exampleBank – the good example bank

This entry is part 1 of 8 in the series exampleBank Business Strategy

Big banks are SO complicated.  Every rule has so many exceptions that you wonder why we have rules.  There are so many strategies and business models that no one knows about them all.  Operating models are designed more around legacy constraints than any business model or standardization/integration scheme.  Middle management and even some executives have long grown cynical about trying to pull together to create an enterprise and are simply trying to maintain order on their own floor.  Digital Bank says: “And the politics internally are the greatest blockage for change and, without that change, banks are stuck with piecemeal data sets being analyzed in pieces.

So enough with the drag of politics and the inertia of culture.  Let’s design a bank from scratch that is new and simple!

IMG_0159cI like the name “exampleBank” and the tag line “the good example bank“.  It is descriptive and a social statement at the same time!

The corporate HQ building will be designed after how it all fits together to emphasize that the purpose of exampleBank is to help me get my head around a simplified end-to-end planning process.

Strategy will be neatly separated onto the top floor.  Services and operations will be designed in Design on level 3.  The Transformation function will work on level 2 to plot changes to the unsuspecting Production function on level 1.

Well, here we go.  My executive team will start fashioning the corporate strategy in my following posts, starting with a look at trends.

exampleBank – Trends

This entry is part 2 of 8 in the series exampleBank Business Strategy

The executive team is busy working in the strategy department on level 4 of the exampleBank Headquarters (HQ) building. They are starting the very first iteration of the exampleBank strategy process. At this point levels 1-3 of the HQ building are empty. In fact, most of level 4 is a concrete floor. They are working in the only finished room: corporate research.

If we go back to how it all fits together we see that the first step of the strategy process is an environment scan to find the most important forces and trends. I will start by identifying the trends that I want to account for in the exampleBank strategy.





  • Increased Affluence: Around the world GDP’s are going up and people are becoming more affluent. In Asia financial services, an important trend is the emerging affluent segment. Affluent people are better educated and have more resources, which means more selective customers with higher expectations and more cash to save and invest.

This is all I have for now. Comment on this post if you have a few more that should be considered. I say “a few” because there are hundreds of trends that could be considered. I only want to spend a limited amount of time considering the most important trends affecting for banking.

Next on the agenda is a look at forces.

exampleBank – Forces

This entry is part 3 of 8 in the series exampleBank Business Strategy

The exampleBank executive team is progressing through the strategy process for exampleBank and have identified some key trends to consider. They are in the middle of an environment scan which, according to how it all fits together, includes identifying the forces to be considered.

This post is a work-in-progress. It does not need to be exhaustive, but I want it to be complete enough to be a good example and make for an interesting strategy exercise.


    • Market Segments
      • There are a lot of business models and market segments to be addressed in banking. Consumers range in income and location, and belong to some set of archetypes including new worker, new career, family oriented, investor, traveler, expat, homeowner, business owner, retired, shopper (home, auto, other), and hobbyist.
      • Businesses break down by location, industry and size.
      • Potential for peripheral segments and innovative services.
  • Needs and Demands
    • Consumers need a basic set of retail banking services such as accounts for savings and transactions, payments, borrowing, investing, and foreign exchange.
    • Reduced demand for check processing services
    • Increased demand for electronic payments and, in particular, mobile payments
    • Demand for faster international payment processing.
  • Switching Costs
    • Consumer banking switching costs are low. Relationships become sticky as consumers appreciate improved convenience.
    • Corporate and business banking switching costs are higher
    • Both consumers and businesses tend to multi-bank. Customers of a bank will readily purchase products from competitive banks if the rates and/or fees are more attractive.
  • Revenue Attractiveness
    • Banking has become largely a commodity industry with scores of new entrants and heaping costs from legacy systems and regulations. Nonetheless, as much as 40% of revenues in the USA flow to the financial markets industry.


    • Global Market Conditions
      • Uncertain economic conditions make it risky to loan to businesses
      • High potential for real estate bubbles make personal and commercial real estate loans risky
      • Optimism is growing and the economy appears to be on the up-swing.
  • Capital Markets
    • Cost of funds might increase as the US Federal Reserve reduces stimulus measures.
  • Commodities and Other Resources
    • The cost is increasing for many high skilled resources in finance and IT
    • Savings from some outsourcing and off-shoring are failing to materialize or decreasing.
  • Economic Infrastructure
    • Taxes on corporate income and capital gains are attractive
    • Removal of restrictions on political donations might lead to more favorable treatment for financial institutions
    • Improved infrastructure for crowd sourcing provides new alternatives for engaging customers, suppliers, and employees.


