IntroductoryEdition

valuestream

Consumer Banking

JAN 2015

by Davis Chai

banking architecture

NEW PRODUCT-CHANNEL DEVELOPMENT

FEATURES:
Decoding Banking Value Chain
Fintechs Role in Banking Value Chain
If Fintech is a Bank
New Value Stream

Banks used to own the creation and destruction of service channels. These channels complements
their respective banking products and services. Its understandable that with million dollar vested
interest, these channel must serve to enhance and protect the customer base and revenue stream.
But that is changing in the face of mobile and internet ubiquity. Smart phones placed channels right
on the hand of customer. Banks does not own customer phones. How then are they to control their
revenue stream? In the new channel environment banks merely contribute to its growing relevance
to the customer - they are not the owner or sole provider of it. By using Product-Channel Value Maps,
we will explore how technology have enabled Finteh and consumers to be an active participant of
banking content and services. We will also explore how Fintechs have chosen to take advantge of
this change. Smartphone is only one of several emerging technology that will shape financial services. The evolution of banking product-channel will be continuous and disruptive.

This and other article from this author is written using S.T.A.F STrategy-Driven Architecture Framework.

TECHNOLOGY AND BANKING

GROWING RELEVANCE OF MOBILE TECHNOLOGY

ence and speed functionality. However, it is not as

highly associated with low-risk factor as compared
with branch or deskop banking. With sufficient investment and developments, mobile technology
will mature and become as secure and functional as
branch banking. As the development hit a tipping
point, mobile technology will have other advantage
and functionality not offered through traditional
banking. This is when mobile technology becomes
a critical product-channel component.

W W W . A R C H I T E C T U R E - F R A M E W O R K . W E E B L Y. C O M

First, lets touch a bit on why and how mobile became

an important product-channel factor. Over the years,
the core financial needs remained more or less the
same (deposits, lending, payments, fund transfers,
credits, etc). The consumption patterns and approach
however is changing. More and more financial services will be rendered and consumed using highly connected mobile devices. From a customer standpoint,
it is the continuous exposure, conditioning, learning
and reinforcement that lead to mainstream adoption
of mobile tech. In each learning cycle, customer will
continuously associate and dissociate a channel to
an underlying resource factor throughout the use of
technologies. In tandem, banking enterprises will attempt to capture more of customer share by investing
in their part of the mobile space. It is this continuous
and self-reinforcing cycle by both producer and consumers that accelerated the adoption of emerging
product-channels. For example, mobile banking and
payment services are highly associated with conveni-

TECH PLAYERS CHANGING BANKING PRODUCTCHANNEL LANDSCAPE

Over the years, technology have offered the means
to increasingly bridge the gap between consumer
needs and producer capabilities.
Non-banking players have taken advantage of the
situation in different ways. Take Facebook for instance, its core capability is user identification and
social interaction. They are able to build a profile of
who a person is, what a person likes, where a per-

CustomerLearningFramework
Associative/
DissociativeFactors
(Learning)

Convenience/
Inconvenience
Factors
(Convenience)

A R T I C L E S :

V I S I T

Commitment/
ExitFactors
(Relationship)

Adoption/
RejectionFactor
(Transition)

FINANCIALVALUE
CHAIN

ResourceFactors

S . T . A . F

EnergyFactor
ValueFactor
Risk/PainFactor

M O R E

TimeFactor

MobileBankingSpeed&Convenience

F O R

Bank
A
App

PC&LaptopBankingSecurity&Privacy

BranchBankingSecurity&Fully
FunctionalBanking
Tellers

Bank
B
App

SelfService
Kiosk
AutoTellers
DisplayBoards
DepositMachine
Others

eBaybuy
andSell

Mobile
Cheque

Facebook
Pay

Linkedto
Google
Facebook Wallet
Sell

W W W . A R C H I T E C T U R E - F R A M E W O R K . W E E B L Y. C O M

To understand the change required on the existing

product-channel maps, lets first define the existing map using system-based analysis to determine
the architecture and structure of existing banking

V I S I T

Consumers have always demanded for instant access to

transparent and competitive financial services. In the ab-

DECODING THE BANKING CHANNEL-PRODUCT

VALUE CHAIN

A R T I C L E S :

CONSUMERS WANT CHANGE AND IMPROVEMENT

In the wake of MAGICS (Mobile, Analytics, Gamification, IoT, Cloud and Social), consumer expects and
willingly embrace the coming changes to their own
benefit. In banking services, consumers will expect
this to improve the use of their resources (resource
factors). Banks and most companies in other industries now foresee the need to remodel themselves
to either take advantage of the change or shape
the change. Most bank, being heavily regulated,
and overly bureaucratic, are forced into the first position. Some banks, on the other hand, have failed
to respond effectively to the new wave of change.

