Monday, September 15, 2014

Revenue Management & Business Assurance is strategic to success at all times

How often do we hear from the banks that business climate is tough and hence, lack of growth? How often we see the central banks commenting on the liquidity situation locally and globally? You may ask, why globally for a central bank? Well, no economy today is separated from what is happening in the Middle East or how the US or the Euro zone react to the interest rates and affect the financial markets globally. Some Arab Spring in the Middle East may lead to a regional turmoil, which affects the global crude oil output, thus, pushing the crude oil prices to unprecedented levels. Or the US Fed announcing the pruning of the QE program, sending the global financial markets into a tizzy. And locally, of course, there are multiple factors at work, which may put financial markets at risk of losing control and growth.

Top up these challenges with the most critical of them all – customer. The customer expectations of a bank have completely changed and they are increasingly being compared with other organisations they interact with – retail, telecom, for example. The ease with which a customer can change banks has increased tremendously. With just a click of a mouse or a phone call, everything can be done. It has become as simple as that. In such a challenging environment, increasing customer value is not only the key to growth, but for survival too.

Again, keeping the customer at the fulcrum of all decision making is becoming essential. For banks and financial services organisations, increasing customer centricity means creating and offering innovative products and pricing strategies – the ones that suit the customer needs and keep him to bank with you.

Convergence of business domains, business models, brings in another complexity to the banking world. Today, telecom operators are also providing banking services, albeit very basic ones. But, it will be only time that they start behaving and offering what a universal bank will. Consumer retail is another example which is tinkering with offering banking services like payments, etc Then convergence of technology is also happening these days, the technology used for high speed phone networks is being used as a core feature in banking infrastructure. Banks are also increasingly becoming real-time, gradually, reaching a stage where they see other industries being already there.

Consumers whether in banking or otherwise, are increasingly demanding remote channels to transact. This digitisation produces disruptive business models that require swift responses. This also means capturing new revenue streams and optimising these digital channels. And all this is to be done in tandem with proactively managing risk, maximising operational agility and maintaining the margin controls.

All this can be achieved by putting in place a comprehensive Revenue Management & Business Assurance solution. A solution which not allows you to managed and get the best revenues, but also helps you to manage your business risk, maintaining compliance and managing operational risks alike. This solution should be seen as something which will help increase enterprise profitability, promote sustainability and meet the challenges of a demanding business environment.

Revenue Management is a holistic and strategic approach to product management and optimisation of revenue, profit and customer value.  It involves accurate, timely and effective pricing of products and services and Omni-channel delivery of customer experience.

It encompasses a set of core business and system processes, from increasing the wallet share through customer retention and loyalty programmes and product cross-selling and up-selling, to capturing of new revenue streams through quick roll-out of product variations and offers.

It is essentially customer centricity – generating and selling personalised offers. An offer with right product at right price through right channel, at the right time, and all at the optimal / right profit margin, thereby, leading to enhanced customer experience leading to better engagement and loyalty.

It also entails using the entire value chain within the customer ecosystem to capture the full possibilities from it. It could be proving flexible settlement structures to facilitate revenue sharing and transfer pricing, or delivering the capability to determine the exact value contribution of the partners.

It is the way to look at offering a package to the customer at an optimised price to meet all his and your requirements at the same time.  It is a way to incentivise your customer and drive his behaviour accordingly. Discounts can be given on deposit fees during off-peak hours and this helps you to manage risk and load at the same time. Similarly, interest rate discounts on home loans can be offered based on the relationship of the customer, his total product usage, risk profile, etc. All such offerings, go a long way in driving customer delight and helping you maintain your margins at the same time.

Revenue Management is a way to be customer centric and be inside-out, rather than being outside-in. Offer what the customer needs, instead of selling to him something from outside, which he may or may not need. This approach improves the customer experience extensively and leads to customer stickiness and increased wallet share.

On the same lines, Business Assurance becomes another key component for sustainability, growth and performance. A comprehensive business assurance in a nut shell is management of enterprise wide risk by a comprehensive single customer views, product profitability and potential risks.

Business Assurance is a set of systems and processes to ensure structures, processes, systems for revenue management work together to manage risks, eliminate revenue leakage, maximise margins and deliver analytics to meet regulatory and compliance requirements. It allows data collection at individual transactions, helping to manage compliance to regulatory controls such as anti-money laundering.

It offers the capability for smooth integration of internal external systems, driving complete transparency, leading to operational optimisation and agility to drive informed decision making at all organisational levels. It can also allow managing the margins by allowing threshold pricing to achieve the margin targets.

Such a comprehensive Revenue Management & Business Assurance has to be a part of the strategic plans of the banks and financial institutions to maximise returns in such a complex and demanding environment.

