Considerations for an Enterprise-Wide Revenue Management Platform

Banks are divided into product silos by design. As technology evolves and banks move towards "componentized architecture" to gain the agility and scalability to meet customers’ expectations, these product silos are broken into services and components that can interact with each other. Progressive Banks are going beyond their product and service components and enabling seamless interaction with partner/FinTech systems to create an ecosystem play and to facilitate effective revenue management.

On the other hand, customers are expecting a more unified experience from their service providers. To provide a unified experience, banks invest heavily in digital technologies and platforms that can consume products and services from various "components" and render a unified experience to the customers.

Although this picture looks perfect, one missing component—pricing—may impact your unified customer experience. In conventional architecture and modern, componentized architecture, "pricing" is part of either the product processor or the product/service component. Therefore customers are charged separately for individual products and services. For better context, when a customer orders a combo meal, he expects a single price for the combo and not the individual price for each food item. Today, banks are delivering a combo meal and charging the customer for the individual food item.  

A simple answer for this issue could be adding a separate component for pricing, which will provide an enterprise-wide pricing capability. However, pricing cannot be done in isolation. One has to think about pricing as a part of the overall revenue management strategy. The revenue management strategy has to be aligned to business objectives such as "optimizing cost to income ratio," "increase wallet share / per customer product ratio," "plugging revenue leakage," "reducing the cost of operations," or "improving customer experience."

Effective execution of revenue management strategy includes various steps such as pricing conceptualization, price implementation, price execution, performance tracking, revenue sharing with partners, and revenue booking. This requires a robust and scalable enterprise-wide revenue management platform that will offer a unified experience to the customer and simultaneously allow the bank to manage its revenue efficiently.

Key aspects of an enterprise-wide revenue management platform

Conceptualization

Whether it is for corporate or retail banking, creating the right price offering for customers is a key aspect of revenue management.

Corporate Banking deals with complex product structures. Putting these products together to respond to the corporate request for proposal (RFP) or creating an offer most profitably is not an easy task. First, the Relationship Manager will have to simulate multiple options/combinations based on the reference data / hypothetical data/customer commitments to arrive at the most suitable offer. Then, after going through various permutations/combinations, the Relationship Manager can create an offer which will then have to go through approval processes internally, and finally, acceptance from the customer. In most cases, many organizations depend on manual processes / excel-based templates for this complex process which does not ultimately translate into effective revenue management.

In the area of Retail Banking, banks are trying to woo customers with hyper-personalization. They allow customers to choose the products and services to create personalized offers/product bundles. To cater to such hyper-personalization, banks need the ability to create product bundles as well as offer dynamic product bundles and price them appropriately

Price implementation

Once the prices are agreed on, as a part of a corporate contract or product/product bundle subscription for retail customers, agreed prices must be implemented optimally. In some cases, we have observed that a large credit card issuer, for instance, managed each card individually, creating over 12,000 products—most with minor variations. This has resulted in an operational nightmare to manage so many variations of the product.

Price execution

The most important task is to compute prices accurately based on various frequencies, parameters, complex hierarchies, and consolidation logic. In the case of cross-product pricing/relationship-based pricing/dynamic parameter-based pricing, price execution requires consolidation/tracking usage of the other products and services to compute the price. Tracking product usage, subscription, proration, adjustments, repricing, exception handling are important functions of a robust pricing engine.

Tracking performance

In the case of Corporate Banking, performance commitments are offered as part of the contract, and in Retail Banking, they are part of the product subscription. If these performance commitments are not tracked, they lead to significant revenue leakage. And in many cases, such revenue leakage is not tracked. Many banks track the performance of the customer only during the pricing review cycles, which may be too late. Hence, the ability to track performance on an ongoing basis, adjust pricing based on performance, and notify relevant stakeholders about non-performance is very important to ensure that the bank is not leaving money on the table.

Managing a complex ecosystem

Banking is becoming an increasingly complex ecosystem. With the evolution of FinTechs, banking has become an ecosystem play. Banks will have to go beyond conventional partnerships such as correspondent banks and tie-up with various service providers such as Integrated POS Vendors, Tax Service Providers, and Payroll Services to bring the consolidated offering to customers. Managing pricing, billing, and revenue share arrangements with partners is a complex task. At the same time, there may be downstream partners—agents, etc. offering services on behalf of the bank. Banks feel the need to manage these partners more aggressively to ensure they have the largest share of wallets amongst competing offers these agents may provide.

Revenue realization

Once the prices are computed and billed to respective entities, it is important to track both account receivables and account payables. Ensuring that all billed revenue is collected and accounted for is very important. Many organizations lose revenue due to inefficient collection processes. Similarly, managing payouts to the partners after accounting for all adjustments is also equally important for uninterrupted services to customers.