S . T . A . F

Fintech have been quick to take advantage of emerging

technologies by developing services that competes and
complements traditional banking. All these development shows that existing banking product-channel is
about to be redefined.

sence of choices and in the presence of constraining regulations, those demand remain unfilled.

M O R E

son lives and travels to, track the time and date of each
life events. In this case the personal and social lifestyle is
accessible by Facebook. ICIC bank for instance, is taking
advantge of Facebooks capability by offering customers the ability to transfer money to customers facebook
account. Take another example, Google, with its search
dominance, have access to a persons information needs.
Together with other services it brings within its own ecosystem, Google can easily determine a persons information desire and potentially derive a persons needs out
of their search actions. This capability puts Google in an
advantagous position.

F O R

BANKING VALUE CHAIN

BANKING VALUE CHAIN

product-channel practice.

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Using STAF (STrategy-driven Architecture Framework),

we will separate existing banking product-channel
system into 6 distinct value systems:
Financial Core Services - the actual core financial
needs of any individual ranging from total net worth
to short term liquidity needs.

Value Representation systems - system that represents the customers value in that bank which then
enables him/her to extract and use these stored value

BANKING VALUE CHAIN (BANK PERSPECTIVE)

V I S I T

Value Communication System - systems that allows

bank to communicate or trigger communication flow
(e.g. to alert customer of a transaction posting and
encourage customer to call back in case of potential
fraud) with customers.

S . T . A . F

A R T I C L E S :

To customer or end-user, the financial service offered

by banking institution is that of value consumption.
The banking service that we consume is part of a larger web of interconnected value systems. For instance,
such technology as Auto teller machines (ATM) and
NFC payment systems are part of a value exchange
system. At the core is the Value Holding system such as
your banking account, cash on hand and other liabilities. Each set of value holding components are linked
to a set of banking products within the Financial Core
Services systems. In the outer facing side of the value
system, the value extraction system enables access to
funding sources held within a certain Value Holding
system.

M O R E

1. Banking Value Chain from a bank perspective

2. Banking Value Chain from a customer perspective

Value Exchange Systems - systems that allow values to be exchanged instead of consumed (i.e. mostly
from people-to-people or people-to-institution perspective).

F O R

To understand what changes is happening or required in each of the value systems we first take a
dip into the current development of value system:

Value Holding systems - system that stores and tracks

customers credit value within the bank

Value Extraction systems - system that allows the actual stored value to be consumed. These are often systems owned by the bank and positioned in convenient locations such as merchants and branches.

NEW CHANNEL OR PRODUCT DEVELOPMENT

The insights obtained through channel interaction
with customer and other research avenues will enable the bank to offer product to the right customer,
at the right price and at the right place and moment.
To achieve true customer oriented services, it is not
4

enough just to have CRM capabilities to engage the

customer. Much of the product and service access
channels needs to be relooked into.

This first perspective takes an inside-out view of

the market. It mostly deals with what capabilities a
banking enterprise needs to build in order to serve
the customer. These capabilities, following the earlier value system sequece, are:
Core financial service capabilities - core services
or products required by a customer one that takes
their value and lifestyle needs into account. For example, credit-linked current and checking account.
Value holding capabilities - the ability to store customer value. Also ability for the bank to anticipate,
expand, optimize and milk it.
Value Representation capabilities - the ability for
banks to offer effective representation of customers
value aligned to customer expectations and true
customer value (or potential value). For example
segment specific credit/debit cards with loyalty rewards.
Value Extraction capabilities - the ability to offer
value extraction beyond the 5 As (anyone, anytime,
any place, any device and any financial instruments)
so that it fits the evolving lifestyle and business
needs of individual customer. For example, cash
withdrawal using any existing banking channel
such as ATM, internet banking, branch banking, etc.
Value Exchange capabilities - the ability to allow
B2B, B2C, C2C value exchanges using bank as the
trusted and reliable source of intermediary.
Value Communication capabilities - ability to
communicate these values that a bank brings effectively and in line with latest communication trends.
BANKING VALUE CHAIN (CUSTOMER PERSPECTIVE)

