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In their quest for growth, Australia’s financial services (FS) firms spent decades acquiring and merging with a range of businesses to become one-stop shops. The aim? To drive efficiencies with services spanning the FS value chain, from product design and development to advice, distribution and servicing.

It ended badly, culminating in a sales-first culture that prioritised profits over customers’ needs. This blog series looks at how they can help win back customers by focusing on their core business and divesting non-core assets—central to rediscovering their purpose and regaining customer trust.

Finding purpose through data

Increasing regulation, a slowing economy and intensifying competition mean Australia’s banks are facing their biggest challenge in a generation.

Add the findings of the Australian Banking Royal Commission that revealed an industry-wide practice of sales-at-all-costs, and banks have their work cut out.¹

Broadly speaking, banks’ first step is to put customers first and redefine their purpose.

Putting customers at the centre cannot be done properly unless banks listen to them better.

The second is to divest assets that are not central to the purpose. Holding on to them is costly: they divert the focus from banks’ core business, tie up capital that could be leveraged to build the core, foster a risk-averse culture, lead to a poor customer experience, and stymie growth and weigh on shareholder returns.

Divesting is easier said than done and raises important questions: How to identify core versus non-core assets? How to dispose of those that are unfit for purpose? And how to position what remains?

Looking ahead with new purpose

Before taking these steps, banks must define a clear and relevant purpose. This is the cornerstone upon which to build a structure that will drive company growth and underpin ethical behaviour that benefits both the bank and its customers.

Putting customers at the centre cannot be done properly unless banks listen to them better. One possible solution is to use social listening tools that consolidate, visualise and summarise consumers’ conversations across multiple platforms. This lets banks see how customers perceive their business by:

1. Converting data into structured, visual and searchable results
2. Generating real-time and historical analyses and insights
3. Providing trends on social interactions

Part 1: Asset assessment

With their core purpose determined, banks should conduct a proactive, data-driven review of divisions and business units to decide which assets are not aligned to strategic priorities—and then divest those assets.

This is a proven approach. After the global financial crisis, US banking giant Citigroup hived off US$888 billion of non-core assets (mainly brokerage and retail asset management) into Citi Holdings.² The core assets, which were placed in Citicorp, included its retail and institutional client business.³

By 2016, Citi Holdings had divested most of those assets, reducing its portfolio to US$61 billion, or about three percent of Citigroup’s total balance sheet.⁴

Drilling down to determine what constitutes banks’ core business is a complex, data-driven process. Banks can assess their portfolio through four lenses and generate a matrix of assets (below) that can be ranked accordingly:

• Performance v strategic fit: Assess existing, mature assets on their ability to deliver value and align with long-term goals.
• Industry growth rates v relative market share: Focus on the potential that existing businesses have to expand into new geographies or segments, balanced against the possible gain in market share they can offer.
• Risk v reward: Measuring different parts of the business with this in mind is vital, given the complex regulatory environment and the challenge of winning back consumer trust.
• Growth potential v focus on the new: Traditional performance measures might not work for new business lines, disruptive products or innovations. In such cases, banks should assess assets in terms of their ability to focus on innovation while balancing growth in terms of customer acquisition or revenue.

Part 2: Data and analytics

Looking through these four lenses is best done using analytical tools rather than hiring armies of expensive consultants. Proactively using data and analytics helps identify which assets are aging and/or non-core, empowering firms to make informed, impartial judgments as to what to divest and when.

During this process, hard information like operational data, financial data, employee headcount and payroll data should be incorporated, while risks, known issues, engagement survey data and customer complaints—e.g. through social listening—should also be factored in.

Marrying this approach with analytics to assess the productivity, efficiency and synergies that characterise the organisation, and then modelling what the future bank should look like, should help see it reach its goal: a list of potential divestment assets it can put up for periodical discussion.

In our second post we will look at the next step in this process: mapping out a roadmap for divestment. That involves far more than simply identifying a buyer.

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¹Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry
²Citi to Reorganize into Two Operating Units to Maximize Value of Core Franchise, Citigroup 1/16/2009
³Ibid
⁴Citi Bids Farewell to a ‘Bad Bank’ Once Valued at $888 Billion, The Street 12/9/2016