Banking

How Banks Are Using Strategic Pricing to Empower their Customers

ZafinSenior Vice President, Digital Platforms

Strategic pricing enhances customer acquisition, retention, and satisfaction across all industries, whether it’s hospitality and travel, or retail goods. In a new era of banking, where interest rates are quickly rising, banks need to consider strategic pricing to maintain customer stickiness and remain profitable.

With strategic pricing, banks can customize the fees customers pay and offer them individualized rates based on their banking profiles to create a more personalized banking experience. Using pricing to incentivize client behavior not only offers increased savings but also establishes loyalty – something banks are desperate for.

What is strategic pricing?

At its foundation, strategic pricing is flexible/dynamic pricing based on current market demands. It is second nature to industries like hospitality, travel, and retail goods, as algorithms account for competitive pricing, supply & demand, time of day, and on-demand service spikes to affect an ever-changing, real-time price, and profit margin.

In financial services, dynamic pricing is predicated based on the individual customer relationship with the bank – as an expression of client relationship. It’s comprised of two parts:

  • Strategic pricing

  • Pricing execution

Because the type of pricing strategy is customer-oriented, not product-oriented, true dynamic pricing requires a fundamental shift in how banks have looked at overall customer profitability.

This shift in pricing strategy means no longer looking at individual products as revenue drivers, but rather at the individual customer’s portfolio of products and services as the revenue driver, in both retail and corporate banking.

How does digital banking fit into the picture?

There’s another factor forcing traditional financial institutions to consider raising their rates – digital banks. These disruptors are bursting far and wide in the industry, offering extremely competitive interest rates on savings accounts, driving an increase in deposit rates. If digital is what customers want, it looks like the big banks are willing to play ball.

People have found the way they want to bank and save – and it’s digital.

To compete head-to-head with the interlopers and other banks, Citigroup, for example, recently announced that it will launch comprehensive, new mobile capabilities on the Citi Mobile App for the iPhone to serve the full spectrum of client needs nationwide. While details are vague right now regarding pricing strategy, there have been frameworks laid out by financial institutions like Barclays and MUFG Union Bank, both of which have launched digital platforms to appeal to the shifting market interests by offering top-shelf interest rates for customers looking to deposit and save.

This is leading to an arms race to boost rates and entice another wave of consumer deposits. Moving to a digital-based environment is naturally going to help big banks keep the overheads down compared to brick-and-mortar and – in theory – passes these savings onto customers.

The benefits of this are two-fold. More attractive rates will encourage new customers drawn to the potentials for increased saving, but it will also foster loyalty among existing bankers who may have been tempted away by the better rates of competing for digital banks. The rates arms race begins to make a lot of sense – it’s a win-win for banks and customers.

At the big banks, institutional depositors have already realized the benefits of the Federal Reserve raising rates. Their higher balances were more a priority. But the comparatively small balances of regular savers have yet to be rewarded in a similar fashion – so far.

Based on this, the value of moving savings to a digital bank is evident for the average consumer. As of yet, most of the big banks haven’t responded in any profound way. As the Federal Reserve continues to hike rates, average bank customers are going to wise up to the better options that exist for them elsewhere, and the banks will be forced to respond – or lose out to the newcomers.

Why is strategic pricing the solution?

Big banks have two problems. First, they’re having to pay customers more as they catch on to the rising rates. Second, they’re battling digital banks that are able to offer competitive interest rates due to their low overhead. How can a big bank compete and profit in this environment?

Implementing dynamic, customizable pricing is essential to encourage deposits and retain customers. Customizing the fees customers pay and offering individualized rates based on banking profiles gives customers a unique, personalized banking experience that they simply cannot get from a digital offering of a financial institution.

Building this type of innovative technology at a bank would cost millions and take years to implement – all while rising rates are already cutting into bank profits. Third-party solutions can create solutions for banks to keep them nimble and implement strategic pricing at a fraction of the cost and time of an in-house build.

Banks need to seek out solutions to maximize profitability without compromising the loyalty of their customers. In a rising rate environment, strategic pricing is one of the crucial things banks need to remain competitive.

Adam Nanjee

ZafinSenior Vice President, Digital Platforms

Adam Nanjee is currently the Senior Vice President of Digital Banking at Zafin, an enterprise banking SaaS company headquartered in Toronto.

Within Adam’s professional capacity prior to Zafin, Nanjee was the Head of Financial Technology for MaRS Discovery District, Vice President of Digital Payments for MasterCard, and the Global Head of Social Media and eCommerce partnerships for BlackBerry. Adam currently serves as a board member for the Ismaili Centres Management Board for Canada which governs the Ismaili Centre’s in Burnaby, British Columbia and Toronto, Ontario. As a professional speaker on the future of technology, innovation and finance, Adam has been featured as a keynote speaker at Money 20/20, Sibos and various other global technology conferences.

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