Big banks have long wished they could scale their operations as efficiently as global technology companies, but the technology legacy and multiple local jurisdictions have made this nearly impossible. But there’s now a movement among a few banks to build cross-border platforms that create one bank, one customer proposition, and one technology stack. Besides the strategic advantages—such as moving into new markets faster and leveraging talent across multiple markets—we estimate these cross-border platforms can reduce cost-to-income ratios by 5 to 10 percent.
While the dream of creating a cross-border platform is not new, recent trends make that dream more achievable than ever. One trend is that the unique nature of individual banking markets is waning. Customer preferences and expectations are converging across geographies, driven in part by the standardization of global technology services models (for example, Amazon and Airbnb). Other trends that are making cross-border platforms more realistic include the shift from physical to digital channels, the push to offer simple, omnichannel customer experiences, and regulatory-driven product standardization across borders. Aggressive fintechs are also showing traditional banks what’s possible and forcing them to react.
Another incentive for creating cross-border platforms is the steady increase of technology costs. Business demands are increasingly IT-specific as banks look to deliver an omnichannel experience to customers, improve mobile banking, and develop advanced analytics. Leading-edge technology and data management capabilities are also necessary to meet regulatory requirements and for cybersecurity. As a result, the cost of technology is on the rise, even if against a backdrop of overall reduction in operating costs.
Given these developments, several European banks are looking to emulate leading technology companies—such as Uber, Facebook, Tencent, Amazon, and Google—that build once and then scale globally. These banks have built one organization by harmonizing cross-border customer propositions through a single IT stack. And while they must support separate, country-specific legal entities, balance sheets, and ledgers to satisfy local laws and regulations, the strategic advantages of the cross-border platform are still significant (Exhibit 1).
These advantages include the ability to enter new markets much faster—either organically or through an acquisition—with a full product and service line-up; the ability to attract world-class business, product, and engineering talent; and the ability (like big-tech companies) to leverage this talent across a global platform. Another advantage is that having one IT stack spreads IT expenditures over a larger revenue and cost base, and the bank can also avoid enormous IT modernization lifecycle costs that would normally have to occur every few years across many local markets. As noted earlier, these savings can add up to a 5 to 10 percent reduction in the cost-to-income ratio (Exhibit 2). Beyond these savings there is the opportunity to change the investor narrative towards valuing the bank as a technology platform company instead of “just” a bank.
While the reasons to develop and roll out a cross-border platform are compelling, there’s no denying that it is a hugely complex proposition that poses significant challenges. We have identified five areas where leadership teams need to focus their attention.
First, senior leadership must agree on the technology foundation that will form the basis of the cross-border platform: this can be an existing mature platform in the bank, or a greenfield platform. In each case, the bank can leverage cloud-based functionality to accelerate the build and deliver a consistent customer experience. Next, the bank must name a leadership team and integrate the organization as quickly as possible, otherwise corporate jockeying will bog down the project.
Then the bank must harmonize the customer proposition, ideally staying as close as possible to the proposition of the foundational platform. This can be a surprisingly emotional process. Country teams can sometimes fight hard to keep local products and services that should be eliminated. Remember, the more differences preserved between markets the more difficult to create one bank. Some differences should and must be retained, of course, but we estimate that the local markets should have about 85 percent of their product offerings, processes, and service models in common.
The bank then needs to adapt the foundational platform’s architecture to accommodate this harmonized customer proposition, and to support separation between legal entities that now inhabit the same platform. Finally, the leadership team needs to decide on the migration strategy. For example, will the migration be product by product, by customer group, or a Big Bang approach?The goal of creating viable cross-border banking platforms is once again on the agenda of bank CEOs. The technology capabilities and cross-border business context is maturing, while the need for scale in the rapidly evolving competitive landscape is stronger than ever. Banks must harmonize cross-border customer propositions through a single IT stack while supporting separate, country-specific legal entities, balance sheets, and ledgers to satisfy local laws and regulations. These aren’t easy tasks, but the rewards for first-movers could be significant.