Financial Product Life Cycle in Banking Software Development

There is a constant stream of innovative products in the banking industry. Product software from as recently as five years ago is often outdated and ineffective. This means it has reached the end of its product life cycle.

But what is a product life cycle in banking? 

Simply put, it is the series of stages that a product passes through in its time in a marketplace. Because of the rate of innovation in the banking industry, newer and more successful products always push older ones out of the market.

This article will describe the product life cycle in the banking industry and show how you can know when to upgrade or replace products.

What is a financial product life cycle?

The financial product life cycle refers to how a product moves through the marketplace from its introduction through its adoption and decline. Older financial products become outdated, prompting their replacement; some products need improvements. Such replacement and improvement is part of the banking product life cycle. And like any product on the market, software can become irrelevant; consequently, removing products from the market is also part of the banking life cycle. 

Banking products have a high threshold for personalization according to customer requirements. Consumer demand for maximum mobility and always-on services means that mobile banking products are constantly moving through the stages of their life cycle.

Knowing where your product lies in its life cycle allows you to make strategic decisions around marketing, pricing, expansion into new markets, and redesign.

Banking product life cycle stages

1. Introduction stage

When a financial product first hits the shelves, it’s an unknown entity without market traction. Profits are often low, as the product is trying to establish a hold on the market.

At this stage, companies must emphasize marketing because there is no product loyalty or affinity just yet. Since the FinTech landscape is competitive, it is important to make consumers aware of a new product and its benefits.

As far as pricing, companies can start with a high price and reduce it over time as their subscriber base increases. Or, they can start low and win market share first, then slowly claw back their investment through gradual price increases. Banking products also can be monetized with integrations like Stripe.

2. Growth stage

As the financial product becomes more popular, it enters the growth stage. Through word of mouth or because of marketing efforts, sales numbers grow, and economies of scale come in line as unit volumes increase.

However, as demand for FinTech products increases, competition also increases as copycat products appear from competitors. In the growth stage, consumers see the benefits of your product and pricing does not need to be too low to make the product attractive. At this stage, think about what you can do to keep users hooked on your product, whether that’s adding new functionality or adopting gamification.

3. Maturity stage

This is a highly profitable stage in which marketing costs fall as the product sells itself. Even though there is more competition, the strongest players continue to dominate as they have saturated the market. For banking solutions, it can be even simpler. Once trust is earned, existing customers will bring more customers to your software. Overall, there is a high probability that you can keep riding the wave.

Growing product loyalty will drive sales. This is when companies think about ensuring the product’s continued viability and success by developing upgrades and alternative product versions.

4. Decline stage

In this stage, sales fall and so does profitability. By now, rival products have found innovative ways to cut into the market share. Other firms may have been better able to capture advancements in product technology. Especially in FinTech, scaling and adopting new technology can be hard. 

To survive in the decline stage, companies have to systematically reduce their distribution channels in areas where the product cannot compete. They have to rationalize and even cut marketing on a dying product. If a company chooses this moment to plan an upgrade, they are already too late. FinTechs might lay the foundation for scalability from the start of development, opting for a scalable architecture. This will allow them to add new integrations later.

Banking Product Lifecycle Management: Responsible Departments and Their Roles

Banking product life cycle management is carried out by various teams, and each has specific responsibilities. Let’s consider them to understand how the complicated financial product life cycle works. 

Product Development Team:

The product development team is responsible for conceptualizing new banking products. Their workflow is strictly based on market research, customer needs, and industry trends. This team often collaborates with the marketing, risk management, and technology teams.

Legal and Compliance Department:

The objective of the legal and compliance department is to ensure that all banking products adhere to laws, regulatory requirements, and industry standards. They might review product documentation, terms, and conditions. If there is a need for KYC or AML compliance, it is also on them.

Risk Management Team:

This team identifies and assesses potential risks throughout the banking life cycle. Their focus revolves around credit, market, operational, and compliance risks to develop risk mitigation strategies. 

Marketing and Sales Department:

The marketing department creates marketing strategies and campaigns to promote new banking products to target customers. The sales department is responsible for finding and contacting leads who are potentially interested in the product. From the marketing team, you can expect collaboration with the product development team to create compelling messaging and positioning. They can also monitor customer feedback and market responses to refine marketing tactics. The sales team, in turn, might generate leads, finding people interested in your product and getting you more customers directly. 

