Introduction to Banking Suite

Module 3: Bank Business and

Operating Models

Strategy | Consulting | Digital | Technology | Operations

Introduction to Banking Suite Module 3: Bank Business and Operating Models

Table of Contents

Module Introduction .............................................................................................................. 3

Banking Strategy................................................................................................................... 4
Banking Business Models in the New ................................................................................... 5
Four Banking Archetypes Can Succeed in a Digital World ................................................ 5
Digital Relationship Manager............................................................................................. 6
Digital Category Killer ........................................................................................................ 7
Open Platform Player ........................................................................................................ 8
Utility Provider ................................................................................................................... 9
Accenture’s Logical Operating Model for Banks .................................................................. 10
Bank Operating Model ........................................................................................................ 11
Module Summary ................................................................................................................ 12
Knowledge Checks ............................................................................................................. 13
Did You Know? ................................................................................................................... 14
Knowledge Check Answer Key ........................................................................................... 17

Important:
If you are reviewing this content in printed form and are interested in accessing any of the
hyperlinked references within the text, please go to the Introduction to Banking Suite Learning
Board at https://connectedlearning.accenture.com/learningboard/126280-introduction-to-
banking-suite.
All hyperlinks are listed within the descriptions for each module on the Learning Board.

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Introduction to Banking Suite Module 3: Bank Business and Operating Models

Module Introduction
As you saw in Module 2: How Banks Make Money,
banks have a lot of choices regarding what customer
segments and product types to focus on. These
strategic decisions define the bank’s business model,
which has a significant impact on its underlying
operating structure.

In this module, we’ll examine some of the different

types of business models and operating models you
may find as you work with different banking clients.

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Introduction to Banking Suite Module 3: Bank Business and Operating Models

Banking Strategy
There are three elements of a bank’s business strategy: the economic model, business model and
operating model. Each model requires the bank to focus on a key set of strategic questions and
ensure that the business strategy is aligned across all three elements to deliver the desired outcome.

Economic The economic model includes profitability targets, risk profile, funding sources,
Model capital structure, leverage and investment.

Business The business model includes the strategic decisions a bank makes regarding
Model which products, customers and geographies to focus on as well as organic and
inorganic growth drivers.

Operating The operating model includes the underlying people, processes and technology
Model that help the bank achieve its business strategy, including:

• Core capabilities, distribution model and manufacturing structure.

• Cost structure.
• Sourcing decisions and use of shared services.
• Alliances and joint ventures.

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Introduction to Banking Suite Module 3: Bank Business and Operating Models

Banking Business Models in the New

Four Banking Archetypes Can Succeed in a
Digital World
The old business models of retail and commercial banking
are wearing thin in a fully digital world.

Based on Accenture’s market analysis and financial

services industry experience, we believe there are four
archetypal business models that can be successful in retail
and commercial banking:

• Digital Relationship Manager

• Digital Category Killer
• Open Platform Player
• Utility Provider

The four business models are not mutually exclusive and are defined by choices on two dimensions:
the banks’ breadth of product offerings, and how much of the industry’s value chain it seeks to
participate in.

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Introduction to Banking Suite Module 3: Bank Business and Operating Models

Digital Relationship Manager

On the surface, the Digital Relationship Manager looks evolutionary rather than revolutionary, in that it
seeks to use a vertically-integrated bank business model (balance sheet, product manufacturing and
distribution) to serve a wide range of customer needs and segments. However, radical change is
required in most banks to deliver a compelling version of this business model in a world where nearly
50% of customers have already decided that traditional banks may not be necessary in the future.

This new business model, done well, can be a potentially uncomfortable change. It means delivering:

• “Phygital” banking that facilitates a seamless flow of information and transactions across
integrated physical and digital channels in ways comparable to omni-channel service from
GAFA.
• Customer centricity through real-time personalization that delivers hyper-relevant contextual
advice (based on data feeds, such as geolocation, search, and social media) when customers
and bank staff need it (both proactive and reactive).
• Solutions (not products) that address customers’ needs, drawing on robotic and human
advisers to deliver the right service while keeping much of the complexity hidden—if it can
build the trust that the bank is always acting in its customers’ best interests.
• A curated ecosystem (relying on an open model/API approach) that brings the best third-party
products to the table and integrates with them seamlessly. As such, the bank will be happy to
make money “on GAFA” (or equivalent digital platforms).
• A compelling reason for customers to consolidate multiple products with the bank, nurtured
primarily by high levels of advisory trust, ease of use, seamless cross-product interactions,
emotional affinity, and economic incentives beyond reward points.
• Shareholder returns, executing the model at a cost that allows it to make a reasonable
economic return on a broad mix of customers. Otherwise, the bank will end up like travel
agents, delivering high-cost advice to a shrinking customer segment.

