“You need to embrace change if the alternative is disaster.”
Elon Musk, founder of SpaceX and cofounder of Zip2, PayPal, and Tesla Motors
Is the banking industry ready to change? According to our recent survey of 200 European bankers, transformation is top-of-mind, with many in search of a new banking revenue model. Our survey shows that a “customer-centric” approach to pricing is key to building future revenue models and essential for competitive survival.
What’s driving the revenue model revolution?
Underpinning this shift is the need to build a delivery model founded not upon the bank’s internal product, organisational and reporting structures but upon customer personalisation based upon identified and predicted needs, motivations and behaviours – moving away from the model of disparate products to an inclusive customer solution and experience; putting customers at the heart of strategy rather than designing strategy and then fitting it around some identified target segments.
However, banks recognise that their existing product-centric strategies are counter to such ambitions: almost eight out of ten agree that banks’ focus on pushing product lines is undermining their ability to increase consumer value. Breaking this product silo mentality will pave the way for a more holistic customer view.
Growth in customer expectations is likewise forcing banks to realign their interests with customer needs. Yet, our survey shows banks fall far short of this level of understanding about their customers, with 75% of the bankers saying that banks often fail to understand what customers really value.
Upwards and Onwards
But the future is bright. Prominent banks are preparing to price based on a holistic relationship with the individual customer rather than simply at the product level; 77% expect this to be accomplished within five years, of which 35% anticipate the transition to take place as quickly as within three years.
Banks are readying to deliver key features of customer-centric pricing by 2020; over 83% of respondents believe leading banks will frequently use differential pricing according to the individual customer’s channel use, 75% expect banks to regularly make real-time pricing decisions and 74% anticipate adoption of pricing strategies linking savings products to the customers’ propensity to deposit money for the long term.
As bankers seek new sources of profits, they are forced to rethink their pricing models. Survey respondents believe this pricing revolution will materialize within the next five years with a shift to fee-based pricing. More than three-quarters of respondents believe that the percentage of banks’ revenues derived from fees rather than from interest rates will increase significantly by 2020.
Banking is changing; will banks change too?
The writing is on the wall: banking will change. The question is how? Will banks become mega-scale banking “factories” or perhaps smaller banking “boutiques” focusing on delivering customised branded services generating higher margins. Alternatively, they may get sidestepped by a new breed of service providers. The jury is yet to decide.
To learn more, get the complete survey report