  • Stakeholders
    • Voters and regulators are demanding changes to practices around lending, investing and executive compensation.
  • Competitors (Incumbents)
    • A saturated banking industry makes competition fierce
  • New Entrants (Insurgents)
    • Globalization and reduced protections are attracting increased foreign competition
    • Payment services such as PayPal
    • Lending platforms such as LendingClub
    • Crowd-funding platforms such as Kickstarter.
  • Substitute Products and Services


This is all I have for now. Comment on this post if you have a few more that should be considered. I say “a few” because there are hundreds of forces that could be considered. I only want to spend a limited amount of time considering the most important forces for banking.

Next on the agenda is to identify the opportunities and threats originating from the environment scan.

exampleBank – Opportunities and Threats

This entry is part 4 of 8 in the series exampleBank Business Strategy

In the past few posts the executive team completed an environment scan for exampleBank and noted what they feel are the most important trends and forces to be considered.  According to how it all fits together it is now time to assess opportunities and threats for exampleBank.


    • The current banking industry is bloated with legacy costs that exampleBank can avoid. By passing lower costs on to customer in the form of higher interest rates and lower fees on savings accounts, exampleBank can use consumer sensitivity to rates and fees to create a powerful competitive advantage.
      • Most banks in the industry are saddled with high costs from a legacy branch infrastructure that is declining in importance. exampleBank can gain a cost advantage by not providing branches.
      • Most banks in the industry have costly processes for selling and underwriting loans. LendingClub and other similar services provide a lending platform that is growing exponentially. exampleBank can gain a cost advantage by purchasing loans from the lending platform.
      • Most banks in the industry are saddled with expensive core banking systems that are required to service a bloated product set. By only offering a single, simple product (a SaveOrSpend account) exampleBank can gain a cost advantage.
      • Most banks in the industry maintain a costly ATM network. exampleBank believes that cash usage will decrease as electronic payments increase, reducing the need for ATMs and the cost of leveraging existing ATM networks. In the short-term this will be a massive savings because exampleBank will not invest in any ATMs. In the medium term it will be a wash due to ATM usage fees from other banks. In the long-term exampleBank will retain a cost advantage as other banks maintain underutilized ATM networks.
      • Most banks in the industry maintain an online banking service which is increasingly duplicated by similar mobile banking services. exampleBank believes that mobile banking usage will continue to increase and online banking (along with the sales of PCs) will continue to decrease. Over time the cost advantage of not having an online banking platform will overtake the customer experience disadvantages of a mobile-only service. exampleBank believes customers care more about rates and fees and will increasingly be willing to give up the online channel.
  • Consumers increasingly value the convenience that comes with a digital relationship. Deft offers save time and naïve offers waste time. Pre-filled forms save time and blank forms waste time. As customers have less time to waste they will choose the bank that saves them time. Digital relationships are based upon the ability to (a) extract information about the customer from day-to-day interactions and transactions, (b) use that information to build an understanding of the customer, and (c) use that understanding to make deft choices about how to treat them in each future interaction. But most banks in the industry are not so deft, with little ability to assemble any coherent understanding of a customer from interactions and transactions. exampleBank can create a competitive advantage by excelling in customer engagement.


  • exampleBank customers will be exposed to fees and competitive offers every time they use a competitor’s ATM to get cash.
  • A key feature customers use to select a bank is ATM locations. exampleBank will need to convince prospects that attractive rates and fees are more important than ATM location. They will need to provide exceptional mobile payment services to prevent existing customers from defecting to banks with ATMs.
  • Banking regulations for Know Your Customer (KYC) were designed (and continue to be refined) on the assumption that banks have branches. exampleBank will need to find innovative ways to service customers in compliance with KYC.  New regulations could threaten exampleBank’s novel business model.

Next on the agenda is a quick self-scan to identify exampleBank’s strengths and weaknesses.

exampleBank – Self Scan

This entry is part 5 of 8 in the series exampleBank Business Strategy

The exampleBank executive team is progressing through an initial pass of the strategy process.  They just scanned the environment for trends and forces and brainstormed opportunities and threats.  A self scan will be limited because exampleBank does not yet exist! But there are some strengths and weakness to make note of.


  • exampleBank has a unique opportunity to start from zero, with no legacy costs or constraints.


  • exampleBank does not yet have a proven business model. The selected business model, however scrutinized, will contain assumptions about customers, competitors, suppliers, partners, employees and technology.
  • exampleBank does not yet have a proven operating model. The operating model, however well designed, will be flawed. Each defect in the design must be painstakingly discovered and fixed — all with minimal effect on customers, suppliers, partners, employees, costs and revenues.
  • exampleBank does not yet have a stable production platform. Building and integrating all of the required systems will be a complex effort with many opportunities for failure.
  • exampleBank might provide a fragmented customer experience when customers apply for a loan.

