As new regulations and higher capital and liquidity requirements challenge future profits, banks are under pressure to build new operations centred on the client. IBM’s new survey of the Top 200 global banks finds that less than 10% believe that maintaining the status quo is a sustainable business strategy.
The new report, ‘From Complexity to Client Centricity’, finds that operational complexity is costing the ecosystem US$200bn annually and is constraining pre-tax profits by an average of 20% in mature markets.
While banks seem to understand the need for change to drive growth initiatives, to actually do this, they need to build a holistic view of the client to better understand client needs, improve the client experience and more effectively manage risk. The upside is that if banks are able to successfully tailor products and services to customer, IBM has found that clients are willing up to a 10% premium for their services. More than 60% of bankers believe that pricing innovation will help build client loyalty and improve profits in the new environment.
For banks to better understand their clients’ needs and further improve their experiences, IBM recommends:
- Enhancing pricing models to meet client needs in different segments.
- Modernising client segmentation techniques.
- Maximising client experience and client satisfaction in the different channels of interaction.
Banks worldwide need to invest in analytics to help them specialise operations and deliver superior products and services that best meet their clients’ needs.
It’s All about Pricing
Banks that effectively price products and services can use pricing as a competitive tool. According to IBM’s survey, approximately a quarter of all banks currently employ standardised pricing, regardless of the client relationship. But this trend also appears to be waning. In forecasting pricing strategies for the future, only 12-13% of banks said they would use standardised, ‘across the board’ strategies; a majority of the bankers favouring innovative and flexible models instead.
To achieve more granular pricing, banks will have to be more granular in their client segmentation to accommodate various risk models and differing abilities to pay. IBM’s research finds that 60% of banks are prepared to offer self-service pricing bundles as an option to empower clients to choose price, channel, and level of service.
Engaging in New Client Segmentation Techniques
IBM’s research indicates that not enough banks are accessing the right customer data to determine effective pricing strategies. For example, 70% of bankers identified that they need more data on client risks.
Instead of looking at demographics, IBM’s research suggests that banks should look at attitude and behaviour segmentation, to better align with customer’s interests and needs. By investing in the right technologies, banks can overcome some of the traditional barriers to gain deeper client insight and offer more tailored services. Interestingly, banks in mature markets, more so than those in emerging markets, are focusing on client service to regain trust (43% versus 31%).
Maximising Client Satisfaction
Naturally, the bank’s focus of coming up with the right pricing strategies and delivering tailored services, is all ultimately geared towards increasing client satisfaction in the channel.
To increase client satisfaction rates in the channel, banks need to understand three things:
- How people bank.
- How often they bank.
- What products and services they seek when banking.
Banks that can optimise satisfaction in the channel – by determining which customers prefer using electronic channels versus traditional branch channels – and then ensure the right delivery models are accessible to those who prefer them – will be best positioned for success.
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