Retail banks today are operating in the midst of unprecedented disruption. On the one hand, customer preferences and expectations are changing rapidly even as competition from fintechs and technology giants continues to grow. On the other hand, the pandemic and geo-political tensions in Europe and elsewhere in the world have led to a global economic slowdown. As interest rates increase, inflation soars, loans take a hit, and regulatory scrutiny intensifies, banks are witnessing slower growth and decreasing profitability. Of course, they must focus on retail banking transformation by exploring new innovative retail banking business models and strategies to bring in more customers and retain existing ones. But retail banks must also focus on ensuring that their pricing and revenue management systems are efficient, and any revenue leakage is plugged. They must be able to capture the cost associated with each service, product, or offer. A price review process helps banks to review costs as it is an important factor for revenue analysis. Ensuring periodic reviews of existing pricing strategies and adjusting them to meet market conditions and price sensibilities is an important revenue management component that can help banks grow their revenues and offer better pricing to customers.
What is Price Review?
A Price Review (PR) involves banks evaluating the rates and historical performance of their banking services. It helps banks accurately forecast revenues to ensure better visibility on expected profits. This assessment helps determine if any updates are necessary for the parameters associated with the services, such as rates, costs, and free usage allowances. Many banks continue to carry out this review manually. This is laborious and error prone as most of them operate with disparate price systems and product processes across multiple products and services. There are also different teams involved in the manual review process such as price managers, product managers, profitability teams, and account managers. With no system in place that can bring all teams together, the price review process is fragmented and inefficient and can even take up to six months to complete. And unfortunately, such an ineffective process is bound to lead to revenue leakage that banks simply cannot afford to have. As the business of banking grows tougher, retail banks must deploy robust pricing systems that enable effective price reviews to automate and centralize the process for greater efficiency, accuracy, and speed. An accurate price review will help the bank to capitalize on effective pricing models as well.
Banks need retail banking software solutions such as a robust pricing system that can centralize price management into a single system. By bringing all price management processes for diverse products and services onto one automated platform, the price review process can be streamlined by bringing all stakeholders onto one comprehensive platform. Typically, with such a pricing solution the product or service owner conducts the price review, which is then subject to approval by an authorized approver. The entire process from scheduling the review to review of changes and approval is conducted on the pricing platform in a transparent manner, in a matter of days. A robust pricing solution for retail banks empowers product managers to assess the performance of a product/ service by considering multiple factors such as usage, revenue, and subscriptions. It facilitates the creation of diverse pricing and simulation models to optimize product revisions. It allows for the creation of multiple price models at the same time and are sent for review together, allowing the reviewer to understand the different options available. It also offers recommendations on fees and charges to relationship managers to enhance the product’s revenue.
The Price Review Process
Banks can carry out price review for services such as cash withdrawals, cash deposits, or products such as retail cheque account, retail credit card account, and even offers like free transaction bundles, monthly maintenance waivers bundles, multi-product bundles, and more. While the changes to the pricing are rolled out to the mass market, the pricing system must also take into account personalized rates that have been committed to by the product manager, and these remain active even when the base pricing changes. Let’s take a look at a typical platform-based PR process.
Price Review Process
Notification and Centralized Price Review Console
The process typically begins with a notification that alerts the product manager that a price review is due. The notification happens based on the schedule and time period configured by the owner a of the product/service. The schedule for review can be pre-set by the process owner when the product or service is created so that there are no omissions or delays. Automated alert notifications are usually built into the pricing system. Most banks conduct price reviews annually, while some may have a custom schedule based on their unique requirements. Once the service/product/offer is due for review the items are listed in the price review console screen and the owner can start the review. A robust pricing system offers a single pane of view of products, services, and products that are due for price reviews, scheduled dates for review cycles as well as those that have been completed. It shows the status of review against each item – overdue, in progress, or completed.
Evaluation and Past Performance Data
The first step in the price review involves a thorough evaluation of existing pricing structures. The product manager typically begins the review process by evaluating the past performance of the product/service/offer using parameters such as usage, revenue, and trend. This will serve as the benchmark for the review process and gives insight into the type of change (increase/decrease) and the level up to which the rates need to be changed. A modern pricing and revenue management system provides graphical representation of this data. It also provides intelligent data insights on past performance and data trends which are key levers for pricing decisions.
Simulation, Price Revision, and Approval
Product managers can then create multiple price revision models based on the past performance data. Multiple models can be created as part of the price review. An intelligent system allows them to run simulations for each revised price, or in other words, it allows them to view the result of the change of price revision. The simulation input is captured as the previous volumes by default, and the account manager can increase this based on the growth percentage input. All price models can be sent for review with the best one marked as recommended. This allows the reviewer the opportunity to consider all possibilities and make an informed choice. The approving authority can approve the recommended model. If they need other models they can put in a comment, in which case the product manager will be alerted, and they can then roll it out. The approver can also reject the recommended pricing by sharing their comments and suggestions that the product manager will have to incorporate and resend for approval. They may also ignore the recommendations entirely, which means that the approver can reject the current review permanently, and the account manager will need to start the PR process afresh. This automated and transparent process allows seamless handshakes and effective workflow management among all stakeholders. The price review rate change is applicable for the standards charges only and the exception charges are not affected with this rate change. The product owner can provide recommendations to the relationship manager regarding the revision he has to make on the exception charges, but it is up to the relationship manager to decide on those price changes.
Bringing in new customers and growing revenues and profits is getting increasingly difficult for retail banks across the world. They cannot afford to operate with systems and processes that may result in delays, revenue leakage, and under-optimized strategies. A robust revenue management system with powerful, centralized, and automated price review features is a business imperative at this juncture. Regular analysis and review of pricing and a systematic, data-based, and transparent pricing revision process can help maximize pricing efficiency and drive better growth and profitability for the bank.
