Editor’s Note: This post originally appeared, in slightly different form, here.
Recently I was asked, “What's the first step to becoming a truly customer-centric bank?” This question does not prompt an obvious, immediate answer. But nonetheless, the question — all shiny and earnest — awaited a thoughtful response. Fortunately, I have spent a lot of time considering this topic. And this, my industry friends and colleagues, is where I would start. Forget the tech, forget the culture. Start with the accounting.
Tech and culture are critical. There is no dismissing either, nor prioritizing one over the other. They belong together. But accounting? That's not obvious. Overhauling accounting, however, would enable tech and culture to become more effective in the pursuit of actually putting the customer back at the center of the industry. How? Consider this: profit and loss accounting is still product-oriented. It's the least customer-centric process in the entire banking system. Every single product is siloed: Each product is created, tested, launched, tracked, priced and measured in isolation. This is the problem. Deep product expertise is corralled, sales metrics are one-track and product design is one dimensional. Furthermore, siloed, product-centric P&L lines draw political maps within the banks. Political games are never customer-centric. Rather, they are battles over fiefdoms and resources. By design, siloed product lines create pockets of responsibility that preserve status quo (one-dimensional revenue growth).
So what if P&L were redesigned to focus on market instead of the product? No longer would banks develop products in relative isolation. No longer would lines of business battle over budget and IT resources. No longer would banks view customers as transactional sales to be notched onto a P&L bedpost. And no single division within the bank would get the zero-sum win when its product is purchased.
In this model, banks would redefine customers as a retail, corporate, wealth or investment client — not as a payment, lending, treasury, mortgage or card customer. The customer would determine the P&L, not the product. Customers would belong to a holistic segment, not a product line — an overhaul that would fundamentally change the way bank culture and tech are shaped.
Walls between product departments would crumble or at least turn into picket fences instead of brick walls. Product teams, which historically have focused only on their specific product, would start to understand other products and pay attention to how their products impact the design, delivery and operations of the other product lines of business. This would shift the focus to the value of the product suite/bundle away from the cost. No one quibbles over cost when the value is apparent.
But it would also allow pricing strategy to dynamically change based on the customer relationship, and, ultimately, smooth the way for banks to focus on customer lifetime value instead of quarterly product profitability (which currently is transactional temporary value, not lifetime value). Internal cultural collaboration at a market level would be possible. Communication lines between (current) lines of business would open up. The focus would shift to customers in the round, not the single product. The market-level view is holistic; the product level view is not.
Such a shift would also organically dictate how tech is deployed. It would demand a full view of the customer relationship. In other words, banks couldn’t trap data in a single system, because whatever payment transactions the customer has would have context only when related to their credit, savings and investment transactions. It would mean data is measured at the customer level. Yes, it would mean reconfiguring complex legacy systems — something already needed, but this would put pressure on the timeline of those re-architecting projects. Ultimately, it would shift the ethos of that design to truly focus on the customer, not simply the product.
Changing the way we define P&L lines directly impacts how we change our approach to evolving culture and digitization of banking. Making accounting accountable for customer centricity lays the foundation for the rest of the way we conduct business. It's also the one thing we as an industry have not addressed, or considered, as a strategy to being truly customer-centric.
We can't have a customer-centric industry if we limit the way we account for customers’ value. If we don't change the way we look at P&L, from product to customer, we'll only be paying lip service to customer centricity.