Digital Banking Capability Model
Learning from the automative industry to move from product orientation to production orientation.
Banking is moving faster to a networked/decentralised, component based, manufacturing and delivery model. Multiple analogies to motor vehicle manufacturing have been used and for very good reason. The more you can define commodity, platform components that multiple products and brands use, the more you can focus on great experiences for the various tribes you want to bank, with or without a license. VW led a paradigm shift from a product-oriented company to a production and process oriented company. VW’s production network makes a significant contribution to the value of the company as a comparison with its competitors shows. Volkswagen has turned production from a cost driver into a success factor.
In the Automotive industry it is easy to make a very costly mistake by betting money on something that does not sell. Such mistakes are extremely expensive: factories and tooling cost hundreds of millions of dollars. At the centre of the problem is that demand for existing cars is quite hard to predict, and demand for new cars is all but unpredictable. Volkswagen mitigated this problem by focussing engineering efforts on using the same basic parts in multiple cars, even cars of different brands. This strategy is known variously as “component commonality”, the company calls it “toolkit strategy” or “platform sharing”. Demand for individual components is quite stable because risks associated with demand for any one car are mitigated by pooling them together. Predicting aggregate demand for a few components is easier.
Banking is a manufacturing and distribution business, not unlike making cars. Uber pulls no punches when it shows the way forward as the Competition and Ecosystem continue to broaden and intensify. Uber led with an embedded payments business model in a two sided marketplace. It quickly identified SME banking opportunities for their underserved drivers “need a loan for that car?” Uber showed us that once you define the service component, e.g. loan, you can isolate it and determine at any time, what is the most fit for the job given the potentially competing priorities of the customer and the business and how to respond in that moment in time.
As banking is “utilitied” it will be commoditised or “tribalized”. Customers will look for price or value. They will have multiple banking relationships, necessitating multiple integration points. Risk management will be a competitive advantage when organised around the customer: the more granular and real time the better. Marketplaces will appear on the network, through the APIs , where banks operate as suppliers and customers at the same time. In this world, Integration is everything. “Everything as a Service”
Data and integration are accelerating us through a time of digitisation. As with VW’s toolkit strategy, we are broadening our integration services to the bank side with the Moroku Money Digital Services Layer. To date, our API strategy has been focussed on exposing our business services. With the Money DSL, Moroku provides a platform that allows banks to connect to Moroku and other service providers, the other side of the fence.
Our approach to digital banking begins with the evaluation of eight levels of capability, at increasing level of detail to isolate service components, determine fit for purpose, decide, and integrate. Integration (DSL) sits at the bottom because it holds everything together. Distribution sits at the top because value starts with the customer.
The Moroku Capability Model is available as a consulting exercise for banks and fintechs who are looking to review what they need to build and move towards a componentised digital service offering.