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How to structure this case: Central Bank asked a local bank to offer savings account

Anonymous A asked on Sep 22, 2019 - 2 answers

What is the best way to structure this case?

You client is a retail bank with only one product, a checking account.

The central bank has asked your client to offer a saving account as well to the customer. Should they do it?

Thanks!

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Andre
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replied on Sep 22, 2019
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Hey Anonymous,

I would do that in multiple steps:

1. Clarify the objective of this case - why should the local bank offer savings account (is it mandatory according to regulations or is it a business opportunity or smt. els)?

2. Look at the banks status quo and better understand its operations: product and services, customer base, financials, etc. Here I would test potential synergies of the savings account with existing portfolio.

3. Market potential assessment: estimated revenues, costs and margings from the introduction of saving account. + Cross check with initial objectives of the bank (its focus areas and financial expectations).

Based on the outcomes I would do a recommendation whether it is a reasonable idea or not.

Hope it helps.

Best,

André

Baris
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replied on Sep 24, 2019
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Hi and hope all is well.

Here is how I would approach this question. I would start with a lot of "why" questions first, which I think a lot of people miss at Case Interviews.

My first clarifying questions would be:

1) Hmm it is interesting, a bank with only one product. Why? Why do they serve this one product only? Are all the other banks in the market are the same or is it just our client?

You could get a lot of insight from the answer to this question.

If it is only your client that is doing it, and all the other banks are offering bunch of other products, here is another why question to follow-up, why? Is it a new bank that has no cash resources to invest in a new product? Are there banks that only concentrate on savings accounts and your client believes it is not their niche, hence, it is not worth the effort to try to get into this space as opposed to drill down on checkin accounts? Why why why?

If all banks are doing it the same way, even more interesting. Why? Maybe there is no market demand for this product?

2) My second question would be. Why is the central bank asking us to do this? Are they asking everyone else or just us? What is in it for them?

These why questions will allow you to get a much better grasp of the context and understand the incentives of all parties involved (your client, the market and the Central Bank)

Then, I would try to understand, what is it that our client is trying to optimize?

For instance maybe they dont have a good relationship with the Central Bank, which is important and even if this product might lose our client some money in the short-term, it will repair their relationship with the Central Bank in the long-term. Would they want this?

Most likely they will want to optimize profitability...

Once you get to this part of the interview, then it becomes pretty straightforward. You just assess the money you would make if you were to do savings accounts (additional customers generated from this product and esimated profit per customer) vs. the money you might lose (cannibalization from your current product, investing on new teams etc.).

But I believe before getting here if you ask the interesting "why" questions above, you will outshine most of your competition in the first 10 minutes that, solving a simple profitability problem would matter much less to the interviewer.

Hope this helps and good luck

Cheers

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