As Apple muscles into banking, the job of engaging communities around their money, and getting them in on the game, amplifies performance.

What gets measured gets done. What gets measured and fed back gets done well. What gets rewarded gets repeated, as we focus, adjust to the reward system and seek fitness payoffs.

No matter what the industry, businesses that don’t have a clear idea of what they are trying to improve, invariably get disappointing results. Whilst it may seem that KPIs are something that you should be able to pick up off the shelf, the reality is that they are a representation of your specific business and of your aspirations for your business.  Selecting  them requires a definition of what success is in the business followed by a method for cascading them to the right people in a manner which drives the right behaviour. Whilst the right people includes staff, it also means partners and customers, if we are to get everyone pulling in the same direction.

According to Forbes, measuring something gives you the information you need to achieve what you set out to do. The article explains that measuring something increases focus and motivation to perform. When we set goals and measure performance against that goal, we hold ourselves (and others) accountable for the resulting success or failure. Few disagree that to achieve outcomes we should measure and report on key aspects of work.

How good are we doing across the value chain? I was at a conference recently where a senior bank executive relayed to me that the only thing being called out by leadership at all-hands events was loan volume. “Get the loan volume up”. I was informed that this was the only KPI he was aware of. This KPI was being conveyed irrespective of quality and in isolation to the very many contributing factors to overall performance. Could this have been your organisation?

Net interest margin (NIM) is a key performance metric for banks, which measures the difference between interest earned on loans and interest paid on deposits. To deliver great results based on NIM, banks should measure and report on the following key aspects of their work:

  1. Interest rate risk: Banks should measure the interest rate risk associated with their assets and liabilities. This helps them to manage their exposure to changes in interest rates and to ensure that they are earning a sufficient return on their assets .
  2. Loan portfolio quality: Banks should measure the quality of their loan portfolio by tracking the percentage of non-performing loans (NPLs) and the level of loan loss reserves. This helps them to identify potential credit risks and to take corrective action before they become a problem . In Australia, 1.6% of borroweres are in arrears with inner Melbourne, the worst at  5%.
  3. Operating efficiency: Banks should measure their operating efficiency by tracking the ratio of non-interest expenses to net interest income. This helps them to identify areas where they can reduce costs and improve profitability .
  4. Capital adequacy: Banks should measure their capital adequacy by tracking their capital-to-assets ratio. This helps them to ensure that they have sufficient capital to absorb potential losses and to meet regulatory requirements .
  5. Customer satisfaction: Banks should measure customer satisfaction by tracking customer feedback and complaints. This helps them to identify areas where they can improve customer service and to retain customers .

By measuring and reporting on these key aspects of their work, banks can focus attention, manage resources, create value, and improve the overall quality of the operation. In relation to the bank above, while loan and deposit volume both grew 7% year on year between 2021 and 2022, along with NIM, profit growth was 3%, showng a  decline in efficiency. For relativity, CBA and NAB’s profit were up 9 %, ANZ 5% and WBC 4%.

NIM is getting squeezed as interest rates go up, borrowers become more sensitive, money becomes more expensive, and competition increases. I heard of one Bondi, Sydney executive whose mortgage has recently doubled from $8K per month to $16K. Even the top end of town is refinancing.

As the environment becomes more challenging, measuring the right thing becomes even more important: If we want to differentiate and compete, articulating those differences into objectives and key results and cascading them for everyone is critical.

Winning on NIM is predicated on buying money cheap and selling it with an uplift. The cheapest source of funds is customer deposits, often getting it for nothing if it’s in a transaction account. The price of money becomes more expensive as it is transferred into term deposits, but we gain liquidity and capital adequacy advantage when we do so. The most expensive source of money are the money markets, but this money can be acquired faster than customer deposits and therefore has different advantage. The answer therefore is a balance of both sources of funding. That said, the more customer deposits we can acquire and lock those away, the better, and most bank models concur.

On the other side of the balance sheet the best loans tend to be those well within the bank’s risk model. These are often existing customers, who have already been qualified and for whom we have a reasonable amount of data regarding their ability to afford and service a loan.

Consumers globally hold an average of 7.4 banking products across all their various relationships.  With new customer acquisition being tough, wallet share, as measure by the average number of products/customer becomes a reasonable objective as a measure of relevance, stickiness and relationship. Anything less than and average of 2 products/customer is regarded as disengaged and warranting work, especially as big tech moves in.

On this basis the revised set of KPIs to choose from becomes:

  • Interest Rate Risk
  • Loan portfolio quality – NPL
  • Operating efficiency NIE:NIM
  • Capital adequacy capital: assets
  • Customer Satisfaction/Mood
  • Customer Deposits – Value
  • MFI – For what % of customers are we their main financial institution as measured by having them deposit their salary into our bank
  • Wallet Share
  • Existing customer loans
  • Growth new customers
  • New customer loans
  • NIM

Chosen KPIs should have a target, annually and quarterly, be compared against that target and their  direction recorded, getting better or worse.

Once these are set and cascaded to the staff and distribution partners its time to get the most important stakeholders engaged; the customers. As with the rest of the value chain, when customers know what’s important and what fitness payoffs are in play, they are more likely to be focussed and motivated towards these things. This means measuring, providing feedback, and rewarding effort across:

  • Time – relationship duration
  • Space – the depth of the relationship/the amount of money and products they have with the bank and;
  • Motion – how they are making progress with their money and the depth relationship.

As we start measuring and providing feedback against these parameters of the relationship there are a host of fitness payoffs and rewards available within the bank’s kit bag such as status, pricing, awards, content, products and service. The challenge is in lining them up within a win:win performance framework so everyone is clear and engaged. As Apple muscles in on banking, the job of engaging customers and communities aroudn their money amplifies.

Gen V, The Boys spin off, is a TV series about a college for kids with superpowers. It is a further dive into a world in which superheroes have become the centre of a brutal attention economy. Gen V and The Boys share a merry nihilism: a hyperbolic tweak of our sick, sad influencer times that sees little good in anyone.

At Moroku we’re putting our twist on AI, layering in EI, Emotional Intelligence, within a performance framework for everyone. We recognise the fundamental human need for recognition and leverage that by building empathy, award, and reward within the experience for staff, distribution partners and customers. We leverage our innate hunger for fitness payoffs to support strong positive money habits to help financial services providers compete by ensuring we’re deliberate about what we want to get done, provide feedback and reward around that so it gets done well and repeated and turn staff, distribution partners and customers into superheroes.

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Digital is rapidly commoditising banking around the world, forcing participants to compete on margin erosion and funding. In the new engagement economy, there is an alternative: Harness the power of game to build digital experiences that deepen customer relationships, provide value and are relevant by supporting customers to thrive with their money.

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