FINTECHS ROLE IN THE VALUE CHAIN

Current development in the value chain is influenced by
whats happening in the technology space (i.e. MAGICS).
Fintechs in using technology as the driver of their emergence will suit our mapping needs.
FINTECH & VALUE REPRESENTATION SYSTEM (VREP)
The financial value that we hold is currently predominantly represented by cards and cash. It was over many years
of investment and improvements that lead to the widespread usability and recognition of cards. Banks supplied
the upstream processing terminals that allowed cards to
function. It is natural that each bank guards the data and
information acquired through the terminals with full se-

ing. It is now possible to virtualize existing physical VREP cards into our mobile device. Through the
use of mobile device (e.g. digital wallets) we can
now perform transactions with emerging VEXT
systems such as mPOS and online shopping portals. By doing so, Fintech is intermediating the financial intermediary. All physical cards can now
be collectively represented in a digital form (see
diagram in this page). With aggregation at the
end-user device level, data and information is now
being captured further downstream. Acting in the
interest of the customer, Fintech employs analytics to empower the individual customers (see Fintechs Value system architecture for further clarity).
There is also the derived VREP systems such a reward points and gift vouchers.These are the typical
form of secondary VREP. Most secondary VREPs are
centrally owned and managed by an authoritative
issuing party who is partnership with established
merchants and banking institutions. With aggregation, Fintech now offers a way for the secondary
VREP to be more digital and less geographically
bound.
FINTECH & VALUE EXTRACTION SYSTEM (VEXT)
Existing Value Extraction System (VEXT) evolved

V I S I T

However, much of the notable innovation in recent years

in the banking and financial service space is outside of
the value systems offered by banks. Partly to avert being
regulated, these new offerings mostly target customers
consumption trends. Their value proposition is mostly
about empowering and enriching the financial service
consumption experience. This is most welcome by consumers, especially when all these newly inspired capabilities comes free of charge. In that sense, it is a customer
driven development. In reality it is Fintechs way of avoiding the high-entry barriers imposed on financial services
market.

Email

Telephony

BranchBanking

ValueExtractionSystem

ValueExchangeSystem

ValueExtractionsystem

ValueRepresentation
System

ValueHoldingSystem

FinancialCoreServices

InternetTransfer

GIRO

InternetTransfer

Certificates

DigitalCurrency

Deposits

MobileTransfer

SWIFT

Cash

Bancassurance

TellerMachines

FAST

TellerMachines

SavingsA/C

Investments

SMSTransfer

Moneygram

SMSTransfer

MembershipCards

FD/CD

Remittance

BankBranches

WesternUnion

BankBranches

ChequeTerminal
POSTerminals
MPOSTerminals

FundTransfer
OrPayments

DebitCards

ChequeBook

Contract

Loans

ChequeTerminal

AccountBook

Policy

Cards

POSTerminals

CreditCards

LoanA/C

Payments

MPOSTerminals

A R T I C L E S :

SnailMail

S . T . A . F

SMS

M O R E

BankOwned

ValueCommunication
OnlinePortal

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FINTECH & BANKING VALUE CHAIN

Collateralized
Accout
RewardPointsA/C

F O R

CurrentA/C
CardA/C

crecy. Data and information, thus, drifted upstream to the

individual banking service producers.
However, payment systems and VREP systems is converg-

from the need to distribute physical cash and

transacting using passive plastic cards. Most of
these systems are themselves simple in nature
and does not have any intelligence built-in. It cer5

FINTECH & BANKING VALUE CHAIN

W W W . A R C H I T E C T U R E - F R A M E W O R K . W E E B L Y. C O M

tainly is not built with empowering customer in mind.

