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Two thriving forces shaking the financial services industry particularly in the ongoing crisis are hyper-digital transformation and existentially low profit margins in certain business segments. Technologically enabled revenue management can be seen as a great way to stay in the game and drive such a digital transformation. As the leading provider of pricing and billing solutions, Oracle is committed to helping financial institutions optimize the value of their customers, enable business agility and maximize profitability.
Recently we interviewed Rahul Banerji, Head of Pricing and Billing Europe at Oracle Financial Services, about revenue management in the financial industry and the company’s software ORMB (Oracle Revenue Management and Billing):
- Revenue management and pricing in the banking industry
- Professionalization of the bank’s revenue management
- Support by suitable products
- Relevance revenue management in private banking
Mr. Banerji, why do you think that revenue management and pricing are still profoundly underdeveloped in the banking industry?
There are a few reasons why this is the case. Let’s first look at the evolution of revenue management – it all started with the aviation industry (and soon thereafter the travel and hospitality industry). To improve financial results, airlines began to optimize their revenues by introducing dynamic pricing. They married demand management and price differentiation and developed it into a science. The driver behind this evolution was that these industries typically sell limited inventory e.g. airline seats, hotel rooms, etc. with a set deadline after which the value would be lost forever. In essence, revenue management has evolved towards using analytics to generate the maximum amount of revenue possible.
Banks on the other hand don’t sell fixed capacity – they sell accounts, payments, liquidity, cards, investment advice, portfolio management, wealth structuring services, etc.– which makes applying traditional revenue management techniques more difficult. Furthermore, banks have traditionally used one-size-fits-all prices, siloed per product line. As such, banks have not been set up with revenue management practices in mind and hence the field of pricing is profoundly underdeveloped. Nevertheless, this is changing as a result of market factors such as the low-interest rate environment, increasing fee transparency, increasing regulatory obligations, etc. putting banking revenues under increasing pressure. Banks now must look at how they can generate as much revenue as possible and consequently improve revenue management and pricing maturity.
How can banks professionalize their revenue management in your experience?
Revenue management at its heart is about optimizing pricing at an operational level. Once you have decided on your pricing strategy (e.g. your strategy is to be a low-cost airline or a high-end luxury goods manufacturer), you have to then apply the exact right price at which customers are buying in. That is where revenue management kicks in. Multiple techniques can be used to entice the customer. Some examples are:
- Pricing for volume, discounting appropriately – when the customer hits a certain volume of payments, an automatic shift to the next pricing tier is applied
- Selling a bundle or package of products – traditionally only for internal products, but we are seeing examples where external products are being packaged as well e.g. a travel pack consisting of a currency card, insurance and concierge services
- Introducing loyalty points, converting interest accrued on the account to loyalty points or credit for fees in lieu of interest accrued
Support by suitable products
How can Oracle help banks in this regard?
For banks, Oracle’s ORMB tool is increasingly becoming the de facto product to help clients implement industry best practice revenue management techniques. We have seen examples where banks using ORMB are able to implement changes to price plans within a matter of minutes where previously it would be a 12 months long change project. There are numerous approaches to customer-based pricing, e.g. applying pricing based on customer groups, discounts based on certain eligibility criteria, pricing based on product variations and channel variations, all of which can be managed centrally using ORMB.
Why would a bank use your tool ORMB instead of the capabilities included in its core banking system?
With ORMB you get speed and fast time-to-market, e.g. if you want to create a package of products and put it on a subscription plan, you can do this in a matter of minutes. Core banking systems still operate in silos, and any change has to go through a very long development cycle. Using ORMB, banks can manage pricing across a portfolio of products and services, and get the relevant data necessary to make more informed decisions for customer-based pricing.
Aside from speed and agility allowed by the modular structure, ORMB is used as the single source of truth for all relevant pricing data, facilitated by a wide array of connectivity options to other bank systems. In other words, it brings all relevant data from the ‘customer to cash cycle’ (C2C) together (i.e. customer, product, and pricing data). This results in business users being able to create new offers, simulate and perform what-if analyses to ensure profitable arrangements, reprice, execute and bill with minimal intervention from IT, thus drastically reducing time to market and optimizing the C2C process.
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Are there any additional benefits of using ORMB?
Something I haven’t covered so far is the total cost of ownership (TCO) – if you compare like for like, the total cost of ownership of running the revenue management process on ORMB is significantly lower than existing systems. We also have a SaaS (software as a service) solution which is live and in use by a number of our banking clients. The driver of demand we have seen for this service is that we manage all of the technology for the clients, thus allowing them to focus and invest solely on their customers.
The modularity of the ORMB solution allows banks to retire not just 1 or 2, but multiple applications while gaining significant time-to-market speed benefits and lowered TCO. In one of the largest banks in the world, introducing ORMB has meant retiring 30+ aging revenue management systems.
Why is professional revenue management particularly important in private banking?
In private banking “applying the exact right price at which customers are buying in” is one of the key factors in the client acquisition and ultimately overall client satisfaction. As a consequence, basically all clients pay different prices which makes effective discount management a key driver for profitability. In this regard, ORMB can display complex pricing models and apply all types of preferential terms. In fact, using fees either on client or portfolio level is as easy as switching from a flat fee to a tiered fee, or adapting the calculation base for the custody fee. I would even say that there is no scenario that cannot be technically mapped into ORMB.
Thank you very much for this interview, Mr. Banerji!