Banking on Relationships: Paving The Way For Relationship Pricing

by Jacob Jegher, May 30, 2007

Abstract

Boston, MA, USA May 30, 2007

Large banks will lead the relationship pricing charge.

Banks have been bundling products for some time, particularly for wholesale customers. But they are only now beginning to explore sophisticated systems and strategies that can take product bundling and relationship pricing to the next level. Banks are developing strategies for all market segments that will augment cross-selling, improve customer profitability and minimize revenue leakage. The catch is that they need to improve customer service and loyalty at the same time.

Celent predicts that one or two national banks will change the game in the next 12 months by offering relationship pricing. Larger banks will lead the relationship pricing charge and will focus on both retail and wholesale markets. From 2006 through the end of 2009, 48 large and midsize US banks (out of 125) will offer some sort of multiproduct or relationship pricing to their customer. North of the border, three Canadian banks (out of seven) will jump on the bandwagon.

In a new report, Banking on Relationships, Celent examines, analyzes, and contrasts the market trends and dynamics that are shaping the banking industry's outlook on relationships and pricing. The report explains the change in mindset and business model that innovative banks need to accept in order to compete. Relationship pricing systems will not experience mass adoption overnight. Given the major impact these systems and the approach that comes along with them has on the organization, adoption will be slow. The early years will see few banks head down this route due to a barrage of politics, internal limitations and lack of required prerequisites

"A paradigm shift is taking place in the banking industry," says Jacob Jegher, senior analyst in Celent's Banking group and author of the report. "In addition to modifying the business approach taken by banks, relationship pricing will cause competitive turmoil and upset. Banks who go down the route of relationship pricing and product bundling will obtain a sustainable competitive advantage."

This 27-page report contains 11 figures and 3 tables.

A table of contents is available online.

Members of Celent's Retail Banking and Wholesale Banking research services can download the report electronically by clicking on the icon to the left. Non-members should contact info@celent.com for more information.

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned subsidiary of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

North America
Michele Pace
mpace@celent.com
Tel: +1 212 345 1366

Europe (London)
Chris Williams
cwilliams@celent.com
Tel: +44 (0)782 448 3336

Asia (Tokyo)
Yumi Nagaoka
ynagaoka@celent.com
Tel.: +81 3 3500 3023

Table of Contents

Boston, MA, USA May 30, 2007

 

Executive Summary 3
Product Pricing as a Competitive Lever 5
Catalysts for Strategic Change 7
  Market Trends and Dynamics 8
Brass Tacks of Strategic Change 14
  A Shift in Business Models Is Required 14
  Wholesale Banking Opportunities 16
Adopting Relationship Pricing 18
  Lessons to Draw Upon 18
  Understanding the Customer Mindset 19
  Adoption Predictions 22
Conclusions 24
Objectivity and Methodology 26
 

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