The Accountability of Accounting in Banking

I was recently asked what’s the first step to becoming a truly customer centric bank. It’s like being asked where to start looking for Waldo. I don’t know where Waldo is, and really, you ask someone who, without her glasses, can’t see clearly 2 inches in front of her own nose? But nonetheless, there was the question all shiny and earnest awaiting a considerate answer. Fortunately, I’ve spent a lot of time considering it. And this, my industry friends and colleagues, is my glimpse of Waldo.

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. There is little need (anyone out there still waiting to be convinced? Didn’t think so) to extrapolate, so I won’t.

But accounting, that’s not obvious. It is, however, what would enable tech and culture to be more effective in the pursuit of actually putting the customer back at the centre of the industry. How? Consider this:

P&L accounting is still product oriented. It’s the least customer centric process in the entire system. Every single product is siloed: it is created, tested, launched, tracked, priced, and measured in isolation. This is the problem. Deep product expertise is corralled, sales metrics are one-track, product design is one dimensional. And 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. Siloed product lines by design create pockets of responsibility that preserve status quo (one dimensional revenue growth).

What if P&L were redesigned to focus on market instead of product? No longer would product development be done in relative isolation. No longer would lines of business battle over budget and IT resources. No longer would customers be seen as transactional sales to be notched on a P&L bedpost. And no single division within the bank would get the zero-sum win when their product is purchased. Customers would be redefined as a retail, corporate, wealth, investment client, not a payment, lending, treasury, mortgage, or card customer. The customer determines the P&L, not the product.

Customers would belong to a holistic segment, not a product line. And that, that would fundamentally change the way bank culture and tech is shaped.

Walls between product departments would crumble – or at least be picket fences instead of brick walls – where product teams start to look at cross-functionality rather than diminishing profit margins, and aim for peak utility design in concert with the full range of services comprising the market offering. This shifts the focus to the value of the product suite/bundle, not the price. (Let’s remember no one quibbles over price when the value is apparent.) But it also allows pricing strategy to be dynamic based on the customer relationship, and smooths the way to focusing 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 is made possible. Communication lines between (current) lines of business open up. The focus shifts to customers in the round, not the single product. The market level view is holistic; the product level view is not.

This shift also organically dictates how tech is deployed. It demands a full view of the customer relationship. It means data can’t be trapped in a single system, because what ever payment transactions the customer has only have context when related to their credit, savings, and investment transactions. It means data is measured at the customer level. Yes, it means that the complexity of legacy systems would need reconfiguration (they already do, this puts pressure on the timeline of those re-architecting projects), but it also means how we choose to architect how those systems interact would be redesigned, too. But it also shifts 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 digitisation of banking. Making accounting accountable for customer centricity lays that foundation for the rest of the way we conduct business. It changes the paradigm completely. 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. We’ll never find Waldo, and Waldo really truly wants to be found.

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