We expect the Digital Relationship Manager (likely the first choice for most retail and commercial
banks) to offer free banking for basic transactional services while generating revenue and value from
balance sheet spreads, commissions, and the monetization of cross-offerings and data. It will protect
margins through digital operations and products, efficient cost management through scale advantages
and process standardization, and use IT and data as strategic enablers of better customer insights
and relationships.

The Upside
This is revolution, not evolution. It uses the breadth of the customer relationship to differentiate the
entire offering. In a world where there is likely to be deflationary pressure on many fee sources, this
model protects the economic engine of the integrated bank balance sheet and likely generates much
of its economic value from interest rate spreads.

The Downside
This is revolution, not evolution. Many banks will simply not have the investment capacity to make this
aspirational transition and stay competitive. Ultimately, a lot of transactional banking will disappear
beneath the waves of the digital economy. The Digital Relationship Manager will need to master the
art of pulling customers back into an advisory conversation at the right time with the right proposition
and convince customers of its more attractive proposition.

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Introduction to Banking Suite Module 3: Bank Business and Operating Models

Digital Category Killer

The Digital Category Killer focuses on doing one thing very well. It wins by providing a best-in-class
branded value proposition and technology-driven product and service features (ease of use, rich
functionality, value-added services through partners, and so forth). It serves a narrow set of customer
needs. Today’s exemplars include PayPal in payments, Quicken Loans® in mortgage and Betterment
in wealth management.

This model maximizes distribution through multiple channels and specialist partners to serve the
highest number of customers. It earns returns through a combination of commission fees, subscription
fees, interest income, and data monetization. It also relies on continuous product and service
innovation to stay ahead of customer expectations and helps develop the market for its product.
Typically, it only draws on a limited number of key ecosystem suppliers, as most functions are
covered in-house. It has the option to broaden its offerings over time to become a more full-service
digital bank.

The Upside
While this business model would be an unlikely option for incumbent banks, it is the natural home of
FinTechs, where the combination of brand, people, process, technology, and scale is the basis for
market domination. Such focus allows the Digital Category Killer to raise its metabolic rate and keep
ahead of competition. (Think Rocket Mortgage® in the US.) Done well, the Digital Category Killer can
force itself into new distribution channels (like being a provider to a Digital Relationship Manager or an
Open Platform Player) because it creates customer demand.

The Downside
The success of a Digital Category Killer depends on other banks’ inability to do many things equally
as well. If they do, the pressures exerted on narrow niche players can range from superior funding
costs to better personalization using cross-product data. Also, it can be difficult to diversify and look
for a way to expand and enhance the single offering towards long-term growth. Square®, for example,
made card acceptance possible for millions of small merchants, but its attempts to diversify beyond
that niche have yielded little success.

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Introduction to Banking Suite Module 3: Bank Business and Operating Models

Open Platform Player

An Open Platform Player masters a customer-centered platform through which other product
providers can interact with customers, create and sell products and services, and share value. It
aggregates best-in-breed products and services in a way that creates a sticky customer experience
and reciprocal partner relationships. As such, efficiency in supplier and partner management for
speedy onboarding of new and multiple partners is critical.

The economic driver for a digital Open Platform Player is enormous liquidity and engagement, ease of
interaction, and seamless integration of products and services. For example, it could further extend
the skills of intelligent automated systems, like Amazon’s Alexa®, by linking together banks to allow
customers to transfer money between accounts in different banks. Because the Open Platform Player
does not manufacture balance sheet products, its principal revenue sources are third-party
commission fees, service or subscription fees, and monetization of data. Think Moven®, solarisBank,
or Level Money.

In the physical version of the Open Platform Player, a traditional bank sheds its balance sheet and
focuses on customer management and advice through a mix of physical and digital channels that
offer third-party products. As more transactions and advisory conversations move online, a platform
model focused on high-touch sectors like small business and the affluent could have a decade-long
run of success. This is the travel agent strategy of sourcing third-party products and staying relevant
through physical distribution and advice provision.

