Producer Versus Distributor Riddle Confronts Banks

In the evolving world of commerce, success will go to those firms that can orchestrate superior customer relationships, as well as efficiently produce either commodity or niche products, according to a study of the financial services industry by Cap Gemini Ernest & Young.

Success as a relationship manager will require adoption of the "open finance" model, in which firms offer both proprietary and non-proprietary products and services, according to the study, Paths to Differentiation. If and when that model gains traction, relationship managers will find it harder to keep their customers walled in with proprietary products. "You've got to embrace open finance-if not now, then at least sometime going forward," said James Scurlock, senior manager in the financial services industry sector at CGE&Y.

But open finance creates a rift between producers and relationship managers. "The product producers are saying, 'Why aren't you selling just our products?'" said Scurlock. "People are hanging on to selling proprietary products and services as a way of life."

As a result, many banks face an identity crisis. "Eventually all but the largest financial institutions, whether business-to-business or business-to-consumer, will end up having to show a bias," said Scurlock. "Either be a great producer or be the relationship manager."

For financial services companies with a foot in each camp, the answer may lie in splitting the institution, similar to the way many electric utilities have shed power generation to focus on distribution. That way, producers can sell to anyone and relationship managers can source from anyone. "Institutions are starting to look at the idea of pulling themselves apart," said Scurlock. "There are some insurance companies that are looking pretty hard at this right now."

For example, Countrywide Credit Industries, a Calabasas, Calif.-based mortgage lender, has vaulted to prominence as a relationship provider by realigning itself around individuals' specific needs. "They'll get the moving van for you, help you with your job search, get your kids in school and lease you a car," said Scurlock. "Oh, by the way, they'll get you a mortgage, too."

"If you really are going to be customer-oriented, then mortgage becomes an individual slice within a whole bunch of activities," he said. "If you can bundle up a bunch of those, you can build up a premium."

On the other path to differentiation, the monoline credit card companies, such as MBNA and Capital One, are oft-cited examples of success in the low-cost production strategy. These are companies that are well-suited for participation in open finance models. "They'd like for all banks and all insurance companies to come to them for their credit cards," said Scurlock. "They don't want to compete with these institutions, they want to sell through them."

Whichever path banks choose, they have ample processing power at their disposal, the study noted.

Banks have largely succeeded in the mammoth task of developing and deploying robust enterprise-level systems, drawing upon the tremendous processing capabilities of high-end servers and workstations from vendors such as IBM and Sun Microsystems, along with the rise of XML-based standards and "quasi-standards" like IBM MQSeries.

"It has really just become a reality within the last 12 months or so," said Scurlock. "Now we've got it down to brass tacks-there are real solutions for tying together large enterprises."

But solving the technology riddle brings other issues to the fore, Scurlock said. "A lot of the cultural and organizational issues came back to be equally challenging, if not more challenging."