Why Banks Must Simplify and Rationalize Their Product Portfolio

Binesh K, Strategy, CEO’s Office, SunTec Business Solutions

The once stable and staid world of banking is experiencing disruption at an unimaginable scale today. Competition for share of wallet is hotting up even as the COVID-19 pandemic wreaks havoc by precipitating economic slowdowns, loss of revenue and bad loans. And customers are not content with services and products that don’t deliver hyper personalized, relevant and effortless experiences. In a bid to meet customer demands, banks have invested in building customized products and services with hundreds of variants, many of which are not particularly profitable.  Banks must now take a more strategic look at their products and services and their pricing models to ensure profitability, optimize operational costs and deliver satisfactory customer experiences.

The Rationale Behind Rationalization

In addition to new products and variants, many banks have also expanded operations into new regions, and signed M&As with new entities to grow the business. Multiple localized product portfolios, databases and applications associated with all these developments have led to a complex and siloed infrastructure. This has made it impossible to get a unified view of customer behavior across the ecosystem. This lack of visibility of the entire spectrum of products and services puts severe strain on pricing, product development, risk management and regulatory compliance. Maintaining such an extensive portfolio is time and effort intensive and fraught with inefficiencies.

How Rationalization Works

Now is the time for banks to rationalize their products portfolios with a sharp focus on better resource optimization and cost management. By leveraging technology to understand which products make financial sense, which don’t, and which are cloned, banks can simplify their portfolios.  This involves detailed understanding of current products, services, and variants to determine which can be included in the standard product offering and which can be made available as customization. Banks will also have a better idea of which products to discontinue immediately and which to gradually phase out. But through the entire exercise, the bank must ensure that the rationalized portfolio continues to offer the seamless user experience and functionalities expected by customers. At no point should the bank fall short in offering customers a wide range of choices for their every need. The products retained in the catalog also should cater to customers of every kind across the banking ecosystem. Most importantly, product rationalization must be an ongoing strategic priority that is designed to optimize operations and keep product catalogs dynamic and current. When implemented well a rationalization solution can drive better product promotions, improve customer segmentation, and improve distribution channel efficiencies. As the product portfolio gets simplified and non-performing ones get removed, the bank will be able to focus on developing better targeted products. They can reduce cost of operations and increase bottom lines as well.

The Technology Powering Product Rationalization

Product rationalization requires a scalable, agile technology foundation. Inflexible legacy banking cores cannot support such ongoing effort. Banks must consider working with third party solution providers who can implement cloud-native middleware solutions that sit on top of the legacy core. These solutions can easily scale up to optimize catalogs quickly and efficiently.  It is important to implement solutions that can seamlessly integrate with the core banking systems. The objective is to ensure that any changes made in the catalogs are reflected immediately across all systems to avoid any financial or regulatory risks. This will also ensure a frictionless customer experience across every touchpoint. Some niche solution providers can even help in transforming the legacy core systems into a banking platform which can perform features like product optimization on a regular basis.

Product rationalization is a critical component of the business of modern banking. It can help improve key strategic areas like product portfolio management, and even help the bank capture greater share of market, grow its customer base, and increase revenues. Given the current disruptive and competitive landscape, product rationalization is key to long term success and growth.

Binesh K

Binesh holds a management degree from IIM-L and has worked in Management Consulting, EdTech & Insurance sectors

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Binesh K

Binesh holds a management degree from IIM-L and has worked in Management Consulting, EdTech & Insurance sectors