Further, all the transactional data is only visible to the
banking community.
Since physical cash becomes less relevant, most of
the transactions will take place in the virtual space.
As we increasingly associate convenience with mobile based technologies, smartphone is an obvious
device to allow Value Extraction to take place. Instead
of using physical cards, value extraction is now possible and can even occur between 2 end user devices.
The days, where someone is required to queue up in
bank branches to dispense cash or bank-in cheques,
are numbered. Fintech entered to provide alternative
and complementary value extraction capabilities.
Their selling point is simple, they are able to bypass
the limitation of existing value extraction system.
With mobile devices and digital banking, the new
VEXT system is in our pocket. We can now perform all
kinds of banking transaction using mobile phones.
Riding on the cashless generation wave, Square for
instance, is providing SquareCash which allows cash
to be transferred free of charge from person to person. It uses existing debit cards to extract funds out of
a persons account.

A R T I C L E S :

V I S I T

Consider self-checkout transaction over a retail counter. With digital wallet and digital cards, the customer

simply scan the barcode for each product and arrive

to a total instead of having to queue and pay for services. Customer simply choose to check out at the
readily available kiosk at any point in time, anywhere
within the retail shop by paying on their device POS
app. This is not only highly efficient but also highly safe way of transacting as customers data never
leaves customers hand.
FINTECH & VALUE HOLDING SYSTEM (VHOLD)
In its current state our financial information is highly
fragmented as it resides within multiple banking
system in multiple banks. There is no way that a person can optimize and manage the financial position
let alone view it in real-time.
With Fintechs PFM offeringsyour multi-account financial position is now visible through mobile devices. By aggregating information from multiple
bank accounts, the first step in personal financial
management is now complete. For a bank, the aggregated customer financial info is used to serve banking segmentation and market positioning needs. For
Fintech, its sole use of the information is to attract
more customer into subscribing its service. It is then
natural for Fintech to extend PFMs functionality and
go down the path of customer empowerment. For
instance, most PFM have built-in functionality that
informs, monitors and manages customers financial position.

F O R

M O R E

S . T . A . F

Providing customer with an

overall view of
their own financial position is
just the beginning. This will
then be followed
by further customer decision
support capabilities such as
value sourcing,
value
benchmarking
and
value de-risking.
For instance, the
aggregation tool
6

This bank is omni-channel from day one. It would

Value Exchange has long been dominated by the established banking intermediary such as Swift, GIRO and
MEPS. While the systems play an important role in earlier
part of the banking service, it is increasingly at odds with
the value demanded by todays digital lifestyle such as
the rise of 5 As (anyone, anytime, any place, any device
and any financial instruments). To counter that, some innovative banks have started to combine mobile technology and banking VEXC systems. Banks in UK is already
allowing money transfer using phone numbers as identifiers via SMS messaging. Another example, the recent
development in Singapore using FAST is a similar concept that allows almost instantaneous payment service
between both consumers and merchants. SMS money
transfer and FAST is an innovative development by players from the banking industry - not a fintech setup.

be highly proactive in providing recommendations and in prescribing financial fixes. There will
be no physical branches - the bank only exist in the
digital world. Its customer base is the global and
highly connected netizens. It uses analytics heavily to drive traffic and reward clicking behaviors as
a way to propagate customer value and increase
revenue rather than using old school method such
as mass marketing methods. The business is highly scalable and thus are not limited with its choice
of value propagating campaigns that can increase
traffics manifold. Its market base is far more wider
and diverse than any traditional bank. It utilizes social networks to generate funding and ideas. New
service or products pops up almost daily to ignite
the consumption behavior of customers. Customer can preplan their spending and perform impact
analysis on their financial position. This can be
done right before and after spending. Alternative
spending option can be sought, the Fintech bank
app will provide guidance.

Fintech such as PayPal and Square aims to change that

by providing innovative payment solution. Yet, charging
model remains funamentally the same as they too impose a percentage charge plus a small flat fee each time
a transaction is performed. Other players such as Dwolla

V I S I T

FINTECH & VALUE EXCHANGE SYSTEM (VEXC)

A R T I C L E S :

If the collective fintech capabilities were combined and is treated as a single banking entity, its
value mapping would look like this (see diagram
below):

S . T . A . F

IF FINTECH WERE A BANK

M O R E

As VHOLD information and intelligence continue to shift

downstream towards customer owned device rather
than bank owned device, data will predominantly be
owned by - the regulators (e.g. licensed credit scoring
companies) and Fintechs or customer themselves. Banks
will gradually be limited to transactional information
passes the banking system.

charges a flat fee of US$0.25 per payment transaction. This interest in lowering transaction fee is
also fuelled by growing number of online transactions through global retail giants such as Amazon,
eBay and Alibaba.

