Framework

QED Matrix

The QED Matrix is a framework for different models of financial services institutions. It looks similar to BCG’s Growth-Share Matrix but focuses on mapping banks and FinTech companies.

The matrix reflects trade-offs in the design of financial services institutions on two dimensions. Resilience is a function of brand, capitalization, product suite diversification and other characteristics. Flexibility concerns both infrastructure and decision-making – and spans organizational design, technology, culture, talent, and other forms of flexibility.

None of these dimensions is unequivocally good, so each quadrant has different strengths and drawbacks.

Mountains are organizations that are highly resilient but less flexible. Their resilience derives from a broad product suite, strong brand, significant capital reserves, and low cost of capital. They have sizeable physical distribution networks and have invested in digital distribution capabilities, as well. Mountains tend to be less flexible due to their institutional inertia and technical debt, patterns of low growth (which lead to an emphasis on cost reduction), and strong focus on regulation.
Boulders tend to be both low resilience and low flexibility. Unlike Mountains, boulders tend to have more limited product suites (focused on “local” businesses like deposits or CRE lending) and less significant capital reserves. Boulders still have a low cost of capital that makes them more resilient than many non-banks. Boulders tend to be less flexible due to their legacy infrastructure, difficulty attracting and retaining talent, and dearth of a competitive advantage in most areas.
Leaves are low resilience and high flexibility businesses. They are less resilient principally because they tend to be monoline businesses lacking in product diversification and because they lack a stable source of low cost capital. However, these organizations are often among the most flexible with simple organizational structures, minimal technology debt, and access to strong talent because they are entrepreneurial companies.
Trees are both high resilience and high flexibility. Their resilience stems from greater product diversification and a more robust and loyal customer base than Leaves are able to boast. However, Trees are still organizationally flexible with strong access to talent (due to their growth potential) and a simple technology infrastructure. Trees tend to have minimal regulatory experience or capital compared to the banks that have a similar model to them.

Organizations can evolve over time, shifting within or between quadrants. Significant changes often are based on M&A activity (for example, the spin off of Capital One from Signet Financial Corp and the subsequent acquisition of several banks by Capital One), but companies can also evolve mostly organically (as in SoFi’s expansion into multiple product lines).