Delivering True Customer-Centric Approach Means Moving From à la Carte to Flexible Set Menu

The dream of customer centricity is a longstanding one in banking. Indeed, in many markets, it was several decades ago that banks started the process of evolving from product-centric models. Organizationally at least, banks in most regions have made progress here. Primary operating structures tend to be around customer segments, rather than products, and distribution channels generally support customers across products. Likewise, most banks, to perhaps varying degrees of capability, work with a collated view of the customer across products. The dominant strategy being a desire to cross-sell, as well as up-sell, products to the customer base.

However, in contrast, propositions offered to customers still tend to orientate back to product areas (e.g. transaction accounts, savings, investment, or lending buckets), with products often pitched and sold to customers on a pharmacy store-like basis. Banks act with a duty of care to sell appropriate and suitable products, but offerings and promotions (product/ services features and pricing) typically focus on individual products rather than overall customer needs.

The requirement for customer-centric product propositions

This approach has been changing in recent years. In part, this has been somewhat coerced onto banks by regulatory focus on ensuring fair treatment of customers. This has seen a curtailment in the ability to charge high penalty-types fees (such as around overdraft fees or late payment fee charges), that often concentrate on customers suffering with financial struggles. With many banks previously obtaining a significant proportion of profits from such fees, this has forced a drastic rethink in how banks drive profitability. Increasing products held per customer has become more critical as major cash cows have been removed, driving a shift to product bundling (such as packaged bank accounts) and some steps towards relationship pricing to incentivize customers in this regard (such as preferential rates for existing customers).

The other catalyst has been the growth of the digital neobanks. These are highly customer-focused, both in terms of terms of delivering a strong customer experience, but increasingly in terms of targeting needs of specific customer groups. This could be both at the overall bank level, such as Longevity Bank targeting the elderly with a mixture of banking and healthtech services, or as specialized proposition with the bank, such as Revolut Pro, recently launched to provide a collection of services for the freelance / contract community. Key differences here is that value propositions are based around a tailored collection of product / services for the targeted group, with services often incorporating a combination of banking, wider financial services, and non-banking services, alongside unified pricing (often subscription based), rather than individual product pricing.

The next stage is going to see a shift towards greater personalization, even within such targeted segments. Using a restaurant analogy, banks are shifting from selling individual dishes à la carte, to set menus, to flexible, extended set menus where pricing, products selected, and product features can be adapted to meet specific customer requirements (think of a set menu offering one, two, or courses, each with a range of free or supplemented options, and with the ability to adapt each plate).

The challenges for banks

The prime challenge for most banks, in comparison to most neobanks, lies heavily with underlying banking platforms. The issue is that for most platforms, pricing and implementation of pricing (e.g. fee calculations) tends to lie within individual core product processing systems, and while more recent core platforms will have advanced product management that will facilitate fast product innovation and hierarchical product management, this will be for products within that platform. This is problematic for most larger banks that often end up using multiple (indeed often a proliferation) of different platforms. Even smaller banks that may use one platform cannot easily incorporate third-party product and services.

This creates challenges throughout the whole proposition lifecycle, in the ability to create and set-up pricing and product variations, in the implementation and then management of the various products, and in the billing of services to the customer. On top of this banks also need to optimize pricing and feature decisions (e.g. term length/limits) for risk, profitability, and compliance purposes.

Product and pricing lifecycle management needs be a separate layer of capability outside the core

The key insight here is that pricing and product management needs to be serviced in a separate layer that sits outside the core banking platform. Ideally this should contain the follow key capabilities.

• Offer management – this should include ability to design and tailor propositions for specific customer microsegments, including eligibility, conditions, features, and pricing;
• Product management and design – this should include the product catalog, i.e. be the central repository for production information and definitions, but also act as a centralized product designer, allowing products to be designed, optimized, and managed throughout the product lifecycle;
• Pricing engine - this should include centralized pricing control around all rates and fees, including areas such as individual product pricing, packages, relationship pricing, household pricing, regional pricing, and transaction & service pricing, well as incentives such as promotions, rewards, or customer referral schemes;
• Billing - automate billing at the customer level, including ability to detail calculations, provide transparency to meet compliance requirements

This could be through an independent platform (Zafin or SunTec are good examples here) or with some of the banking platforms vendors (Temenos Enterprise Pricing as one example). For the latter, it is key that such services can be deployed on a standalone enterprise-wide basis that are independent of the vendor’s wider banking platform(s). Services need to be inherently designed to operate across multiple core systems, and increasingly to incorporate third-party services. For most modern services, the shift to APIs facilitates this, however, platforms need integration services capabilities, with event-based services, that can deal with older systems.

The other key capabilities to consider is the level of automation as well as optimization and insight capabilities to support decision making. Ideally platforms should act as no-code systems where product and pricing management is conducted by the business, and creation of code for run-time environments and integration is fully automated and deployed through the platform. Given likely scalability and performance requirements, particularly for price elements, this is a good area to also consider SaaS or platforms that can run on public cloud.

Enterprise product and pricing lifecycle management is a strong starting point for progressive legacy modernization

For traditional banks wrestling with the challenges of complex legacy environments, the desire for legacy modernization is increasingly strong, but finding the good path for transformation is the hard bit. While some banks will look towards migration strategies to new platforms, or greenfield approaches, for those considering more progressive development over time, this area is a good place to start. Providing a high business impact by allowing banks to modernize and rapidly adapt their customer propositions, it is a good way to start the process of shifting functionality from the legacy core.