Next on the agenda is to validate their findings so far with some banking industry thought leadership.

exampleBank – Thought Leadership on a Digital Bank

This entry is part 6 of 8 in the series exampleBank Business Strategy

The exampleBank executive team has completed scans of the environment and their own position.  Before moving on to creating strategy they want to validate their own findings and get some thought leadership on what a Digital Bank should look like.  They have taken a number of trends from the Digital Bank book, so they decide to begin with Chris Skinner’s vision of a Digital Bank in Part 1 of the book, section “Launching the Digital Bank”.

  1. What feeling will the bank convey?  Techno bank or human?  Focus on human interaction or mobile self-service?  How is exampleBank different and how will this be demonstrated?
  2. What are the weak points in the offerings of current banks and how can these be exploited?
  3. Focus on opening a bank without the requirement for branches (even though we will have a small number of trendy branches–with Genius Bars)
  4. Secure access to the ATM network (e.g. Vocalink in the UK).
  5. Make everything about exampleBank cool.  The “Apple of banking”. Different, creative.  What makes Simple cool is a culture that is constantly innovating to improve the user experience such as forward-looking PFM with features like goals and “safe-to-spend”.  See Digital Bank interview with Shamir Karkal of Simple: “We are constantly innovating. That is the most important part of our ethos . I don’t know what we will be doing five years from now but we will continue to be innovating.
  6. An aspirational brand for the masses.
  7. Create an amazing online user experience designed for mobile and tablet computers.  A snazzy “app store financial offer”.
  8. Gain loyalty and advocacy.  See Digital Bank interview with Paul Say of First Direct Bank: “There’s also value in terms of word of mouth. People start talking about you when you do things like this on their terms, not the bank’s terms. On the back of this, business comes. A key thing here is that recommendation is as good as writing the business, as people do work on word of mouth, particularly in this age. So don’t look at this just in terms of bottom line contribution, look at it in terms of your brand credentials, customer service experience credentials and how customers will talk about you outside of the bank, in terms of word of mouth and recommendations.
  9. Start at the core of banking:  Deposit taking.
  10. Cool and fun digital bank branding.  Cool = bank that people want to be with (member or staff).  interesting, responsive, modern, transparent and honest.  Technology oriented.  Mobile first — also with a few branches.
  11. Transparency is part of the business model per the Digital Bank interview with Brett King, founder of Moven and author of Banking 3.0.  “Absolutely, that [transparency of money] is our secret sauce. What we are realising is that there’s a value exchange that occurs between the service provider (Moven in this case) and the customer as a result.
  12. PFM capable, easy to use online and mobile.
  13. Authentication using geo-location and signal.  Possibly also biometrics.
  14. Voice activated services.
  15. Strong loyalty program including gifts and real-time location-specific offers, etc.
  16. Demonstrate a deep understanding (based upon a wide variety of information) of the customer in all interactions.
  17. Strong marketing campaign, viral and mainstream involving a believable celebrity personality.
  18. Culture:  Happy. Strong customer focus.  Fair in fees and approach.  Customer outside-in experience design.  Fair is well-defined and practiced.  Social/mobile tech savvy.
  19. No demographic customer segments.  Target customers will be those who want to deal with a cool and fair bank through mobile devices and be treated like a human.  Sections of mobile channel are devoted to target needs, ethnicity, religion and gender.
  20. Social interactions on Twitter, LinkedIn, Facebook, YouTube are used to build a fan base.  “Screw-loose social lounge” for customers.  “live and unscrewed” social space for staff and management.  Note interview with Paul Say of First Direct bank in Digital BankWe know that customers had great experiences with us, and that was because they had real conversations with us and those conversations are two-way, and that is what we wanted to provide in our social media delivery.
  21. No lock-in fees, hidden charges, balloon payments, high overdraft charges, etc.
  22. Motto, such as “Don’t screw the customer”.  Offers that are easy to understand and predictable will back up this promise.
  23. Hiring practices focusing on social media outreach.  Selecting cool, friendly, fair, honest individuals who are tech-savvy.  Selection process involves testing, including character.
  24. Genius bars will be staffed by people who understand and can explain finance.
  25. Happy culture will create happy customers.
  26. Interest rate spread will be a source of income.  Since exampleBank will have a low-cost operating model it will be able to offer superior rates on both sides (for borrowers and investors).  This will be a key differentiation.
  27. There will be a focus on rewarding existing customers to build wallet share.  Knowing more about customers will allow exampleBank to provide rewards that matter to those customers.  Pricing will be a mechanism of rewards.
  28. Dress code is smart casual with designer labels.

