Why don't the numbers add up?

I recently heard a story about a new digital bank which had launched in one of the geographies I work in. It all looked pretty exciting, a big launch, plenty of advertising and boom, there was a new kid on the block. All shiny and colorful… but something didn’t feel quite right… and sure enough, the more time that passed, the more it became clear that everything was not as it seemed.

Many banks I meet around the world are struggling with their strategy for the future. Technology and new entrants into an already competitive market are disrupting the norms and changing everything. Banks are feeling insecure. They, like all of us, have to adapt to a future where customers are in control, where size is a disadvantage and where organizations that are less than 5 years old are blazing a trail… setting new standards and winning customers in droves.

So, back to the new Digital Bank example, I gave just now. Further research into the banks business model led me to understand what success looked like for the bank, and this number was a surprising 5,000 customers in the first year. My first reaction when I heard this was to think - what? How can the organization justify the investment in this project with so few customers - the numbers just don’t add up… or don’t they?

I may be wrong, but when I examine this bank and all it stands for, their investment makes great economic sense. Why?

This is not a new bank, it is a new brand of a bank that already exists - so the setup costs are less impactful on the business.
This is an organization that has a track record of being first - so the investment in being first is in line with its culture
The new brand enables the bank to hedge against future uncertainties
Probably more important than all of this, the new brand enables the bank to try and test new technologies, messaging and a new brand on a limited number of customers gaining valuable and constant insight on trends and patterns

By taking the approach above, the bank is executing a brilliant strategy that really is a win/win. The organization is not only leading the way, but they are gathering all important data on customer behavior, likes and dislikes. Data that can be used to improve the digital brand’s service and, more importantly, fine tune the bank’s offer in the main bank (which has a customer base running into several millions). The new brand, whilst providing an online banking service to a handful of customers is also a 24/7 data gathering machine.

I have seen a similar model being deployed in Asia, where one of the banks there employed consultants first to look into the possibility of developing an online banking business. The project was given a green light and quietly launched. Then, almost by stealth, the bank harvested data on customer behavior, propensity, demographics and much more. They informed their decisions so that when the time was right, they were able to really make the push and launch the bank to the masses, and the results were amazing.

The bank realized that having a purely digital bank would never work for their customers. As I have said many times on this blog, ‘people like people’, but banks don’t need large format branches that are expensive, impersonal and inflexible. Armed with this information, the bank decided to launch pop-up style branches that were located all over the country. The physical network complimented the digital network and guess what! The model worked. Shortly after launching, and for the six months that followed, the bank was signing up customers at a rate of 40,000 per week.

My five things to remember when the numbers don’t appear to stay up:

Data is the new oil - gathering data on your customer's behavior is crucial to building a successful business
Being first has its benefits
Experiment intelligently
Although data is all, people still like people
Form a clear strategy forward and hedge risk against minimal investment