The Upside
Our consumer survey indicates that an increasing number of customers are willing to build their own
bank through this type of platform. Also, there is the possibility in both physical and digital versions to
build true product-agnostic advisory capabilities with higher levels of inherent trust than advice offered
by players who also manufacture their own products. The digital version of this model will likely be
most attractive to new entrants or non-bank platform owners who do not have an existing customer
base. Any large incumbent bank with a balance sheet-driven business may experiment at the margins
with this model, for example, by adding external loan products. The physical version may be attractive
to smaller banks that aim to source market-leading digital capabilities and products from third parties,
functioning as an intermediary.

The Downside
The broader tech world is converging around a limited number of multifunctional platforms that include
financial services as just one part of their offering. The more than 700 million active WeChat users
can do a huge array of things, from booking a doctor’s appointment and hailing a cab to adjusting
their house temperature and applying for a loan—all without leaving the app. As more digital time is
being spent on a smaller number of multifunctional platforms, the Open Platform Player must avoid
being assimilated into the broader platforms of the digital natives. Success requires quality of advice
and product integration capabilities that compel consumers to exit a cross-industry platform and
spend time on a banking-specific app or with a live adviser.

Another big downside is that the economics of a banking platform will deteriorate as markets revert to
a “normal” interest rate environment. In a rising rate environment, the funding costs of an integrated
bank balance sheet are likely to rise slower than wholesale rates. Depending on the rate of change,
this may be enough to make lending platforms economically unattractive despite their lower operating
costs.

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Introduction to Banking Suite Module 3: Bank Business and Operating Models

Utility Provider
A bank can narrow both its customer focus and value chain participation to become a Utility Provider.
This behind-the-curtain bank offers end-to-end product solutions or simply a regulated way others can
book deposits and loans. Mellon Bank and Bank of New York chose this business model and shed
their retail businesses to focus on the business-to-business world of asset servicing. The recent
launch of ClearBank® in the UK also shows this can be an attractive business model for de novo
market entrants that see value in helping other businesses succeed, rather than dealing with end
customers.

The success of a Utility Provider hinges on being a non-threatening, technologically sophisticated,

easy-to-work-with partner who can maximize its client base. In doing so, it needs to master the
packaging and provision of compliant financial services for others while using specialist talent and
technology to keep overhead costs as low as possible. It builds scale by offering standardized
transaction and operational services at very low margins. Run well, this model operates digitally. It
uses an omni-channel approach and a scalable platform that can easily expand to different
geographies through an ecosystem of partners. At its broadest, a Utility Provider can create an As-a-
Service delivery model to convert capital expenses (CapEx) and fixed operating expenses (OpEx) into
per-transaction OpEx. Depending on its configuration, a Utility Provider can generate both interest
spread, and transaction and processing fees.

The Upside
In a world where many fee-based businesses could suffer deflation due to technological innovation,
the pure balance sheet business could be very attractive. For traditional banks that feel they will
inevitably lose to scale digital banks or non-bank platforms on the consumer side, a narrow utility
model can be a good, steady, nonthreatening way to earn income. Being the utility behind a true
disrupter can allow banks to ride the digital growth curve while retaining a more traditional business
model.

The Downside
Giving up end customers is a daunting prospect for most banks. Also, establishing differentiation can
be hard while scale-based processing businesses tend to become natural oligopolies. Without
differentiation beyond price, the business model could also come under increasing pressure as
distribution starts to take more of the value, and open APIs make provider decoupling easier and
easier. Banks will need to fundamentally rethink the cost model and their ability to quickly generate
needed growth and scale.

For more information, see the link to the full report:

Winning in the digital economy: https://kxdocuments.accenture.com/contribution/1ad4250e-b10a-
4cda-801f-4ffb79d51c10

Read more in this additional report on how the four models map to actual market evolution:
Beyond North Star Gazing: https://kxdocuments.accenture.com/contribution/7f19f1ee-6491-42f6-
89b2-1fa5763d42ab

Explore the report on Star Shifting: Rapid Evolution Required Report:

https://www.accenture.com/t20181010T181446Z__w__/us-en/_acnmedia/PDF-
87/Accenture-Banking-Rapid-Evolution-Required.pdf

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Introduction to Banking Suite Module 3: Bank Business and Operating Models

Accenture’s Logical Operating Model for Banks

Once a bank has its strategic business model set, it must structure the underlying operating model to
support that strategy. A bank’s operating model represents all the individual operational capabilities
that allow the bank to distribute its products to its chosen customers and to run the business.