F O R

can notify a customer of cashflow improvement opportunity by taking advantage of lower interest bearing financial instrument through an value sourcing and value
optimization.

W W W . A R C H I T E C T U R E - F R A M E W O R K . W E E B L Y. C O M

NEW VALUE FUNCTION

NEW VALUE FUNCTION

F O R

M O R E

S . T . A . F

A R T I C L E S :

V I S I T

W W W . A R C H I T E C T U R E - F R A M E W O R K . W E E B L Y. C O M

NEW VALUE MAP

The musing from above section gives us a glimpsee
into what the new value map should look like (if not
already).
As cost of transaction shrinks, the fee-based earnings in
banks dwindle. Banks are forced to seek alternative and
complementary earning avenues. In the absence of viable fee based opportunity, banks have aggressively
pursued traditional banking initiatives such as lending and deposit taking. On the side of the coin, as the
cost per transaction continue to shrink, the cost itself is
becoming less relevant. Customer are not necessarily
moved by the marginal cost differences. This is clearly
seen in the retail space whereby rarely would a shopper ask about the cost of swiping a credit card. Rather,
the mindset of customer is on value, and how transacting with a party brings value. This brings us back to the
next point of our discussion - the new value map.
Hence, it is not only in the traditional value systemthat
financial services players will compete in aggressively.
While banks, in their own defence, will be pushing the
capability limits of existing value system, both Fintechs
and more innovative banks will attempt to dominate
the New Financial Value system.
The new value system space is an emerging and everchanging landscape. It threatens to limit the revenue
potential of those banks dependant solely on old value
map.
The new value systems have several common characteristics:
1. It is instantaneous or near-instantaneous (real-time)
2. It relies heavily on intelligence and analytics
3. It provides insights and foresights
4. It recommends and drive actions
5. It is highly mobile (i.e. 5 As)
There will be a lot of emphasis on utility value and enduse experience. For the following discussion and from
an architectural viewpoint, the new value map will have
the following capabilities:
AGGREGATE, CAPTURE & CATEGORIZE
First, the service provider needs to be in a good position to aggregate data and value. By occupying favorable market position in the data and value space, it can
8

then aggregate data from multiple disconnected

sources. Once aggregation is achieved, data capture
and categorization can be applied to provide useful
insight.
Fintechs have done so to various degrees. PFM technology aggregates data from multiple bank account
and account statements. It then analyzes monthly
cash flow based on budget needs set by users. Others such as e-wallet services intercepts at the VEXT
level. It has the potential compartmentalizes buying
and spending into categories and uses those data to
inform and change spending behaviors. Crowdfunding have taken the position as not only a source of
funding for individual or businesses but it also facilitates knowledge and ideas exchange - i.e. Indiegogo
and Kickstarter.
BENCHMARK, ANALYZE AND DISCOVER
This capability to provide insights into the value
stream requires analytics. Analytics provides the opportunity for the consumer of financial services to
discover new value opportunities. With emergence
of Fintech, these capabilities have also been applied
at the mass consumption scale and customized to
the individual customer level.
The payment space also present an opportunity for
Fintech to analyse the spending habit of the individual customer.The spend pattern and categories
then be used to set benchmark and baseline values.
By performing baseline analysis into both customer
spend and categorical spend, the end customers
spend effectiveness are then tabulated. This leads to
the discovery of the median of gaps which leads to
the next capability.
Not all Fintech provide this service. This service may
be deemed more suitable for data and value aggregation services such as in the case of e-Wallet and
PFM. In the case of e-wallet of digital cards, the service is more timely and of higher utility value as it
can make recommendations at the point of transaction. Billguard, a PFM provider, offers an innovative
twist in this space by scouting for deals and saving
opportunities. This is being done based on past similar category spending.
ASSIST AND RECOMMEND ACTION
Billguard offers fraud analysis that is both crowd-edited and centrally sourced. Other more rudimentary
Fintech offerings informs of spend limits and saving

