ABA Banking Journal - September 2007 - (Page 53)

“Traditionally, price determination has been manual and inefficient” mortgage lender in the United Kingdom (and Nomis’ first bank client), is using PO to refine its installment-lending program. Gaining wider use Of course, not every customer shops on price alone, but among those that are counting their pennies and basis points, more refined offerings can yield big successes. In the U.S., three of the top ten banks are incorporating price optimization technology in various line-of-business product offerings, notes Robert Phillips, Nomis Solutions’ co-founder, chief science officer and vice-president. Nomis is a market leader and cut its teeth with PO applications for the airline business before moving into the banking space. Four or five other vendors that attack the problem in various ways provide solutions designed to let a bank set pricing policy without interacting with its core processing system. Again, says De Lotto, the technology would allow for easy changes, but bank senior management probably intends for ad hoc decisions to be greatly reduced. Vendors in the space, according to Gartner, include Acorn Systems, Earnix, PROS, Rapt, SunTec Business Solutions, and Zafin Labs as well as the offerings of several business intelligence vendors that plan to enter the market. In one of several research notes on the subject, De Lotto talked about PO as an underpinning of offset accounts, which, as the name suggests, offset loan interest owed against any funds held in customers’ savings accounts without freezing the savings as collateral. The technology can also help to create loyalty programs across product lines or build programs that rely on dynamic relationship pricing where consolidated statements and aggregate views of the customer and account value factor into pricing decisions. De Lotto wrote that the software would have a bigger presence in retail banking, but warned: “PO will inexorably spread from its maturing base in mass-market retailing and travel to retail banking through 2012, leaving a trail of unrealized promises, broken hearts, shattered careers, and a few clear, profitable winners.” Some of the reasons for this are noted below. IT potential, but no guarantees To experts that have looked at the systems over the last 18 months or so, PO technology has the potential to improve forecasting, reduce manual processing errors, create a data trail around exception processing, and simplify workflow around new price posting. Nevertheless, several factors could reduce its effectiveness, according to various sources. For one thing, the gathering of competitive rate and fee information requires inquiries among multiple sources and is done by far-flung office workers in inconsistent ways, which leads to errors, not the least of which are transpositions and coding mistakes, says TowerGroup’s Khirallah. Also, cash flow projections by market are often inaccurate, others say, because institutions fail to factor demand elasticity into their projections and pricing recommendations are based on intuition. (Traditionally, too, fee waivers have not been tracked, or have only been tracked on a limited basis, resulting in lost revenue.) One mixed note is that while the regulators, particularly the Office of the Comptroller of the Currency, are interested in price optimization as a means to guard against fair lending violations, some banks, for that very reason, have an aversion to being known as using the technology. Overall, De Lotto is a cautious optimist when it comes to the category. He emphasizes that PO systems don’t “automate away” the need for a general pricing strategy and the need to know customers and cost structures intimately. And, as with other business intelligence tools, will not work without clean, accurate data on historical customer data. Said a bit differently, tailoring the product will only work when you know, pretty exactly, for whom you are tailoring the product. BJ Some Price Optimization Vendors Earnix Experian-Scorex Metavante Nomis Solutions Oracle PROS Response Analytics SAP SAS Institute & Amdocs Suntec Source: Forrester Research Earnix Optimizer Marketswitch Relationship Value Management Nomis Price Optimizer Oracle Profitability Manager Pricing Analytics Open Demand Platform SAP Price Optimization Banking Intelligence Architect/ Operational Product Catalog TBMS-F www.ababj.com/subscribe.html ABA BANKING JOURNAL/SEPTEMBER 2007 53 http://www.acornsys.com http://www.earnix.com http://www.prospricing.com/ http://www.suntecgroup.com/ http://www.acornsys.com http://www.rapt.com http://www.zafinlabs.com http://www.earnix.com http://www.experian-da.com http://www.metavante.com/mvnt/corp/whyicamehere?p=20533 http://www.nomissolutions.com http://www.oracle.com/applications/cpm/profitability-manager.html http://www.prospricing.com http://www.responseanalytics.com http://www.sap.com/usa/industries/banking/priceoptimization/index.epx http://www.sas.com/industry/banking/dppm/ http://www.suntecgroup.com http://www.ababj.com/subscribe.html

Table of Contents Feed for the Digital Edition of ABA Banking Journal - September 2007

Contents Editor's Column Briefing: Why Money Sense is a Top Priority Briefing: Sleight of Mind Briefing: Snapshot: What the First Half Tells Us About the Second Half Briefing: ABA Resources ABA Chairman’s Position Briefing: Get Away and Get Ahead: ABA's Banking Leaders Forum Community Banking: Trim the Fat: Winning the "Battle of the Buck" Community Banking: Pass the Aspirin Cover Story: Meeting the Challenge of the "Unbanked" Bank Marketing: Don't Miss the Boom! On the Job: Time to Power Up Your Presentations? Insurance Sales: The Art & Craft of Cross Selling Tech Topics: The Price is Right? Tech Topics: Security: Protect Information First Tech Topics: Hackers for Hire? You Bet'cha Tech Topics: Case in Point: Tellers Scan, Too, at First Federal Compliance Clinic: Adverse Action Clarified The Economy Banker’s Mart To Advertise/Index of Advertisers

ABA Banking Journal - September 2007

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