Accenture’s Logical Operating Model for banks is part of the High Performance Banking framework
that we’ll cover more extensively in the High Performance Banking and Accenture Offerings module.
This model categorizes all a bank’s fundamental capabilities into eleven building blocks, which are
called platforms.

Source: https://bpmnavigator.accenture.com/Pages/IndustryHome.aspx?SegmentID=174

Footnote: For detailed information about High Performance Banking, see the following site:
https://in.accenture.com/banking/high-performance-bank

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Introduction to Banking Suite Module 3: Bank Business and Operating Models

Bank Operating Model

While Accenture uses the eleven platforms of the Logical Operating Model as a guideline for
organizing and visualizing a bank’s operating model, it is important to realize that every bank may not
use the same categories or have its operating model organized in the same way. The organization of
the operations functions in a bank can be presented in many ways and will vary based on the bank’s
strategy and business model choices. For example, a bank’s geographic reach will have an impact on
its operating model configuration.

A bank’s business strategy will also influence the bank’s operating model configuration. Whether
certain functions are integrated across the organization or operate in silos depends on which
capabilities a bank chooses to specialize in.

Moreover, there are many ways a bank’s operating model can be visualized and configured, based on
circumstances, market position or strategy. A bank’s operating model will have implications on the
bank’s balance sheet and profitability. For example, a large universal bank will find it easier to raise
capital from its wider deposit base and may be better able to weather minor economic downturns
because of its diversification. On the other hand, it might not benefit from the economies of scale it
envisioned and be left with a higher cost base than banks with a more integrated and consolidated
operating model.

With large universal banks, the various divisions and brands may use different operating models with
the strengths and weaknesses of each contributing to the bank’s overall balance sheet and
profitability, as seen in the above illustration.

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Introduction to Banking Suite Module 3: Bank Business and Operating Models

Module Summary
Now that you’ve completed this module, you should
be able to describe various bank business strategies,
the key components of the operating model and why
operating models may look different from bank to
bank.

These are the key messages you should take away

from this module:

• A bank’s business model comprises its strategic

choices in terms of scope of products offered and
customer segments served, as well as geographic
range. It can range from a local niche specialist to
a global universal bank.

• There is a window of opportunity for traditional

banks to optimize their current business model,
preparing to make the critical rotation to the new and pivot their strategy in one (or more) of the
four archetypical business models.

• A bank’s operating model is a representation of all its operational capabilities. Accenture’s Logical
Operating Model for banks includes eleven platforms, from strategy to algorithms.

• Operating models look different from bank to bank based on the bank’s size, level of integration of
front-office and back-office functions, and core versus outsourced capabilities.

• Today’s trends are toward simplification and industrialization of operating models to reduce
complexity and increase a bank’s ability to nimbly respond to a changing industry landscape.

Before moving on to the next module, please complete the following Knowledge Checks and review
the subsequent valuable insights.

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Introduction to Banking Suite Module 3: Bank Business and Operating Models

Knowledge Checks
Answers to the knowledge checks can be found at the end of this document.

Knowledge Check #1
What is the BEST definition of a bank’s business model?

a) The business model includes profitability targets, risk profiles,

funding sources, capital structure, leverage, and investment.
b) The business model includes the strategic decisions a bank
makes regarding which products, customers, and geographies
to focus on, as well as organic and inorganic growth drivers.
c) The business model includes the underlying people,
processes, and technology that help the bank achieve its
business strategy.
d) The business model illustrates the bank’s organizational chart
of all its senior leadership team.

Knowledge Check #2
Which of the following items is the BEST way to define a bank’s operating
model?

a) The operating model describes the bank’s strategy regarding

its geographic footprint.
b) The operating model is a logical representation of the bank’s
capabilities (people, processes, and technology) that support
its operations.
c) The operating model illustrates the bank’s risk profile and
funding sources.
d) The operating model is an organizational chart of all a bank’s
senior leadership team members.

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Introduction to Banking Suite Module 3: Bank Business and Operating Models

Did You Know?

Technology has been disruptive for banks in the last two

decades—how has that affected their business and
operating models?

