Personalized products and services are important to ensure customer satisfaction. And banks have been creating variations and bundles of their products for decades in a bid to meet customer requirements. But most banks are still working with legacy systems where each variant is added as a separate product, leading to duplication and system complexity. This problem is compounded as the bank expands its business into new geographies or enters into merger and acquisition agreements. They have to localize their products for new regions and also incorporate the new entity’s products into their own portfolio. Such a large and unwieldy portfolio is expensive and labor-intensive to manage. It also hampers the bank’s agility and ability to respond quickly to customer needs and market trends. The prospect of completely overhauling legacy systems is daunting for many banks, but product rationalization and consolidation are critical as competition and market pressures intensify.
An African Bank’s Journey to Product Rationalization
Many banks across the world have already kickstarted their consolidation efforts with good results. A leading African bank with operations across 17+ countries had a product sprawl of over 8,000 offerings that burdened their operational capabilities and obscured the customer experience. The bank realized that product consolidation was critical for ensuring flexibility and customer-centric innovation. Their standardization efforts emphasized term investment deposits that had an impact on liquidity management and local regulatory reporting requirements. They began with a comprehensive analysis for their term-based liability product offering that required them to deconstruct the products to understand and identify variable components. They were able to differentiate between fixed term and variable term accounts and create a more streamlined product portfolio. As a result of this consolidation process, fixed term liabilities became an integral part of the bank’s strategy, ensuring predictability and stability.
The bank went on to implement a customer-centric approach to personalize product offerings, simplify documentation, and optimize their digital channels to set new benchmarks in the industry. Through strategic standardization efforts, the bank streamlined operations, bolstered liquidity management, and achieved substantial operational efficiencies. Notably, they reduced overheads and enhanced their ability to hyper-personalize products to meet customer needs. This approach also fortified risk management by facilitating precise reporting and mitigating the risk associated with fluctuating liabilities. Standardized products simplified compliance with local and international liquidity regulations.
Addressing Rationalization Challenges with a Comprehensive Strategy
Unfortunately, many banks are still hesitant to carry out a product rationalization strategy as in most cases, the portfolio is deeply enmeshed within their legacy core banking systems. This makes any modernization attempts risky, expensive, and potentially disruptive to day-to-day operations. But as the African bank demonstrated, it is not impossible. An effective product consolidation effort must consider three key and inter-related factors:
- An “Over the Top” Architecture: Banks need a robust and flexible architecture that will allow them to access and modify the product portfolio without touching the core banking systems. The architecture must be able to separate the catalog from the core systems onto a wrapper or an ‘over the top’ solution that can then serve as the product innovation layer. The solution must be able to consolidate data from disparate organizational systems onto a centralized catalog.
- Prioritizing Hyper-Personalization: Customizing products to meet individual needs calls for an understanding of the value delivered by that product to a particular customer. Banks can understand customer needs from the data available, but they also must be able to quickly create customized offers. The objective of the rationalization process must be to enable faster customization with a centralized catalog.
- Choosing to Remove or Retain: Finally, banks must be able to decide which variants to retire and the how to move customers to the new product catalog. And this must be based on data backed evidence of the profitability of each product. They must know about the customer agreements for the specific variants before deciding to move them to newer products, as they may be contractually obligated to retain certain offerings. They must consider regulatory requirements for certain products before starting the rationalization process. Last but not the least, they must understand customer willingness to move to a different product and have a plan of action for encouraging them to make the transition.
A Seamless Product Rationalization Effort
Once they have assessed these factors and collected the relevant information, they can choose to create a completely new portfolio or migrate existing products into the new catalog. New products can be added to this portfolio directly and accounts and relationships can be migrated easily as well. The other option is to adopt a phased migration approach where high priority or high value products are migrated before others. But this takes longer and the entire catalog is not available at one go. Whatever the approach, banks must ensure that existing contracts are not impacted. They can categorize products based on usage, with low usage products being timeously removed. They can also take a time-based approach where they identify the products that are set to expire and disable them for future sale once the expiration date is past. Where neither of these approaches can be deployed, they can encourage customers to migrate (upgrade) to new offerings. Last but not the least, they must establish processes for periodic review of the portfolio and customer relationships to ensure the portfolio does not expand meaninglessly again.
Choosing the Right Technology Platform
Effective product consolidation calls for a robust rule-based technology platform that can help banks create and manage a centralized product catalog. Banks must consider investing in a middle layer solution that can sit on top of the legacy core to integrate seamlessly with myriad core systems and customer facing systems. This will make it easy to create a centralized product managed portfolio without touching the core. It will improve time to market with new products, reduce maintenance costs, and enable easier reviews. The solution must be agile enough to allow the bank to carry out dynamic segmentation and use customer behavior analytics to drive hyper-personalization. It also must, be robust enough to allow the bank to quickly create personalized bundles, offers, and products. The solution must help standardize the methods for product and offer lifecycle management to ensure that the portfolio remains rationalized for the future. It must have extensive data analytics capabilities to deliver actionable insights on customer engagement and performance of a product for data-backed decision making.
Banks are facing unprecedented challenges from multiple quarters. A modernized and streamlined operational strategy is crucial for ensuring agility and flexibility, and banks must now prioritize their product consolidation and rationalization efforts. A well thought out strategy coupled with a robust technology foundation can help banks significantly enhance agility, improve risk management, and foster customer-centric innovation.