Case studies that can inform exampleBank strategy are Simple, First Direct, Metro bank, Tesco.

Next on the agenda is to put pen to paper on the business strategy, starting with the corporate strategy.

exampleBank – Corporate Strategy

This entry is part 7 of 8 in the series exampleBank Business Strategy

The exampleBank executive team has completed a self scan of the nascent exampleBank and are ready to starting writing down the exampleBank business strategy.  They have moved into the newly finished corporate strategy room on level 4 of the HQ building.

exampleBank wants to help consumers use their money wisely.  By managing their own costs, exampleBank will be able to pay its customers a higher interest rate on their account balances.  exampleBank offerings will only be considered if they support this mission.

exampleBank has big plans. But given its weaknesses, it will start small and grow swiftly but carefully. exampleBank will adopt lean start-up approach to validate the assumptions in its business model. Similarly, it will adopt a learn, code, monetize approach to bring its operating model into production quickly.

The new bank’s corporate strategy will be to begin with a single business unit (exampleBank USA) providing a single product (SaveOrSpend Account) to a single customer segment (the consumer mass market). Its service design will provide basic consumer banking services.

exampleBank wants to capitalize fully on the opportunities it has identified in the market. Therefore, it will offer a reduced set of services allowing it to become a low-cost leader. No branches, ATMs or loan processing. The details will be delegated to the head of its first business unit (and owner of the respective business unit strategy).

exampleBank wants its business units to be 100% customer focused. Each business unit will focus on a major customer segment.  For example, in the future exampleBank wants to create a business unit targeting the small and medium enterprise (SME).  As the number of business units increase, shared services will be factored out to maximize economies of scale. The primary standardization and integration required across business units within a country will be that required to leverage shared services.  It is also expected that certain corporate client actors will be private banking customers and have family members who are consumer banking customers, etc.  They expect to have radically different business processes that access some common data.  Within a country, business units conform to a coordination model. Details to be deferred to the operating model design.

exampleBank wants to be a global bank. It will replicate business units across countries. These business units will be standardized (so that they can be easily replicated) and integrated (so that customers can transact transparently as they travel internationally). Across countries, business units will conform to a unification model. exampleBank is betting that globalization will drive bank regulations that are more similar and allow increased data sharing and standardization across boarders. Details to be deferred to the operating model design.

Start-up operations of exampleBank have been crowd-funded. Once the business model is defined a private placement will raise the additional capital required to get the first business unit operating at a profit. At an opportune time, a public offering will provide capital to create business units for other market segments and countries.

Next on the agenda is the Business Unit strategy for the USA Consumer Banking Business Unit.  In the background the executive team is also beginning to assemble the exampleBank Business Plan.



exampleBank – Business Unit Strategy for Consumer Banking USA

This entry is part 8 of 8 in the series exampleBank Business Strategy

The exampleBank executive team has completed the corporate strategy for the exampleBank group.  Now, they move out of the corporate strategy room and into a new room on level 4 of the HQ building that has been set aside for Consumer Banking USA, where they will develop the business strategy for that unit.

The first area of focus will be the business model as summarized below:

  • Customer Segments:  USA Consumers.  A common service design will be provided for all consumers with niche services layered on top for customer archetypes.
  • Customer Relationships:
  • Channels:
    • exampleBank’s primary distribution channel will be a suite of mobile apps.
    • Customers will have access to exampleBank services from the ATM networks of other banks.
    • exampleBank will maintain a simple yet pervasive social medial presence.  It will scan social media platforms for comments.  Comments on its own social media spaces will be responded to quickly.  Comments outside its social media spaces (blogs, forums, etc.) will receive a more delayed response.  Sentiment and response times will be measured and actively managed.
    • exampleBank will provide call and chat services for support from its contact center on level 1 of the HQ building.
  • Value Proposition:
  • Resources:
  • Activities:
    • Planning activities
    • Production activities:
      • Contact center
      • Mobile app maintenance.
  • Revenue Flows:
    • exampleBank’s primary revenue flow will be returns from investing account holder deposits.
  • Cost Structure:
    • Interest expense on account holder deposits
    • Salaries for executives and management engaged in strategy, organization design, and oversight
    • Salaries for employees engaged in transformation activities
    • Salaries for employees carrying out production activities (see activities, above)
    • Pay-per-use cloud computing expense
    • Rent for HQ building
    • ATM network fees
    • Taxes and other government fees.
  • Partnerships:
    • exampleBank does not yet have an IT strategy.  The tentative plan is that it will not have a data center of its own.  All software will run in a private cloud.  However, the specifics are to be determined.
    • Loan applications will be routed to
    • exampleBank will be an institutional investor and plans to use deposits from account holders to purchase loans from