SunTec in the Media
Charging the right price
Centralised billing and relationship pricing – essential components of a customer-centric strategy -- article based on FT Business Confidential Editorial Lunch, Financial Times, London, 22 June 2011
Centralised billing and relationship-based pricing are essential components of a customer-centric strategy for banks and other financial services firms. Financial Times Business and The Banker, in partnership with SunTec Business Solutions, hosted a round table meeting on the topic, and this is a summary of the discussion
Banks and other financial institutions have had to become much more customer centric in recent years to remain competitive. Putting customers at the centre of everything they do is a major task and incorporates many different components, two of the most important being centralised billing and relationship-based pricing.
Centralised billing is the creation of a single system in a single location for determining the price of services and invoicing customers, instead of using several systems in different locations. With centralised pricing and billing, financial firms are able to achieve greater consistency and efficiency than with dispersed pricing and billing; they also have more control over the processes, thus reducing the likelihood of customers being charged too much or too little.
Relationship-based pricing is tailoring prices for products and services differently for each customer, or group of customers, based on how much revenue and profit those customers generate. In simple terms, it means giving regular or high volume customers a lower price because they buy more products and services than other customers – but firms need to make sure that prices do not go so low as to reduce the profitability of those customer relationships.
Financial Times Business, The Banker and SunTec Business Solutions – as a leading provider of centralised billing and relationship-based pricing solutions to the financial sector – recently hosted a round table discussion on the topic at the Financial Times headquarters in London.
The discussion was chaired by Michael Imeson, Contributing Editor of The Banker, which is owned by the FT. Among the guests was K Nandakumar, chief executive officer and founder of SunTec, which has its headquarters in India, but also has offices in the UK, US, Germany, Singapore and Dubai. Four of the world’s top 10 banks use SunTec solutions.
Participants, who were from leading banks and the financial services arm of a major UK retailer, discussed the subject in depth, dealing with, among other things, the extent to which banks use centralised billing and relationship-based pricing; how they can help improve customer-centricity; the use of modelling tools to calculate optimum pricing levels for customer and bank; and whether loyalty and reward schemes really work.
The meeting was off the record, so the names of the guests and their organisations cannot be mentioned, but the gist of what was said is reported here.
Pricing to reflect the value of the client to the institution
The head of cash management in the corporate banking division of one leading British bank said that “the vast majority” of his customers are relationship priced. “It’s only further down the food chain that we provide a standard tariff,” he said. “Above that we look to find an appropriate pricing strategy that reflects the value of the client to the institution, and the sort of business they are putting through us.”
As for centralised billing, he said this was work in progress. “I am responsible for a strategic billing engine project, where we are looking to create one core billing platform for the bank’s cash management products, but we are not quite there yet.” He said there would be clear benefits to the bank, in terms of increased efficiency and providing the client experience the bank wants to provide. As for customers, he said the benefits would depend on individual circumstances: some want to be centrally billed, while others are happy to accept a decentralised approach and be billed from multiple platforms, especially if they operate in many countries.
The head of payments and cash management Europe for another major bank said that from his point of view there were just “two types of pricing essentials”. The first is “cost-plus” (cost, plus a margin); the second is what the market will bear – “you work out where you are in the market, and price accordingly”. Either way, you need to know what the standard price is for any given service or product, “and then engage with the relationship manager in a relationship pricing discussion”.
He added that he regarded centralised billing and pricing as “a hygiene factor” in support of relationship pricing. His bank does not have one centralised billing engine globally, but most individual business unites of the bank do, including his. “The advantage for corporate treasurers who are increasingly taking a global approach to their business, is that centralised billing gives them clarity, granularity, accuracy and timeliness of data,” he said.
K Nandakumar, SunTech’s chief executive, said that his company looks at centralised billing and relationship pricing across three dimensions of the customer relationship: the past (how customers used to behave); the present (how they behave now); and the future (how a bank can shape customer behaviour in the future. He said that one of the main benefits of centralised billing is that it reduces revenue leakage – revenue lost due to incorrect pricing, operational inefficiencies, missing transactions, uncollected revenues and other reasons.
The main driver
Participants generally agreed that the main driver for banks to improve their pricing strategies was the move towards greater customer centricity. If customers are at the centre of everything a bank does, then it follows a) that that bank charges should be as accurate, efficient and transparent as possible, and b) that a bank should price its products and services as closely as possible to match customer demands.
One of the retail bankers said that to be truly customer centric, a bank needed to have a single view of each customer. “For us it’s fundamental – you cannot have a relationship with your customers if you don’t have a single view of each of them,” he said.
But how much free will and control do banks have over their customer centricity strategies, and how much are they governed by external forces? On the one hand banks can choose what they must do and how hard they must work to retain customers, win new ones, boost revenues and increase profits. On the other hand there are strong external pressures on them too, such as regulators demanding banks treat customers fairly, customer groups asking for better prices and terms, and innovative and aggressive competitor banks setting the agenda.
One participant said that faced with a regulatory requirement to improve service for customers, and an internal requirement to improve service, and given limited finances and resources, the regulatory requirement would have to be met first.
On the other hand, one guest believed that banks genuinely put customers first, irrespective of what some regulators and members of the public may think. Another banker claimed that customers were so high on their priority list that “loosing a customer is almost like losing a member of the family”.
Finally, loyalty and reward schemes, which can be a useful part of a relationship-based pricing strategy, were discussed. The question was whether they are worthwhile, or simply marketing gimmicks with no real value for customer or bank. The consensus was that while some schemes are better than others, most are of great benefit to both parties.