Our extensive experience in financial services helps us understand the challenges and opportunities available in the retail banking business. New pricing models can help attract new customers and increase the profitability for the bank while reducing risk.
As a result of the recent economic disturbances, retail banking is undergoing massive changes. Consolidation is confusing customers. Young people shop around for the best financial products with no sense of loyalty.
Transparency in the market is a major challenge everyone has to publish their rates for loans and deposits, making it difficult to differentiate their offerings.
Bankers in more industrialized markets expect to see new regulations come into effect that will impact their ability to attract new customers as well as keep existing ones.
New competitors threaten established players.
New online banks are changing peoples expectations about what a bank should offer and how to deal with financial institutions. It’s no longer necessary to actually meet in person to do business with a bank, much less walk into a branch location.
Established banks must continue to maintain large retail staffs and expensive branch locations. Conversely, customers can compare the desirability of their financial products with online banks that are free to compete without that overhead.
Adding to the confusion, many large banks are also offering new online services that may compete directly with their bricks-and-mortar business – a scenario that is not so different than that faced by ordinary retailers.
New expectations from customers create new pricing opportunities.
Banking customers are growing used to doing a lot more of their own homework. One of the ways that online banks are able to compete is by requiring customers to spend their own time filling out forms and verifying identities. This is resetting customer expectations about what level of service a bank should offer, with the result that the market is segmenting further.
Some customers are perfectly willing to spend the necessary time with their paperwork. Some are not. But loan and deposit rates are still easy to compare. Traditional banks that provide these extra services must still compete for customers based on published rates.
Risk-based pricing is not the optimal approach for retail banking.
Today, almost all banks use a risk-based approach to set loan and deposit rates. In the case of a loan, the less risk presented by a customer, the lower the interest rate the bank is willing to offer. The problem is that the measurement of risk is based on historical data.
As the credit crisis demonstrated so vividly, this is often not a good yardstick for measuring a customer’s ability to repay a loan. In fact, a customer’s credit history may not be a very good indicator of either their ability to service the loan or of their willingness to pay.
PriceGain can help banks create new pricing models that take a customers willingness to pay into account in setting rates.
Are you segmenting your market for optimal profitability?
Depending on the banking regulations in effect in a country, it’s possible to segment the market into very small groups and offer products tailored to the needs and interests of those groups as well as their willingness to pay.
PriceGain has extensive experience in helping our clients understand with a high degree of accuracy how much groups of people are willing to pay for products and services. We can work with banks to help them understand how to segment the market in order to maximize profits while providing their customers with the banking products they want, at prices they are willing to pay.
Plug revenue leakage holes.
We’ve found it’s quite common for banks to experience significant revenue leakages. This is often due to a lack of a rigorous pricing process based on factors such as customer loyalty. For example, it may be good for the bank and certainly good for the customer to offer a very loyal customer preferential rates on new loans or deposits.
However, unless a good system is in place that properly measures loyalty and balances that with sufficient rewards for customers, the bank can leave money on the table in the form of either dissatisfied customers who take their business elsewhere or excessive discounting that is beyond customer expectations. PriceGain can help banks define these pricing processes, measure compliance and develop programs to ensure improved compliance.
Use your data more effectively to set prices.
Banks collect a lot of data, but we find they do not necessarily use it effectively when segmenting their markets, establishing loyalty programs or designing new financial products. For example, banks have excellent opportunities to use target pricing techniques. The bank can adjust offers dynamically based on supply and demand factors and on historical analysis of win/loss ratios for micro-segmented customer groups.
PriceGain helps banks interpret data about their customers’ buying patterns so the bank can offer incentives, rates and new products that are truly responsive to those patterns. Banking customers appreciate such programs when they are implemented correctly and will reward the bank with increased business.