Operations and Technology Department:

Specialists working in the operations and technology department implement the necessary infrastructure and systems to support the banking product. Their goal is to ensure integration with existing banking systems and processes. They also take on ongoing technical support and maintenance.

Customer Service and Support:

This extremely important team empowers customer service representatives to address inquiries related to new banking products. Among their workflow is monitoring customer feedback and complaints to identify areas for improvement. Customer service and support works closely with product development and marketing to enhance the customer experience.

Analytics and Business Intelligence:

Among the main objectives of these experts is using data analytics to track key performance indicators (KPIs) and measure the success of banking products. They also search for trends, opportunities, and areas for optimization.

Product Retirement and Transition Team:

Last but not least, the product retirement and transition team evaluates the performance and relevance of existing banking products. They are in charge of planning and executing the retirement or transition of products that are no longer viable or aligned with strategic objectives. They also manage communication with customers and stakeholders during product phase-out.

How AI Has Transformed Product Development in the Banking Industry

AI has been making waves in a variety of industries as general adoption of this technology rose to 72% last year. The banking industry might even be leading the charge here, eager to transform their field. According to The Economist, 85% of executives stated they have a clear plan for implementing AI in their new products and services.

Despite this enthusiasm, don’t think that major players are diving into this trend blindly. The same report highlights that AI-based product development will focus on a couple of trajectories:

• Regulatory compliance;
• Data protection measures;
• Customer interaction automation;
• Risk management.

It means that any banking product that deals with AI will have team members who work specifically on ensuring its security and legality, two lynchpin points in the finance sector. Coupled with the intention to make them customer-facing, we can expect some exciting and reliable new solutions.

For example, one financial product that’s already quite popular is AI-based banking assistants that communicate with customers and offer personalized analytics and insights. This broadens the range of banking services an institution can provide while keeping costs low. Plus, it improves response time massively, as banks no longer have to rely on human staff.

Similarly, by implementing AI through product engineering, banks can automatically calculate credit scores for everyone in their databases in a fraction of the time it used to take. These complex systems can analyze a user’s credit history, income and expenses, and more. The resulting information helps make data-driven decisions that minimize the bank's financial risks.

Lastly, fraud detection becomes easier when you have a fully automated system running checks on each transaction, flagging potentially illegal ones, and alerting employees to them. This speeds up the operation of anti-money laundering departments, letting them focus on cases that matter instead of poring over each false positive. In fact, AI will hopefully reduce the number of false positives down to near zero.

Banking Industry Life Cycle Analysis

Banking industry life cycle analysis is one way to understand the various phases and dynamics that characterize the evolution of the banking sector. Let’s consider banking product life cycle management analysis by our team at S-PRO.

1. Introduction Phase

Imagine the life cycle of a financial product with innovative new features. The product will first undergo an introduction phase during which it will be reviewed and approved by stakeholders. 

Responsible departments in this phase may include product development, market research, and technology. They will work together to conceptualize, design, and launch new offerings.

2. Growth Phase:

During the growth phase, the banking life cycle moves forward. This phase focuses on scaling operations, expanding branch networks, and penetrating new market segments.

During the growth phase, the marketing, sales, and risk management departments will be engaged in developing the product. They are responsible for ensuring effective customer acquisition, retention, and risk mitigation strategies.

3. Maturity Phase:

During the maturity phase, the development and project management teams look for new ways to help the software withstand competition. The focus shifts towards enhancing operational efficiencies, optimizing cost structures, and diversifying revenue streams. During this phase, the best helpers will be the operations, compliance, and finance departments. They will maintain stability, regulatory compliance, and profitability amidst heightened competition.

4. Decline Phase:

Finally, in the last phase, the company will have to successfully determine the decline phase signals and pivot.

Here, the restructuring, risk management, and regulatory affairs departments become paramount. They will guide the banking product through turbulent times, managing distressed assets and navigating regulatory hurdles.

