Like many banks, CIBC used to charge commercial clients a flat fee for everything they did at the bank. How that fee was determined and what individual products and services cost was a mystery.
Recently the $362 billion-asset Canadian bank has been rolling out software that automates pricing and enforces a degree of discipline around what corporate customers are charged for products and services. The system lets the bank introduce new products quickly, provide understandable bills to customers — which leads to fewer calls to the call center — and gives relationship managers more customer information with which to sell. These benefits came at a cost: a huge, time-consuming data integration project that had to be undertaken first.
CIBC is not alone in wanting to automate and control corporate pricing and billing. A large U.S. bank is also thinking about using Zafin's software to adjust the way it charges commercial clients. Instead of charging flat rates, the bank want to raise fees for high-risk, low-margin clients and lower what it charges low-risk, high-margin clients, and thus avoid punishing the best customer. The bank also wants to increase revenues overall and prevent salespeople from giving frequent discounts.
One driver pushing banks to use pricing software is regulation. Basel III calls for greater pricing discipline and coordination across lines of business and product lines.
"Basel III's liquidity coverage ratio links deposit balances to operational services, such as treasury management and other transaction services, which are generally fee-based," Chrystal Pozen, managing director of Treasury Strategies, wrote in a recent report. "To comply with the liquidity coverage ratio, banks must demonstrate the linkages between deposits and other banking services — which, in effect, will force banks to harmonize their internal systems to monitor client relationships more holistically (including pricing)."
Few banks have pulled this off. It's difficult to automate all the relationship hierarchies that exist in a corporate banking relationship, said Patricia Hines, senior analyst for corporate banking at Celent.
Businesses tend to have divisions and subsidiaries that have separate deposit accounts and cash management services. To accurately price banking services, these need to be linked and tracked together. As a business gets larger, it may have several subsidiaries or operating groups, each with their own banking fee arrangements. The technology solution needs a way to link the underlying accounts into a "business household."
"I tried to do a similar project years ago in my banking career and could not get hierarchies to work," Hines said. She's written about the concept since, and each time she's looked into it, no banks have been able to do it.
"Maybe CIBC wouldn't have done it if they knew how hard it would be," she said.
According to Phil Griffiths, senior vice president of global transaction banking at CIBC, the main motivation for this project was a need to improve commercial clients' customer experience. "Our CEO has publicly said our goal is to be number one in client experience in Canadian business banking," he said.
Billing for corporate clients at CIBC used to be mostly manual — relationship managers would negotiate one-off pricing arrangements with clients. According to Griffiths, clients didn't see value in the flat-fee arrangement and frequently called the bank's call center with questions about their bills.
"We had a lack of transparency around our fees," he said.
The bank wanted software that would make billing faster and more accurate. It installed Zafin's myClient software, which computes prices and creates electronic bills for 300,000 business customers.
"They have much more transparency now — they can see their volumes and the unit prices," Griffiths said. They're not calling the call center as much.
"For the average corporate treasurer that's got a lot of fees, any time they can break that down and know [the pricing] for sure, that's a benefit," Hines said. "They then can compare those fees. If you have four banks and they're all charging you a flat fee and you don't know what's underneath that flat fee, it's hard for you to comparison shop."
The new system is populated with standard prices, yet relationship managers are given some discretion to offer discounts. For special pricing requests beyond that, the software has workflow that sends the request from client to relationship manager to a vice president or director with the right level of approval.
"Our aim was to get much faster turnaround time when there's a client issue with pricing or a prospect opportunity," Griffiths said.
The bank hopes the software will help it get new products out to clients quicker. Already, the system has allowed it to do something it's wanted to do for a while: offer promotional deposit rates to commercial customers.
"We've seen many retail banks around the world offer special pricing for a limited period of time to attract new deposits," Griffiths said. "But nobody in Canada had done that on the business side." The bank offered a 90-day bonus rate and grew its business deposits.
On the analytics side, the bank is now collecting more data than before through the Zafin software and plans to use it to identify new opportunities in commercial account relationships. Just as many retail banks use analytics to come up with a "next best offer" for customers, this software will let CIBC look at similar customers in a segment and do a "businesses like me" analysis that lets the relationship manager see services that the client's peers are using but the client is not.
"It's a great door-opener for discussion," Griffiths said.
The bank is integrating myClient with its CRM system. This should give relationship managers a full picture of the client relationship, including all the products and services each client uses, and customer profitability. "The relationship manager will have a far broader understanding of the client when they deal with them," Griffiths said.
Before the Zafin software could be installed, CIBC had to centralize all its corporate client information, which turned out to be a major, 18-month project.
The bank uses more than 30 legacy applications and multiple databases to serve corporate clients. Billing data had to be pulled out of those legacy systems and brought into a centralized database the bank calls a Business Banking Data Mart. It tracks the commercial hierarchies in the bank's corporate customer relationships and feeds the Zafin billing engine.
"It's a multiphase project, the size is not to be underestimated," Griffiths said. "But the benefits to the bank and our clients are significant."
Before making a price change, product managers can do what/if scenarios: if I change this value from a to b, what's my revenue. And they can change prices themselves, using a product catalog in the Zafin software, rather than asking someone in IT to make the change in all 30 applications. This reduction of IT labor led to several million dollars of cost savings, Griffiths said.
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