Why Banks Are Rethinking Profitability With Multidimensional Cost Modelling
In banking, size has always been a safety net. You’re “too big to fail”, right?
But in today’s environment — with rising costs, tighter margins, and digital disruption — being big just isn’t enough.
What if your most “profitable” customers are actually draining resources? What if your high-volume products are leaking value every day? What if your GL reports are telling you a story that just isn’t true?
Spoiler: it’s happening more than most banks would admit.
🧠The Illusion of Profitability
Many banks think they know where money is being made. But traditional cost models often stop at business line or product-level summaries. They rarely show the true economic reality — at the customer, segment, or transaction level.
The result? Massive blind spots.
Here are just a few hard truths we’ve seen in real bank transformations:
⚠️ 1. The “Free” SME Accounts That Were Bleeding
A bank launched free current accounts for SMEs to gain market share. Signups soared. Success?
Not quite.
When they factored in onboarding time, KYC compliance, manual exception handling, and customer service — they realized each “free” account was costing them far more than it brought in.
The accounts weren’t free. They were a liability with a marketing budget.
⚠️ 2. Mortgages That Looked Great on Paper
One large retail bank believed its mortgage book was a cash cow. Big balances. Steady interest.
Until a deeper cost analysis revealed that low-FICO, low-balance loans — especially those requiring human servicing — were actually destroying value. Once capital charges and risk were factored in, large portions of the portfolio flipped from profit to loss.
⚠️ 3. Premium Corporate Clients That Weren’t Paying Off
Institutional clients often get white-glove treatment: custom reporting, bespoke pricing, dedicated coverage.
But when the true cost of servicing those clients was laid out — resource hours, systems complexity, compliance overhead — banks found that some of their biggest names were actually their worst deals.
Being “strategic” doesn’t excuse being a net cost.
⚠️ 4. High-Volume Payments That Made No Margin
A universal bank thought its payments business was solid: high volume, steady fees.
But certain corridors and channels — especially where legacy infrastructure or manual intervention was involved — were racking up hidden costs. The bank was subsidizing losses, unknowingly.
đź’ˇ Why It Happens
Traditional cost accounting can’t answer the real questions:
- Which segments are actually profitable when you allocate cost-to-serve?
- How much margin am I really making after adjusting for capital, risk, and servicing effort?
- Where are we subsidizing the wrong customers?
Multidimensional cost modelling breaks this open.
By attributing cost by channel, product, segment, geography, behavior, and more, it gives you a high-resolution picture of value creation — and destruction.
đź’Ą The Wake-Up Call
Banks are “too big to fail” — but not too smart to leak. And those leaks, if left unchecked, become existential threats in a market that’s:
- Moving toward embedded finance
- Being eaten by lean, digital-native competitors
- Scrutinized by regulators for both performance and resilience
The era of blunt averages is over. The era of sharp, multidimensional insight has arrived.
🚀 Final Takeaway
Your most profitable line of business might be a mirage. Your best customer might be your most expensive one. And your cost model might be lying to you — just politely.
🔍 It’s time to look deeper. 🧠It’s time to model smarter. 🏦 Because being big isn’t enough anymore.
