Same person pays vastly different prices
Banks compete ferociously for the margin on a mortgage and often ignore the journey it sits inside. Two numbers have changed how one expert thinks about banking: what a bank earns from winning a mortgage, and what the journey around that mortgage is worth.
The first number is roughly £2,000, the margin a bank typically earns from a mortgage after costs. This is the product banks focus on, with entire marketing budgets aimed at capturing it.
The second number is what the journey around the mortgage is worth: £500,000 or more over a lifetime. This includes spending on moving, conveyancing, surveying, insuring, furnishing, decorating, repairing, extending, remortgaging, and selling a home.
Capturing even a modest orchestration share of this journey can greatly increase a customer’s value to a bank. The same customer who is worth £2,000 for a mortgage could be worth £72,000 over a lifetime, a 35-fold difference.
This difference in value depends on whether the bank sells a product or manages a journey. When this arithmetic was presented to banking audiences, the response was often a mix of recognition and skepticism.
Some bankers questioned what the other aspects of the journey had to do with banking, citing regulatory limitations. Others wondered how to book the revenue from these activities.
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The real issue is that banks are organized around products, not journeys. The mortgage has a P&L, a product owner, a risk committee, a compliance officer, and a line in the accounts. The journey, on the other hand, does not have these things, so institutionally speaking, it does not exist.
Companies that are structured around journeys, such as platforms and super-apps, have noticed this. They ask what the customer is trying to do next and monetize the orchestration of that journey.
For example, companies like Amazon have built their business around the journey, not just the products. Amazon has created a platform that orchestrates the journey and sets the terms for suppliers.
This is not an argument for banks to become estate agents or furniture retailers. Rather, it’s an argument for deciding whether to orchestrate the journeys products live inside or supply products into journeys orchestrated by someone else.
Both are strategies. Only one of them is currently funded as if it were.
By focusing on the journey, not just the product, banks can increase the value of their customers and stay competitive in a changing market.
