By Greg Demas
As competitive forces, the economic environment and rapidly evolving consumer expectations continue to transform the banking industry. Attracting and building customer relationships is no longer a game won by presenting low rates and fees on a visually-pleasing website. The banking industry has sunk billions into modernizing its digital and branch channels over the past two decades. A sleek mobile app and modern branch design are now table stakes rather than differentiators. This has shifted the battleground for innovation and differentiation to the more substantive challenge of building and delivering bespoke, timely financial products within those channels.
Modern consumers, whose expectations are shaped by experiences with brands such as Google and Amazon, don’t give their financial service providers a break from the necessity of understanding them as individuals and tailoring their offerings accordingly. Like any other modern brand we interact with daily, consumers expect the delivery of timely and individualized value propositions. The best way for financial institutions to fulfill this expectation is through the bespoke structuring of holistic financial solutions that encompass loans, deposits, fee-based products like advisory services and more.
Pricing and deal structuring, particularly when delivering multiple products and services to a single customer, play a primary yet under-invested role in influencing the customer experience. A growing number of financial institutions are doubling down on this in an effort to match the highly personalized experiences that have more naturally come to fintech startups that baked this into their technology and core mission from inception.
Given the critical and complex nature of pricing, one would assume that this function is front and center in all financial institutions’ operational priorities. Yet, in most institutions, pricing remains a back-office function heavily reliant on spreadsheets and offline models that are stymied by departmental silos. The only way financial institutions can strike the proper balance between pricing strategy and execution is to develop an integrated, iterative process that bridges the objectives and integrates the workflow between financial and risk leaders and customer-facing employees.
Of course, this is easier said than done. To implement a relationship-based pricing model, financial institutions must possess a broad and well-structured data set (potentially inclusive of non-traditional finance data) along with robust analytical capabilities, build more flexible product bundles and engage in personalized and targeted marketing. However, it is not uncommon for financial institutions attempting to insert flexibility and personalization into their pricing strategy to encounter stymying infrastructure and process issues.
While most FIs have invested heavily in frontline channels – app/website design and the automation of simple tasks, improved branch design, banker CRM and workflow platforms, etc. — none of these enable frontline staff or direct digital channels to better understand the human being in front of them and curate the right set of products for their needs. Although this happens every time consumers use a modern eCommerce or social media app, most FIs still haven’t gotten there.
However, the landscape continues to evolve around them rapidly. Unsurprisingly, fintechs have moved faster in this regard, and consumers are responding. A 2021 study from Galileo Financial Technologies found that 21 percent of U.S. adults aged 18-64 use a digital-only FI as their primary account and report greater satisfaction (79 percent v. 66 percent) than consumers who use a traditional FI. 77 percent of those that hold a primary or secondary account with a traditional financial institution keep 43 percent of their funds elsewhere.
Moreover, the percentage of U.S. Gen Z, Millennial and Gen X consumers that consider a neobank/fintech as their primary financial institution has more than doubled over the past two years. Given that these three generations account for nearly 70 percent of the current U.S. population, traditional financial institutions cannot afford to ignore the impact of more bespoke pricing strategies and deal structuring on customer acquisition and retention.
With rising interest rates prompting financial institutions to reevaluate their pricing strategies, there’s no time like the present to engage in this transformation.
However, it is not a small task. Doing this right is a journey involving a long-term commitment of focus and resources spanning most or all areas of the FI and very likely partnership with fintechs. A boil-the-ocean approach will likely fail to deliver progressive milestones critical to demonstrating near-term value. Waiting for “perfect data” or unanimous internal alignment is also likely to result in disappointment. Instead, business leaders who understand the existential need to invest in ways to connect individually with their customers at scale will find ways to push the initiative through and balance near-term wins within a longer-term strategy.
Thinking beyond interest rates should prompt financial institutions to ask, “What else do my customers value, and how can I deliver that to them?” Starting with the low-hanging fruit, answers to this question include fee waivers and cash benefits, and the strategy can evolve to include more complex and meaningful factors that will naturally emerge when consistently interacting with customers in this fashion.
Even when they aren’t working face-to-face with their customers, a financial institution’s every action impacts a customer’s view and opinion. By targeting specific transaction behaviors and key lifestyle indicators, financial institutions can consistently and at scale present the right product and the right offer at the right price – a relationship-building outcome that consumers have now come to expect from all brands with whom they choose to interact.
Greg Demas is president of Nomis Solutions, the leading provider of end-to-end pricing lifecycle management technology. He possesses more than 17 years’ experience in commercial and retail banking and financial software. Reach him at greg.demas@nomissolutions.com.
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