global standards.

The full value chain pillar – is built on elements from the payments and risk mitigation services – traditional strengths in commercial banking. On occasion there is a need to be worried about how much the wider importance of the payment area understood in bank management today.  Mobile hypes tend to get more sudden attention than deeper and longer term value creation. If this is not changed banks may lose out to entrants from new sectors (all the way to transaction account balances and financing) and society at large will have to wait longer and  pay much more for a much needed automation and real time economy.