Thanks to technology, the traditional asymmetry of

information between banks and customers has eroded.
Alternative savings, lending, and payments products give
customers unrivalled choice about where to put their
money.

Banks may be seen as not so important anymore by

customers. This means that banks must carve out a new
position of relevance in their lives by changing their
business model and making it more relevant for a digital
era.

In the future, the key will be to orchestrate a series of

ecosystem relationships that add real value to the lives of
customers.

Accenture believes that banks will need to move beyond

their traditional role as enablers of financial transactions
and providers of financial products and play a deeper role
in the digital and commercial lives of their customers.
Accenture refers to this as the “Everyday Bank” strategy.

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Introduction to Banking Suite Module 3: Bank Business and Operating Models

In what way is an “Everyday Bank” different from a

traditional bank?

Besides financial transactions, an Everyday Bank can help

customers with advice, access, and the information they need
to make decisions, not only related to banking activities.

Here are some examples:

1. Banking customers can use the banking app to go to an

ATM, without an ATM card, and use a QR code on their
phone to withdraw cash. The same technique works for
paying bills in restaurants and stores.

2. A certain merchant customer of a bank, decides to target

certain types of customers with loyalty marketing offers.
The bank can work with the merchant and analyze
customers’ transaction data to identify relevant
customers for the merchant and make offers based on
their past spending. Customers then find their offers
embedded in their online bank statements, for instance,
$5 off for their next purchase, and click a button to
accept. The next time they shop at that merchant, cash is
automatically added back to their account.

3. A banking app applies transaction-data analysis to deliver

savings suggestions to users, along with estimates on how
much money customers will have in their bank accounts
for the remainder of the month. It offers “impulse
savings” tools and instantly avails users of the bank’s loan
products.

These examples showcase how banks can position themselves

as trusted partners before, during, and after the financial
transactions that define customers’ commercial lives.

The Everyday Bank is not only a business or operating model,

but a strategic vision. It calls for a new way of thinking about
the role of banks in the digital era.

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Introduction to Banking Suite Module 3: Bank Business and Operating Models

What are the strengths that banks can leverage in order to

go through such major changes?

Despite the obvious challenges ahead, banks actually have

very important competitive advantages in the digital
world. They have large and relatively ‘sticky’ customer
bases; vast amounts of customer and transaction data;
and valuable know-how in the field of payments, security,
compliance, and financing all of which are difficult to
replicate.

Moreover, banks have a unique understanding of the

transactions carried out between customers and
merchants. Going forward, this transactional information
will be one of their greatest assets allowing them to
understand their customers better, provide them with
value-added services, and facilitate commerce in new
ways.

Last, but not least, despite the financial crises, banks can
hold a fundamentally trusted position in society, as the
stewards of assets and commerce. This is a critical
advantage in the digital era. For example, when it comes
to handling personal data, consumers trust their bank
above any other provider. Providers that can use the data
to deliver value to them without sharing it with others are
the most favored of all and this puts banks in a potentially
advantageous position.

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Introduction to Banking Suite Module 3: Bank Business and Operating Models

Knowledge Check Answer Key

Knowledge Check #1—Answer

What is the BEST definition of a bank’s business model?

a) The business model includes profitability targets, risk profiles,

funding sources, capital structure, leverage, and investment.
b) The business model includes the strategic decisions a
bank makes regarding which products, customers, and
geographies to focus on, as well as organic and inorganic
growth drivers.
c) The business model includes the underlying people, processes
and technology that help the bank achieve its business
strategy.
d) The business model illustrates the bank’s organizational chart
of its senior leadership team.

The correct answer is b.

Knowledge Check #2—Answer

Which of the following items is the BEST way to define a bank’s operating
model?

a) The operating model describes the bank’s strategy regarding

its geographic footprint.
b) The operating model is a logical representation of the
bank’s capabilities (people, processes, and technology)
that support its operations.
c) The operating model illustrates the bank’s risk profile and
funding sources.
d) The operating model is an organizational chart of all a bank’s
senior leadership team members.

The correct answer is b.

The bank’s strategy in terms of geographic expansion is part of its
business model, not its operating model. The risk profile and funding
sources are part of the bank’s economic model. The operating model
does not list organizational responsibilities by person, but rather generally
represents all the capabilities and process areas found throughout the
bank.

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