31 July 2014

Pricing and Billing for Banks

Darren Negraeff - Zafin

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Innovation in Financial Services

A discussion of trends in innovation management within financial institutions, and the key processes, technology and cultural shifts driving innovation.

Banking on the Relationship

03 August 2012  |  2712 views  |  2

Sometimes, to understand where you need to go, you need to look back at what the past held. Banks previously employed a silo-based approach towards pricing and reacted only to competitive offerings when required. Supply and demand largely influenced prices and rates, which were considered in the context of other banks’ offerings, rather than from the holistic value of a customer from a relationship perspective. Today, some banks that have embraced customer centricity are able to simulate the effects of transaction volume and complementary products when determining pricing. In other words, technology is making a relationship banking strategy more valuable.

One area this affects is fee-based income, which is also a very visible area in terms of media attention (consider the uproar created from banks considering removing no-fee checking accounts to cover their loss of debit interchange fees via Dodd-Frank). In order to remain profitable in these discretionary fee areas, and to stay out of the spotlight, banks need to have a 360-degree view of the entire customer relationship. Without this, there is no ability to waive an account fee in the interest of maintaining an otherwise profitable customer relationship. A relationship banking strategy requires this kind of transparency and flexibility in order to properly measure and reward customers for their loyalty – however that is only the beginning.

Total customer centricity goes beyond a simple fee waiver system. A bank must be able to accurately measure and report on customer behavior in order to better predict what kinds of products and bundles their customers would like but do not demand. This element of segmentation requires a truly flexible innovation layer. With simulation functionality, banks can profitably base their pricing and bundling decisions on real data and predictive models rather than looking at what the competition is doing and copying those offers. The banks that make these innovative technology investments in functionality that creates dynamic pricing and simulation are also investing in relationships – and those that choose a solution built only for financial services will realize the profitability of true relationship banking.

 

 

TagsRetail bankingWholesale banking

Comments: (3)

Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune | 06 August, 2012, 14:36

Ability to predict what customers would like, but do not currently demand, is a great trait. This has hitherto been the sole preserve of Apple and a few other companies (apart from Wells Fargo, I'm not able to think of any other bank that I can place in that list). However, with bank customers expressing their fully- and partially-formed thoughts on Twitter and other social media, even dowdy old banks can access a fount of information about what their customers would like. Agreed that there's so much noise that it's a very hard task to spot the real nuggets. However, social media sentiment analysis applications make it easy to find the needle in the haystack. Using one such app, I was able to spot the following longings of bank customers:

xoKiana_: I wish my bank would notify me saying "unable to process my order." I'd be highly upset -__-

BritishSayWhat: I wish my bank followed me on twitter so I didn't have to update them on every time I leave the country. #getittogether 

DaMFNLO: ??RT @imfancyhuh54: I wish my ATM would give me a cupcake ??

All of these tweets can qualify as inputs for new product development by banks.

Darren Negraeff - Zafin - Vancouver | 09 August, 2012, 20:02

Great points Ketharaman and thanks for starting the discussion.

Banks have a long way to go, certainly. While we're on the topic - have you heard of Backbase? I've attended a few of their webinars and they have what looks like a fantastic product for improving the front end experience for bank customers. Their big thing is 'engagement banking' which I find compelling as a way of moving from a product centric to a customer centric experience - at least in the online channel.

Your examples are compelling as well, particularly for idea generation, though I would add that banks need strong data analysis tools in order to validate and test these insights against existing data sets. Having a system to test and speed product development is key.

Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune | 09 August, 2012, 20:24

@Darren N:

Yes, I'm familiar with BackBase. A couple of years ago, I was involved in a joint GTM with BackBase in the area of Rich Internet Applications for Retail Banking.

Spotting customer needs before customers express them is admittedly a slightly fuzzy endeavor. I'm afraid that subjecting it to the rigors of a formal evaluation process of the type that banks normally use might nip it in the bud. Having said that, banks don't have to fly blind. They can use semi-formal - and arguably more reliable - methods of prioritizing ideas gathered via social media sentiment analysis applications. One such method is Digg-style voting by the community. I remember reading about one direct bank in the UK / Europe already using this method. In the US, Challenge.gov is currently running the MyMoneyAppUp Challenge IdeaBank on a similar basis to solicit and select ideas for financial apps from the community, one of which I happen to have submitted myself. As a matter of fact, today happens to be the last day for voting - let me rush to cast my vote before the deadline passes... 

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