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August 31, 2012

Is the Banking Product Truly Dead? Or is it Born Again?

Posted by Rajashekara V. Maiya (View Profile | View All Posts) at 6:12 AM

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With Q Coins, Linden Dollars, Sainsbury's loans and Airtel Money going around, who can bet against the decimation of traditional banking products? Or the end of banks' monopoly over them? The financial crisis added fuel to this fire by highlighting the dangers of reckless product innovation, forcing banks to trim and simplify their (sophisticated) product portfolios as well as make them more transparent. Banks continue to rationalize "regular" products to eliminate variants that aren't significantly different or don't have enough takers. So, does this mean that the fate of the banking product as we know it, is sealed? Maybe. Maybe not. But what's certain is:

The end of canned products is nigh. With banking products becoming highly commoditized, they are no longer the source of competitive differentiation. A senior European banker pulled no punches and declared in an interview, "Product is dead". Banks are understandably trying to reclaim the uniqueness of their offerings by personalizing them to suit customers' individual requirements. Yes, product is out. Solution is in. The focus is on addressing a customer's requirement with a solution rather than push a pre-canned product. From 'custom-made' to 'customer-made' movement, the movement is gathering momentum. Take the example of a leading Dutch bank, which some years ago, replaced its ineffective (read irrelevant) marketing campaigns with one that was able to create personalized product offers and deliver them over multiple channels, in real time. There are too many such instances to mention.

Product distribution norms are breaking down. Consumers' banking behavior has gone multichannel. Today's customers expect their banks (and banking products and services) to be equally accessible at all times and on all channels. This has overturned the erstwhile mapping of specific transactions to specific channels (withdrawal at the ATM, loan application at the branch, balance enquiry online and complaint registration at the call center...) and also spilled over to product distribution, forcing banks to make all their products available on all their channels, as well as explore distribution through third parties like automobile dealerships and retail chains. Services are no exception. Gone are the days when the advisory practice operated inside a branch or from a relationship manager's laptop. Financial advisors have turned virtual, to be summoned by customers from a chat window or mobile application. 

Self-service is the key. Banking experts predict the demise of the bank branch. Agree or not, one thing's for sure, and that is that banking and banking products will be increasingly consumed in self-service mode. In fact, DIY (Do-It-Yourself) will drive banking product definition in the days ahead. Customers - and not tellers or overenthusiastic sales executives - will determine which financial product to buy and when. In this, they will rely increasingly on their social groups - not only for advice about financial products but in some cases for the product itself, when the product in question is, say, a Peer to Peer loan.

My opinion is that such developments don't herald the death of the banking product as much as a reincarnation, in as many avatars as there are customers. Long live all of them!

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