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Retail Banking, Price Optimization | Nov 15, 2022
In this month’s post, Greg Demas shares why he believes customer-centric pricing is the single most important way financial institutions can differentiate themselves, and how companies like Nomis are laser focused on enabling banks to be at the forefront.
Most of my career has been in banking or financing of some sort. I’ve been fortunate to have held roles in consumer, commercial and corporate banks along with spending time at specialty finance companies. For much of that time, I worked in the “back office” and spent quite a few brain cells trying to figure out asset and liability pricing in what’s been an eventful start to the 21st century. I found so much importance and untapped opportunity in the pricing of money that I’ve spent the last 4+ years selling pricing technology to financial institutions.
I think fondly of my time spent on finance and analytics teams. We were the ones entrusted with crunching vast amounts of data and translating it into the rates we’d set for a loan, pay on a deposit or charge for moving money. Across portfolios of billions of dollars, the prices we set not only drove (or cost) millions of dollars of profitability but also had a significant impact on the livelihood of many people and businesses.
While this may seem like a task best fit for a small team of analysts, I’ve come to realize that it needs to be the exact opposite of that. Not only does the pricing and structuring of loans and deposits have tentacles across an entire financial institution – it is their primary product and customer value proposition. They don’t manufacture goods. There is no difference between a dollar from one institution to another with one exception…the structure with which that dollar gets transferred between them and their customers. The same dollar will cost or earn you something different from one financial institution to the next, yet that difference in cost won’t get you any unique features from that dollar.
As such, the primary focus for differentiation over the past 20 or so years has been, not without merit, the customer experience. Tens of billions of dollars are spent each year on digital experiences, modernizing branches, transforming call centers, etc.
And while this is important, pricing and deal structuring still stand as the most substantive opportunity for connecting with a customer and differentiating your brand across any of these channels. Yet in many institutions, pricing continues to be a siloed function that sits with a small team of analysts in the back office.
We’re all consumers, and there’s no question that an antiquated online/mobile experience, dilapidated branch, or 20 minutes of bad hold time music is a huge turnoff and leads to the feeling of wanting to go somewhere else.
However, when was the last time you interacted with a financial institution and came away saying, “They understand me. That product is exactly what I need right now.”
We continue to pour billions of dollars into experiences and channel optimization yet what is the actual substance of these offerings? It largely remains the delivery of financial product structures pulled off a static rate sheet.
This doesn’t make sense, and is why I strongly believe that customer-centric pricing and deal structuring is the most important battleground financial institutions should be running toward.
Take our experiences on Amazon, Instagram, or any other modern eCommerce/social media platform as an example. It’s not magic that every time we pull up the app, what we see is relevant and timely to what we care about at that exact moment in our life’s journey (“Wow… how did they know I’m looking for a new Chicago White Sox hat but only like their vintage logo from the 80s?”). These companies crunch vast amounts of data and translate that into targeted offers that have incredibly high conversion rates. That crunching and translating data part will sound familiar to anyone in the financial industry, yet somehow most providers still aren’t able to get that relevant and timely product delivery part right.
This is what the best pricing technology companies like Nomis and PrecisionLender are building for retail and commercial institutions, respectively. When a customer goes into a branch or onto an app, why can’t that channel have a real-time understanding of what matters to both that customer and the financial institution and deliver the most timely and relevant product? As an added layer of complexity and risk, factor in the need for a real-time understanding of what to do in an ever-changing regulatory compliance landscape.
Armed with insights and helpful coaching delivered at the moment they can use them, wouldn’t the likelihood of bankers delivering a compliant structure that makes the customer feel “Wow, this institution understands me” vastly increase? The $2M renovation that was recently done to that branch, with walls of LEDs, an all-glass storefront, etc., certainly helps but is the supporting cast around the true substance of that interaction: the timely and relevant delivery of a financial product for that customer to best access the same dollar they could get at thousands of other institutions.
Yet many still use a static rate sheet updated every X weeks (or months?) to determine what product is delivered to their customer. In some cases, these rates aren’t even delivered via technology…they’re literally paper rate sheets. Perhaps even laminated to extend longevity and therefore increase the likelihood of their irrelevance as the world around them changes.
Many say, “We did away with paper years ago!” My next question is: What is the difference between delivering price via a laminated piece of paper versus a modern API integrating a static rate sheet into a branch CRM? Other than the positive externality of a longer life for the tree and less plastic consumption, there is no difference. In both scenarios, the customer receives a generic product that at best came from some sort of broad “segment strategy.”
The ideal solution is customer-specific offers based on intelligent, real-time analytics. Plus, it’s delivered at scale across tens of thousands of branch and call center staff and volumes exponentially larger than that via digital channels.
That’s easier to write in a blog than deliver in reality. The technology offerings in this space, including Nomis, aren’t perfect yet. But we make rapid advances by employing armies of developers singularly focused on this exact mission every day. Analytics and the art of “price setting” are incredibly important and the foundational first step, and this is a mission we have not veered from since Bob Phillips founded our company more than 20 years ago. However, that is just the first building block of customer-centric pricing.
Deal structures determined by real-time analytics, deployed at the customer level across all channels and subsequently iterated via a rapid test-and-learn loop, is the integrated solution consumers demand from 21st-century financial services providers.
When I share this vision with banking execs, many of them say “That is the end game… I’m just not sure we can ever get there.”
Yet if eCommerce and social media companies are already doing it, then why not us?
Greg Demas joined Nomis in July 2022, where he currently serves as President. He brings 17 years of experience in the commercial and retail banking and financial software sectors. Most recently, Greg served as the Global Head of Sales for Q2, where he led their Enterprise business in North America along with operations in APAC and EMEA. Prior to Q2, Greg was Head of Sales for PrecisionLender, a provider of SaaS based pricing and profitability management solutions for commercial and corporate banks. He has also held leadership roles at JPMorgan and Popular Bank, the latter of which he served as Head of Strategy and Transformation.