Exploring Non-Traditional Revenue Streams for New Financial Ecosystem

As the world learns to live and work in a brave new post-pandemic period, McKinsey’s Global Banking Annual Review 2021 highlights that the next five years or so will mark the beginning of a new era in global banking, a period of divergent growth (2022–2027) from a decade of convergent resilience (2011–2020).

With the McKinsey vision in mind, I moderated a great conversation with Rishi R Joshi, Head of Global Payment Investigations & Billing at HSBC, and Sudipta Banerjee, a Senior Director at RIA Advisory. Our topic centered on emerging revenue streams (you can listen to the full recording here).

For most financial institutions, launching new products or modernizing existing products involves many internal and external stakeholders. And when they are saddled with heavily customized and inflexible legacy pricing, charging, and fee billing systems, implementing innovative offerings would become a major challenge.

Why do banks need to rethink their revenue management strategy?

Nowadays, banks can offer their customers with technology-driven, personalized products or services, thanks to their partnership with fintech. This collaboration allows banks to carve their niche in this newly emerging competitive financial ecosystem. One area where banks can benefit the most is exploring new and unconventional revenue models.

This cooperation may have shifted the pressure of creating new technologies from banks to fintech. But that does not ease the banks of assessing the adequacy of their revenue management and billing systems, which support dynamic pricing and revenue sharing, a key to bolstering successful partnerships.

Banks must understand that while exploring revenue streams will help them grow, the foundation for this growth must be laid on a robust and modern revenue management, pricing, and billing infrastructure.

However, first, let us focus on a few emerging revenue models that will shape the financial landscape.

Exploring the new revenue models

As legacy systems get modernized, banks can be sure to include the "revenue end" in their discussions about the opportunities to explore new revenue models.

Some of the non-conventional sources of revenue pointed out during our discussion were:

Exploring the new revenue models

As legacy systems get modernized, banks can be sure to include the "revenue end" in their discussions about the opportunities to explore new revenue models.

Some of the non-conventional sources of revenue pointed out during our discussion were:

Open Banking and Banking-as-a-service (BaaS)

Both these practices are based on the concept of monetizing application programming interface (API) and enabling integration of non-banking businesses with regulated financial services institutions. While Open Banking has already been partially witnessed in the treasury and trade finances spaces, BaaS is still untapped as much as the potential exists.

In Open Banking, APIs give third-party financial service providers access to specific customer data sets, resulting in banks creating API marketplaces. On the other hand, in BaaS, third-party distributors use API to bundle different banking products and services, from billing and payments to account management.

Subscription billing

Subscription-based billing models are increasingly popular for retail and corporate banking. Since a fixed subscription fee is involved, this system helps individuals and corporate customers plan their finances more effectively and provides banks with more predictable and stable cash flows.

Furthermore, subscription billing enables banks to provide customized packaged services to distinct customer segments while empowering them to provide flexible pricing arrangements.

Bundling of digital services

Simply put, true bundling means financial institutions can combine products and services in customer-focused ways to provide customers and the bank value. While customer value can be defined and measured in many ways, "value" to the bank (and their Fintech partners) can be defined with the growth in tangible revenues. In fee-based businesses, these tangible revenues need to be assessed, charged, billed for, and collected in a timely manner.

In reality, it is impossible for many financial services companies to combine products and services operationally that are mastered in systems within different lines of business. This challenge significantly restricts the definition of "bundling" with inflexibility. As a result, financial services companies have turned to "plugging in people when they can’t plug in systems." Adding headcount and manual processes may look like it can alleviate some of the problems, but it can cause risks in operation, reputation, customer experience, and revenue leakage.

Banks are genuinely working to improve their "customer-centric" abilities. And many have had great success. Also, during my discussion with Rishi and Sudipta, customer-centric views need to be supported in the "monetization" systems, namely those that perform pricing, charging, and fee billing.

Advancing the technology "front" of new revenue streams and overall monetization capabilities paradoxically requires financial services companies to start by looking at the "back." In other words, inadequate legacy pricing, charging, and fee billing systems must be modernized to ensure they can execute the "money" part of monetization.

How can Oracle help?

Oracle Revenue Management and Billing (ORMB) is an agile, transparent, and scalable solution that will enable financial services companies to design new and creative pricing strategies, adhere to customers’ differing needs, and accurately price, charge, and bill for their products and services. Having a single system like ORMB provides flexibility, transparency, and control. Moreover, with the launch of the ORMB’s new SaaS-based initiative, banks can also shed their fears of extended deployment timelines and resultant cost increases. This new SaaS-based predefined solution package includes a standardized library and helps banks execute any business scenario to support customers with a ready-to-run project in merely 60 minutes.