Responding to change: how are banks using information and pricing strategies to boost profitability?

Study

November 2016

The financial services industry has changed significantly in recent years and is currently undergoing a massive transformation. This has been partly driven by a huge array of regulations and an enormous increase in the cost of compliance and of doing business. There are also new competitive pressures with a lot of consolidation taking place and a shrinking number of banks. There is also competition from fintechs and from other players outside the industry.

Meanwhile, customer expectations have been changing; the product-centric approach preferred by banks in the past doesn’t resonate as well with today’s customers, who want to be more empowered and better informed. This is particularly true of the so-called ‘millenials’ – young customers who expect a great experience and a rapid response to their demands. They tend to prefer researching and shopping around, rather than depending on banks to select the best products for them. 

These developments have led to ‘The Age of the Individual’. Although customers prefer a personalised approach, most banks seem to understand their expectations but can’t always meet them as they’re faced by various challenges. For instance, most are unable to offer products in real time. But this is in direct conflict with customer expectations – they’re looking for rapid responses to their needs and the same experience in any channel that they use.

So how can banks respond to these challenges, which could require significant changes to the business model? This new Age of the Individual could represent an exciting opportunity - but if it isn’t fully understood and embraced, it could also be a significant threat to profitability. Two of the key areas in which banks can begin to make a difference are in their use of ‘big data’ and in their pricing strategy.

Information is the lifeblood of financial institutions. Banks are in the privileged position of having access to a huge volume of data relating to their customers. How this is used can make a big difference to the customer experience – and ultimately to the profitability of the bank. The right information, analysed in the right way, can ensure that the bank can provide the right offer at the right time – along with a seamless service at a lower cost. And that has to be good for everyone involved.

Meanwhile, some banks are already transforming their pricing strategy. Many have moved from product-based pricing to risk-based pricing. A few have now progressed to relationship-based pricing – a key strategy in the Age of the Individual. However, progress still appears to be slow in this area.

Oracle and Efma have conducted a survey of senior executives in some 60 financial institutions across the globe. The study explored the changes taking place in banks worldwide, particularly in relation to their pricing and big data strategies, and how these can help to boost their profitability. Are banks rising to the occasion or are they falling woefully short and failing to meet the increasingly demanding expectations of their customers?

Perhaps the best way of approaching this is to look at three key challenges facing today’s financial institutions as they seek to respond to changing customer demands.

This report by Oracle and Efma will be based on a 3 session think tank. It will be presented at the Sales and Marketing Summit in Dublin, on 17-18 November 2016.

Keywords : Big data , Offer/Pricing