Sustainable and ESG-Compliant Financial Products

More and more companies are adopting ethical playbooks in their operations, trying to be environmentally friendly and conscious of their impact on society. In banking, this is reflected through ESG - environmental, social, and governance - practices. They are reshaping the banking life cycle and making sure it’s more sustainable and follows optimal guidelines.
Research shows that ESG is becoming a hot-button issue in banking, perhaps as customers drive demand for a new crop of financial transactions. According to the latest data, half of all assets in 2024 were ESG-related. Another example of ESG proliferating would be the growing sustainable loan market, which rose to €907 billion (up to $950 billion) in 2024, with green loans contributing to this upward trend.

As businesses become more aware of their product life cycle, they seek investments for sustainable changes in their operations, boosting ESG assets further. Legislation such as PSD2 and Basel III pushes it further, affecting banking work. They focus on handling customer data and minimizing risks for both banks and their clientele.

With these regulations taking effect, the industry is expected to become more resilient and able to withstand economic upheaval, extending the financial product life cycle in a sustainable way. It’s also supposed to make the market a bit fairer with new approaches to risk assessment, credit score calculation, and more.

Although such regulations have a positive impact in the long run, they do create complications in the short term, as banks need to rethink the way they develop new products and services. Oftentimes, this requires hiring legal counsel and professional developers who can protect user data according to new legislation and improve the sustainability of finance solutions.

To extend the customer life cycle and product reliability, banks must invest more in developing products that can bring about social change. For example, the Turkish Akbank launched the aptly named “Sustainable Deposit” product. It focuses on commercial clients using their deposits to direct money toward green initiatives and social causes.

This allows companies to align their deposits with sustainability goals while supporting important initiatives, such as disaster relief and green transformation. Lichtenstein’s VP Bank has a similar initiative called Sustainable Plus, allowing investors to specifically target eco-friendly and socially-aware businesses. As such products spread, we will inevitably see a boom in ESG-compliant investments and financial progress.

Product life cycle examples

In retail banking, having a wide branch network has been a product on its own for many years. But with the rise of online banking and mobile banking apps, branches in all major markets are declining. In the period from 2000 to 2016, branch coverage in 12 major nations has reduced by 38%.

The decline of the branch network, which has been the bedrock of retail banking for decades, results from a rise in mobile banking. A recent study showed that in a five-month period in the US in 2020, mobile banking usage grew by 34%, while branch coverage reduced by 12%.

This example shows how new technology can make an old one redundant. 

But competition among mobile banking products is so fierce that earlier versions are being replaced by newer versions. A Building Society in Australia recently had to phase out an old banking app due to negative consumer feedback.

Product life cycle management in banking

Product life cycles in banking are slightly different to other industries. 

This has a lot to do with the rapid change that brings about different considerations. Product life cycle management in banking must note these factors:

1. The introduction phase is combined with incubation

The banking product introduction phase is part incubation and part R&D. Banking is a tightly regulated market, and it can only test some product elements in the real world. This means that phases blur together, and product owners should know this.

2. Prepare for rapid growth

When banking products take off, they can skyrocket. The pace of acceleration can be like that of a digital start-up. 

Because of this, the growth phase can be quite short, and product owners can find themselves in the maturity phase without knowing it. Missing this crucial sign could mean a loss of revenue optimization opportunities.

3. Maturity stage is a time to clean house

The maturity stage in banking is about keeping a clean house. 

With so many high-powered analytics available, it’s easy to spot underperforming customer segments. This is when banks can switch off certain segments more rapidly than in other industries.

4. Decline, but not as we know it

Mobile banking apps decline because of technological advancements. 

However, because the churn rate within banking, in general, is rather low, there is an opportunity to take a longer-term view with certain banking app architectural decisions.

When is it time to update your product or create a new one?

It is up to product owners to systematically review the performance of their products. By using smart indicators, you can know when to upgrade product versions and introduce innovations.

High-quality data insights are in endless supply, so banks can throw resources behind market research, consumer sentiment, and longevity forecasting. It is important to know this because you can plan your resources ahead of time.

But even before performing high-level analysis, product owners should understand that the maturity stage is not the time to rest. This is often the best time for a bank to invest in an upgrade or plan a total replacement.

Conclusion

Mobile banking products can exist in each of four stages of a product life cycle for differing lengths of time. 

Market trends can send a clear signal customers desire apps with alternative solutions, be they always-on, integrated account access. It’s up to banks to capture this market intelligence and use it as best they can according to the life stage of their products.