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ELUCIDATING REVENUE LEAKAGE IN BANKING RETAIL

On 03 Jan, 2020 | No comments
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--By Neha Jha--

Establishing a firm pricing discipline supports the objective of selling the right set of products and services at the right time and at the right price.

Defining Pricing Discipline and Revenue Leakage

Pricing discipline ensures that charges for banking products and services are set and are applied in a more coherent or consistent manner. Revenue leakage is the loss of banking fees or income from incompatible practices, lack of attention to detail and impoverished pricing controls.


When banks lack consistent obedience to a pricing structure with clear pricing communication, revenue leakage occurs and pricing confusion arises. Acute bankers realize that customers expect to understand how all of their banking services are priced. And executives understand that aggregate revenue slippage adds to severe bottom line challenges.


Consider the most recent finding of FIS CEO survey, majority of executives focused on revenue and margin growth across their product portfolio defined by Interest (Loan) and Non-interest (Fees income) revenues.


Revenue leakage can occur in all areas of a bank. Both commercial & retail customers could be contributing in loss of revenue generation. On retail side, consumers weaned on a variable of free checking products are modified for price sensitivity. They have come to expect banking services are provided at little cost or no cost due, in part, to the legacy of free product and services checking programs. Over time, these programs have impaired broader bank preposition as consumer primarily centric towards pricing.


To improve revenue and margin, banks must justify their offering against fees charged for product and services. They must fundamentally alter their value preposition and correlate pricing into their customer minds. Price discount should be earned, not given and as bank improve their value preposition, they must be clear and transparent with pricing.

The FIS PACE survey recently asked consumer to rank key aspect that define relationship with bank. From 2016 survey highlights the top three essential attributes for US customers are:

1)    Safety (trust to protect my money)
2)    Security (protect personal identity)
3)    Fairness (No hidden charges/fees)
 

Advancing Bank Pricing and Packaging

Bank pricing created in vault by individual line of business participate as confusion and lack of clarity. Each bank united with some of their individual goals towards pricing approach not for building overall relationship. Pricing created in vault, and not integrated into a package of services, can fail to enhance customer clarity and overall demand. Pricing associated with overall relationship, instead of focusing on individual product, helps to build a bank overall profitability. 


Banking services can be summed up with clear terms and condition that are clear to consumer and easily interpretable. Instead of varying terms and condition product wise, a package can offer simplicity of product lines in more coherent way. At the same time, implementation and monitoring these packages solely not on manual basis. Transparency is not created by impaired marketing of multiple bank; it should be of overall bank transparency. 


Any inconsistency in applying pricing to various stages in packaging of banking product and services will cause retail customer to doubt overall bank transparency. Forward thinking banks now develop relationship product offerings that tie the extent of a customer relationship with bank to the benefit they receive. For example, a customer could receive a fees & interest rate alternation in exchange for a “deeper” relationship. As a customer open further product, consolidated balances, sign up and uses services, he or she get additional recommendatory pricing. If they construct their offering more correctly, bank will create or ensure the value of customer relationship.

Relationship Pricing is Analytical

Account pricing many times being replaced by relationship-based pricing. Relationship pricing focuses on customer overall purchases and circumstances, and counter the silo approach of product by product basis pricing system. It enables banks to use customer centric approach to determine pricing, as per the level of business with customer or the type of business purchased. The key to successful relationship pricing is tracking customer behavior across product types and rewarding activity beneficial to customer.

A disciplined approach applies pricing in a structured, consistent manner across an organization.



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