Tuesday, October 10, 2006

A veritable smorgasbord

As I sat down to a finger buffet politely laid out for a team of journalists, some of whom were apparently no-shows according to the irate PR person that organised the press briefing, I found the smorgasbord analogy being taken to new extremes.

It was a press briefing with SunTec, the Indian based transaction billing company that has brought the concept of relationship-based pricing, something which dot.coms and telephone utilities know quite well, to the realm of financial services.

SunTec's CEO Nanda Kumar started by drawing comparisons between relationship-based pricing and a burger or a spring roll. The point he was trying to make, from what I could grasp without being overwhelmed by the food analogies, was that a spring roll resembled the ultimate in terms of pricing based on a more integrated view across multiple product lines.

In other words if a particular customer does business with the FX and investment banking side of the business, SunTec's technology enables banks to achieve an integrated view of that customer and assign a price that more accurately reflects the value of that relationship.

You would think that banks would do that really, but according to SunTec and Gartner analyst Susan Handry, banks' have historically taken a product approach to pricing, typically because the information about that customer has resided in multiple product silos that are not integrated.

So even though a customer may choose a bank based on price, that price does not accurately reflect the true value or relationship that customer has with a particular bank. In fact, says Handry, because of this siloed information, banks are losing revenues or failing to collect the appropriate fees, particularly in the area of corporate cash management.

A few years back at another techie conference at Disney World, there was talk of intelligent software that enables companies to gather information on customers (a bit like what Amazon does when you revisit its site) so that products can be customised to suit the individual needs and buying habits of that particular individual. Is this where pricing is heading?

Yes, says Kumar, but the banks are not quite ready for dynamic pricing customised to the nth degree. The reason why is not just inertia or conservatism on the part of the banks. Well, it is that, otherwise PayPal and Tesco Financial Services would not have stolen a significant chunk of their business.

But it appears that there is a legitimate reason for banks inertia on the relationship-based pricing front.

Good old legacy. "There are technology bottlenecks [in banks]," says Handry, "and the most obvious is to do with legacy systems." Kumar does not expect customers, which include banks like ING, Lloyds TSB and HSBC to scrap their legacy. Instead it connects the relevant product platforms and then overlays its relationship-based pricing solution on top of the bank's infrastructure, a process which can take anywhere from four to 14 months.

It also announced at Sibos that its centralised billing and relationship-based pricing solution TBMS-F, can now be deployed globally across multiple countries and currencies. In other words, banks can now have an integrated view of a corporate customer, and how much business that customer does with the bank on a global basis.

Surely, once the value of that relationship becomes more transparent to both the customer and the bank, customers are going to put pressure on banks to reduce their prices even more? The counter to that, says Kumar is that relationship-based pricing across multiple product lines allows banks to increase their revenues by reducing "spillage" as well as increasing the potential to earn more business from that customer.

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