Nearly everyone in financial services is frustrated with the state of their core banking platform. Many consider replacing aging, inflexible product-servicing systems (PSSs) to get new, flexible PSSs that can be configured rather than programmed. But the cost and potential disruption of such a change scares CEOs and CIOs alike, leading to few of these initiatives getting out of the idea stage. Hence, there appears to be a growing frustration among many retail and commercial bankers who want the ability to have greater flexibility in product pricing, packaging, and marketing. Their strategies to do more granular segmentation and customer relationship-based pricing, product and feature bundling; and to have time-based offers and enterprise-wide loyalty – and get them to market quickly -- remain elusive dreams.
But not everyone is frustrated. A relatively small number of financial institutions have discovered a new technology broadly categorized as a product and pricing life-cycle management (PPLM) capability. PPLM deals with the biggest frustrations of core banking PSSs – the desire to have flexibility to price, package, and market beyond the way a servicing system was designed.
Most PSSs are designed to provide four basic categories of capability – regulatory compliance, balance accounting and transaction processing, charging, and statement rendering (billing).
Financial institutions can do little to alter two of those areas: Regulatory-compliance requirements are dictated by regulation, and all vendor and custom versions of a product-servicing system must meet the same standard. Likewise, balance accounting and transaction processing requirements are dictated by accounting standards and their related financial controls.
What banks want is complete flexibility to control how a PSS charges for banking services and provides statements. This is what PPLM technology is designed to do. This technology sits above the PSS and replaces the charging and statement capability – those capabilities are switched off in the PSS.
The way a PPLM system works is it collects customer account and transaction data in real-time or in batches from the PSS. It then assesses balances and transactions to determine interest and fee charges based on product-catalog pricing lists and rules configured by the bank. The interest and fee transactions are kept for statement purposes but then sent back to the PSS for balance accounting and transaction processing.
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PPLM systems have a number of advantages. Business users configure the system, not programmers, virtually eliminating a costly and lengthy technical development process. Any type of data can be brought into the system to provide inputs to product pricing rules. Existing data feeds that support regulatory compliance processes like Anti-Money Laundering, Foreign Account Tax Compliance Act and the Consumer Financial Protection Bureau can be repurposed from being a cost-of-doing business to driving revenue and balance sheet growth. Most importantly, they provide a central collection point for product and customer information.
A PPLM implementation on top of a single, aging PSS can dramatically extend its operational life. But most of the early adopters of PPLM have also realized sizable benefits with the technology. One bank client of ours was able to meet European pricing disclosure regulations with such a system. Another client that used a third-party banking-platform provider substantially reduced its cost of support by eliminating service requests that deal with product and pricing. Others have been able to sizably reduce revenue leakage by better control of pricing discretion through the use of PPLM technology.
In fact, a PPLM implementation, gradually and opportunistically extended across all a bank’s PSSs, can offer compelling capabilities that retail and commercial bankers dream about and that most bank CIOs only wish they could offer. In one place, both can have a comprehensive view of their customers and products to feed to their mobile and Web platforms. They can have the ability to do more granular pricing segmentation and offer customer-relationship-based pricing. They can have the ability to support product and feature bundling across all the products in the enterprise. They can have the ability to do enterprise-wide loyalty programs. And they can have the ability to get these programs to market quickly.
Core banking platforms will continue to age, and doing nothing about that is not an option. Replacing them can be costly and risky. A PPLM capability is a proven way to both extend the life of a core banking platform and provide the product pricing, packaging and marketing capabilities needed to compete in today’s market.
John Milani, Jr. is a Financial Services Director at AlixPartners