From a Product to Customer Focus: Customer-centric Pricing in Payments
Payments sit at the core of the customer’s day-to-day experience and relationship with their banks. Payments providers are, however, currently faced with new challenges resulting from a rapidly changing payments landscape. As belts tighten in response to the recession, pricing and value for money have become the key priority in the consumer decision-making process. Therefore, payments providers need to look at how they change and adapt their services in line with customer requirements in this new environment. With the consumer focus on costs, pricing can be seen as a key battleground in maintaining customer loyalty and generating new business.
Payments providers face several challenges in the current economic climate. The impact of the recession has been felt among the majority of consumers and, as a result, customers today have very different requirements compared to six months ago. As price sensitivity increases, customers are looking to reduce spend and have become more aware of any changes in cost. Banks face an increased risk that customers will move their business to a competitor and concentrate their banking relationships in order to reduce the amount of fees they are obliged to pay. This means that payment providers are under enormous pressure to reduce product costs. Adding to this pressure are two key industry trends:
It is clear that banks need to address these challenges in order to retain customers. Equally, customer demand for better pricing presents an opportunity for banks to increase retention and grow organically through the implementation of attractive pricing structures. In order to do so, banks must be able to quickly roll out new products to their customers and pricing has become crucial to maintaining customer loyalty, preserving current business and growing where opportunities still exist.
A key way for payments providers to compete in this new environment is to move away from product-centric pricing and implement customer-centric pricing. With customer needs changing so rapidly, the most effective barrier a bank can use to protect itself against competition is to know and understand its customers. This involves understanding what they need, how they behave and what value they present for the bank. Exploiting this customer knowledge allows banks to differentiate themselves from their competitors by offering value-added services tailored to customers’ needs. It also helps banks to avoid campaigns in which they have little chance of winning, such as pricing wars on similar product offerings. Crucially, it enables banks to offer each customer the appropriate product for their needs and circumstances at the right price.
Customers now have very different requirements compared to six months ago. Therefore, while customer centric pricing is crucial, it is equally important that banks are also able to roll out new products quickly to effectively serve their customers’ changing needs. Reducing time-to-market ensures new products are based on information that is still relevant and also reduces time-to-value for new product launches.
Despite the growing awareness among banks about the need for this kind of strategy, current IT infrastructures are letting banks down. Legacy technologies are preventing banks from reacting with the necessary speed. Currently, pricing policies are often spread across multiple product and organisational silos, with business rules buried in application code. The result is high operating costs, long lead times and a lack of responsiveness to competition.
A key reason for this lack of flexibility is that pricing logic is often implemented in a fragmented and opaque manner. Pricing functions can often be duplicated in many legacy silos and implemented using programming languages such as COBOL, which can only be understood by IT professionals. Consequently, the process of amending existing products or creating new ones becomes very time consuming. Another key issue is that systems are often siloed by product, making it impossible to manage prices holistically. With this type of organisation, the pricing logic can be spread across more than 20 different applications. Therefore, any product changes or the possibility of a holistic view of the customer becomes virtually impossible.
The cost of this rigidity is two-fold. Crucially, legacy systems can inhibit product innovation. If time-to-market for a new product is too long, a bank can only market and test a limited number of new products per year. This may mean that banks end up appearing to ignore the need for certain products among its customers. Banks may lose customers to competitors because of this or miss out on opportunities for organic growth. A lack of flexibility may also cause a roadblock to pricing optimisation. If banks implement sophisticated, data-driven analytical capabilities to analyse and develop new pricing policies, the return on investment may then be compromised if there are barriers to implementation in the operational systems.
Banks that are considering implementing customer-centric pricing systems need to overcome the challenges resulting from legacy IT systems as they significantly impede a bank’s ability to execute new pricing policies. To address these problems, banks must move away from rigid legacy IT systems and implement more flexible technologies. Business rules technologies are one option and can significantly increase the flexibility of payments systems. Such technologies are central to eliminating inefficiencies and the resulting long time-to-market and high maintenance costs associated with new product rollout using traditional software programs. It will also allow banks to increase the number of new products necessary to enable full customer-centric pricing.
As banks increasingly move towards customer-centric pricing, it is essential that they implement the underpinning technology. This will enable them to achieve the full benefits of this move and reap the resulting cost savings and profits.