BMO Financial Group has begun using pricing optimization software to help it price more effectively its unsecured personal loan and auto loan products.

The software, Nomis Price Optimizer from Nomis Solutions Inc., is designed to evaluate a broad range of variables to calculate how much consumers are willing to pay for various banking products before being driven to seek lower prices at another bank.

Nomis, a San Bruno, Calif., company, is expected to announce today that Bank of Montreal began using its technology last month to set terms for its personal and auto loans.

BMO's rival Royal Bank of Canada signed up to use Price Optimizer in December, and Nomis said it is in talks with other financial companies in Canada, which generates about one-third of Nomis' business; the rest is evenly divided between financial companies in the United States and the United Kingdom.

"The Canadian market is a much more concentrated market" than the United States, Jakki Geiger, Nomis' senior director of marketing, said in an interview Friday. "So it's a highly competitive market."

In the United States, banks can grow by acquisition, but that is less an option in Canada, where there are far fewer financial companies, so organic growth is especially vital to each bank's success, Ms. Geiger said.

"Even though the market is in much better shape in Canada than it is here in the U.S., making sure you are maximizing the returns on every dollar you loan is really critical right now," she said.

Royal Bank of Canada has already "achieved significant profit improvements … with no impact on volume," she said, due to its use of Nomis' software.

Personal loans are a common type of consumer credit in Canada, Ms. Geiger said, and are used in much the same way that U.S. consumers use credit cards to finance purchases.

She said that the pricing software has not led to major swings in rates. "On average, we've seen about a 12-basis-point change in prices," she said.

However, the market is quite price-sensitive, and even small changes can have a significant impact for lenders.

The Nomis software can determine which customers are likely to move to another bank if they think a rate is too high and offer them a competitive rate to prevent churn.

It can also predict which people are less likely to switch banks, or might even be willing to pay a higher rate. Understanding all these predictive factors can help lenders maximize returns.

Nomis has also heard from some banks that are interested in using the technology to set terms for savings accounts and certificates of deposit, making slight adjustments in rates to attract deposits, Ms. Geiger said.

However, she also said that the credit crunch had made consumers less likely to switch banks in search of loans.

"Right now, the market is so dynamic," she said. "We're seeing in our research that customer response to price is at the lowest we've ever seen" because credit is so hard to come by. Customers used to be able to rate-shop, but "now it's more of a privilege … to get credit," she said.

This gives banks an opportunity to raise prices on the credit they are willing to grant, but Nomis' pricing software still comes into play: It can determine which segments are the least sensitive to pricing (if, for example, they favor a bank's brand over its price) and also tell the bank which rates are set so high that customers may have trouble repaying.

Bobbie Britting, a research director in the consumer lending practice at TowerGroup Inc., a Needham, Mass., independent research firm owned by MasterCard Inc., said price optimization "really helps understand the tradeoffs between profit and volume and therefore helps institutions in a down market survive."

The situation in Canada is not so dire, but Royal Bank's use of the Nomis product has been a catalyst to spur interest from other Canadian banks, she said.

"Royal Bank of Canada is a highly analytic bank," Ms. Geiger said. "Analytics is a way of life there."

Nomis' software appeals to such clients because "it looks at all available data that you have" and can vary pricing based on customers' history, income, degree of loyalty, and other factors.

The Canadian credit market is healthier than the U.S. one, Ms. Britting said, but this is not the only difference. "In Canada, the banks are less fragmented than they are in the" United States, she said.

Even allowing for differences in population, "they have proportionately far fewer banks than in the United States," she said, making competition fiercer among the large banks that dominate the market.

"It really helps banks better understand their profitability," something that is more pressing for lenders in the United States, Ms. Britting said. "In the U.S. right now … they don't have as much money to lend," so analytical tools such as Nomis' can make the most of a limited pool of money, she said. "This tool really helps in a down-volume period."