Akshaya Kapoor, Pricing and Billing Solutions Head, Oracle Financial Services
Financial institutions continue to face profitability headwinds, and now more than ever, they cannot afford to leave viable revenue on the table. This calls for a three-prong revenue management and billing strategy that includes:
Let’s consider each.
Disparate pricing and billing processes lead to revenue leakage that costs financial institutions between 3% to 8% of their income, Oracle found. The impact totals millions of dollars in potential revenue that evaporates.
There’s no single source for missed revenue opportunities in the financial services industry. Its causes are diverse and include siloed and or/inconsistent business practices; insufficient pricing controls; lack of accountability; and the inability to track commitments and their fulfillment at scale. Understanding lost revenue opportunities is essential to the broader goal of greater transparency—or critical clarity—into an institution’s overall capital position.
In many institutions, no one department or entity owns the pricing strategy or has a comprehensive view of pricing across the overall product portfolio. Further complicating the situation, pricing typically happens at a product-specific level versus a portfolio-centric approach. Disparate pricing systems across financial institutions create further complexity and prevent revenue clarity and commitment accountability.
Consider the example of a bank that extends a special rate to a commercial customer upon the corporate’s commitment to delivering deposits of a specified amount in the coming year. The customer leaves the negotiation happy, but does the financial institution have the ability to determine whether the corporate customer actually kept its commitment effectively? If not, it may be leaving significant revenue on the table.
To optimize revenue opportunities, banks require a comprehensive strategy that includes several components. First is a complete view of the customer relationship and terms afforded. From an enterprise-level, banks also should first quantify lost revenue opportunities and their impact on profitability. Then, they need to analyze where those missed opportunities are occurring—customer segments, geographic regions, product types—and why. Finally, financial institutions must stratify the impact of discounts on customer relationships and overall value. To do this, they require end-to-end visibility across the entire customer revenue management and billing lifecycle and the analytical capabilities to gain critical insight.
In today’s hyper-digital age, customers—both retail and commercial—are demanding more customized products and pricing based on their current, and sometimes, future relationship with the bank.
In response, financial institutions continue their quest for more personalized offerings. The key is to deliver pricing that ensures value for the client and profitability for the bank based on the total value of the relationship. This objective is increasingly challenging as customers become more attuned to price versus the perceived value gained.
The push for greater pricing transparency also has become more urgent. While it’s driven, in part, by regulatory requirements, customers are also exerting pressure in this area, especially corporates that increasingly demand a single view of their banking relationship. Customers want to understand their actual costs and the value gained for the services provided and fees assessed.
While the quest for transparency continues, forward-looking financial institutions are also focusing on gaining a better understanding of their clients’ objectives. The combination of transparency, customer education, and a clear understanding of customer goals is a potent recipe for success. Consider this example from the wealth management sector: Wealth managers can increase their revenues by 8% to 12% by being smarter on pricing, according to BCG. To achieve this potential, institutions must adopt “a more nuanced and tech-driven approach in which pricing drives value and enables relationships. The first step is to invest in understanding individual clients better.”
Financial institutions need a strategic pricing and revenue management approach that can help them make faster, smarter pricing decisions, while meeting revenue goals and heightened customer expectations.
A traditional pricing and revenue management strategy calculates fees and prepares invoices by treating all customers the same. But customers are not one-size-fits-all, nor are their buying patterns and circumstances. For example, in a one-time purchase scenario, revenue recognition is straightforward, but with a recurring purchase, revenue has to be recognized over time. A strategic approach enables banks to set pricing based on the expected scenario, and to anticipate changing needs and adjust accordingly. They avoid leaving money on the table, identify potential cross-selling and/or upselling opportunities, and can convert one-time customers into repeat or lifetime customers. Ultimately, the goal is to sell the right product to the right customer at the right time for the right price.
In the wake of decades of merger and acquisition activity as well as the challenges of taking on the impending modernization of mission-critical technology, financial institutions are left with a patchwork of disparate systems and often manual processes for managing pricing, billing, and collections functions. These legacy systems and approaches—which are mostly product-centric versus customer-centric—are redundant, expensive to maintain, and prone to errors. They do not provide the insight and agility required to implement a disciplined enterprise-wide pricing strategy that balances profitability, optimizes revenue and helps to foster stronger customer relationships.
Rethinking the foundation
Institutions seeking to improve their pricing strategies should look for a solution that unifies operations in a complete pricing and billing platform, simplifies operations with streamlined and automated processes, and amplifies experiences with customer-centric billing and pricing. Some things to look for include:
Oracle has invested in Oracle Revenue Management and Billing to help institutions fuel their top-line growth and strengthen customer relationships in the face of profitability headwinds. As a cloud-based solution, customers can realize rapid time-to-value without the capital investment.