FinancialCoreService

Analysis&
Benchmarking

Aggregation&
Categorization

ValueHoldingSystem

Openfolio is a collaborative platform in the investment

V I S I T

The old value map is still valid even when we

consider Fintechs innovation. The biggest alteration to the lanscape is the addition of consumer
tech that placed customer at the forefront of the
value map. Each layer of the new value capabilities, adds-up to create a new combined capabilites. The first two: analytics and data capture, is
key foundational capabilites. The last tow capabilities are the ones that will differentiate innovative banks and Fintechs from traditional players.
Combined together, the 4 capabilities form the
new value stream and it can be mapped across
the entire financial value chain.
Fintechs such as Payment service provide can
appear more attractive by moving beyond aggregating and simplifying transactions. They
could also provide assistive functions along with
crowd wisdom such as what BillGuard has done.
9

A R T I C L E S :

In years to come, customers digital life is but an interconnection of value webs. Value webs forms and disperses
as soon as the value is no longer shared by its participants. Platform that offers the best value shall be the
core intermediary - likely a participant with the analytical, social, graphical, speed and agility that is unheard of
in the existing banking system. Sharing and collaborative capabilities are key in all financial relationships (in
B2B, B2C or C2C environments). For example, Snapchats
collaboration with Square to provide Snapcash - money
transfer capability integrated with Chat. This value web
means that banks themselves is very likely not the value
exchange core but a mere participant themselves. We
will explore more of the competitive landscape in Part 3
of this series of discussion.

NEW VALUE STREAM ON THE VALUE MAP

S . T . A . F

Billguard provides recommendation on where to spend for better

savings through coupons and other discount offering off the web.
Billguard also leverages on community edited information to inform customer of fraudulent transaction. This is
sharing and collaboration by a PFM provider.

M O R E

SHARE AND COLLABORATION

ValueExtraction&Value
RepresentationSystem

Assist&Recommend
Action

The power of assistive technology

will enter a new phase with wearable technology becoming mainstream.

ValueExchangeSystem

Collaboration&Sharing

For example, current generation of

ewallet is still limited to imitating
and simplifying payment acquisition - both for the consumer and
for the merchant. No doubt there
will be benefits in customer and
loyalty management when these
transactions become more digital,
however, it falls short of the new
value map functionality - such as
spend benchmarking, social collaboration amongst fellow spenders, crowd-purchasing to lower
cost and maintain credit score exposure, etc.

space. It provides a platform to compare, benchmark, discuss and share information about portfolio investments. However, Openfolio does not
actively prescribe actions or recommend adjustments to investment portfolios.

F O R

targets. Technology is offering new ways that will trigger

and drive actions. This is leading to benefits realization or
pain avoidance beyond the traditional constraint of time
and space. It could also lead to benefits discovery.

W W W . A R C H I T E C T U R E - F R A M E W O R K . W E E B L Y. C O M

NEW VALUE STREAM

The alerting prior to transacting is far more useful than

alerting after transaction (i.e. in the case of PFM). Banks
on their part, can definitely take advantage of their regulatory expertise and relationship to play a bigger role
in role in promoting personalized and highly valueadded financial services. For example, banks could use
transaction and customer data it already have to provide recommendation and assistive functions both at
the financial account level as well as at the transaction
level. Banks may be tempted to provide these values
directly on their sites, but they could also think outside
of their boundaries and monitise on other expertise
such as fraud detection and offer it as a service (e.g. via
mobile apps) to assist in any customer transactions or
through partnerships with other providers.
CONCLUSION
Its not enough to merely have a mobile driven product
or organizational vision. The fundamental game changer here is first in acknowledging the growing class of
empowered end-user and customer and secondly, accept that Fintech is a growing opportunity for established financial service companies - not a threat. Some
banks in my region is trying to spur the growth of Fintech by creating investments funds. Others have gone
to acquire Fintechs to complement its offering.
All new and old offering alike, be it through acquisition
or self-development, should consider the targeted offering based on the discussed Value Map (i.e. combined
Banking Product-Channel Value Chain and the Value
Stream) in order to have be more effective.

F O R

M O R E

S . T . A . F

A R T I C L E S :

V I S I T

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DRIVERS OF NEW VALUE STREAM

10