Thursday, September 4, 2014

How do banks compete in today’s disruptive environment? (Part 2)

As banks continue to jostle around for growth and some even for their existence, you may ask, if things are so bad, is there really a way out? Yes, there is definitely a good way to work these out. Well, there are so many banks from around the globe, which have successfully been able to figure out this Holy Grail. But these banks need to start thinking and get going right now.

We spoke about Product Bundling being one of the ways to remain customer centric and generate more revenue per customer and increase customer stickiness.  But will the traditional product bundling (only banking products & services) serve the purpose? Will they not become commoditized over a period of time? Yes, they will. However, a point to note is that this concept is still picking up with the banks and financial institutions. They are slowly gravitating towards this. So there is a long way to go. However, what happens next, how do you still innovate and remain customer centric? To find an answer to this, it might be useful to think like a retail super mart – bundle banking products & services with luxury items or services or lifestyle services, like a lounge access or a spa voucher. This aloud, what your target customer would like / prefer / need. Like, for an expat student, it might be beneficial to bundle a checking account with foreign inward remittances and top it up with a mobile sim card. Again, we have to think what our customers want. With changing lifestyles, customers are looking for these lifestyle defining services. It might be a good idea to bundle a credit card with a Formula 1 lounge party access coupons and behave like the Godfather – make him an offer, he can’t refuse. Well, make it enticing enough, for sure.

Today’s customer wants to be recognized for the overall value he brings to the bank – not only in his own capacity to use bank’s products & services, but, also through referrals. He wants to be given due credit (either monetarily or otherwise) for additional customers he brings. Not only this, today banks want to have a system which integrates with the facebook data feed and customer enjoy benefits for any recommendations they give to their friends to use the bank. This is another innovation around customer centricity that banks are planning to target across the globe. And why not, with more than a billion users, facebook is a ready pool of potential customers.

This eventually becomes the story of value chain banking (a step up of supply chain financing, which is a subset of value chain banking). You want to target the complete value chain – whether it is a household or a traditional corporate supply chain or a corporate and its employees. You want to give benefits to the employees of the corporate which has a good relationship with you. You want to allow loyalty points transfer across the household or you want to give some benefits on the mortgage, based on the overall credit card spend the household has. In the SME side of the things, the Director of the SME is a SME customer as well as a High Net Worth customer in his personal capacity. You want to target both of them together and give him some benefits to garner both sides of the business.

These kinds of pricing or loyalty benefits can be used to drive customer behaviour. You want to incentivise the use of a particular channel in which you have invested a lot; you may want to give pricing benefits to the customers who use that channel. Similarly, you want to force your customers not to do transactions during a certain time of the day, say, for fund transfers at branch, you want to desist your customers from performing these transactions during lunch hours, as the load increases considerably during this period. Or you want to charge cheque pickup for interior locations at different rates when compared to near locations. These kinds of pricing innovations to drive customer behaviour become essential to be competitive and remain relevant and creative.

With the widespread advanced mobile technologies, customers have access to everything on their palms 24 X 7, hence, they expect actions in real-time as well. The moment they act, a reaction should happen from the bank. However, traditionally, all bank systems are designed to work in batch mode – end-of-the-day batches typically, and in certain cases, even end-of-the-month ones. Then how as a bank you meet this expectation, becomes another question which needs answer and quickly. This can be addressed with a system which is capable of handling transactions in real-time and dynamically. This can be moving the customer dynamically from one offer or pricing to the other, as his business parameters or expectations or experience changes. All this will be equally complemented by getting all insights on the customer behaviour and transactions in real-time.

There is another way to look at complexity in product offerings at a bank. A savings account is a traditional deposit account and you top it with certain services, you call it Silver Savings Account; you give certain additional services to Silver, you call it a Gold Savings Account and similarly, a Platinum Savings Accounts comes with certain additional benefits and services. And as a bank, you market them as 3 different products. Well, for marketing, this is fine and works well. However, when it comes to systems, where these products lie, it becomes very tough to manage and control. Imagine, what happens when you have 5-7 different variations to each basic product and the total goes beyond 1,000 in a small bank. For the base product processors and core banking systems, it is an operational nightmare to maintain these products. And with the needs of the market, this number is ever increasing by the day. You need an efficient product management system – a system which will house all the variations to all the base products. A system where all the benefits, all service variations and definitions will be stored. This will encapsulate everything from the core systems and make them light and allow them to do what is required of them, to process the transactions. You need product management, which is quick and responsive - speed to delivery / execution becomes critical.

Essentially, in today’s ever changing market dynamics, to compete and grow at the same time, the need of the hour is an “Agile3” Strategy – Agile Systems, Agile Product Management and Agile Processes. All these in tandem will manage the customer experience and help orchestrating it across all delivery channels seamlessly. And this will drive customer centricity, as we say.

This the second and the final part in this series.