More accurate and flexible pricing and billing is a goal for many banks but this is often difficult to achieve. What are the drivers, options and experiences? A strategic approach that looks at these areas within overall product lifecycle management seems to be the best route.
The market for pricing and billing systems in financial services has taken shape over the last five years or so. It has matured and become more populated with solutions in that time. A small but increasing number of banks are putting in such systems to try to gain improved control and flexibility. This desire is clearly linked to the tougher economic climate, which has focused banks on flexible pricing based on the overall value of the customer relationship and accurate billing to ensure that there is no ‘revenue leakage’.
A group of vendors has emerged in this sector, either specialists or larger, broader vendors that have developed or acquired offerings. Some of the solutions have started in other verticals, particularly telecoms, and have moved into banking.
It is no surprise that pricing has become a focus for many banks. In rosier times there was far less incentive to reduce that so called revenue leakage or to have the flexibility to tailor pricing to the level of an individual customer or group of customers. Today, banks have much greater interest in the value of their customers and the need to price accordingly. Drivers include heightened capital requirements and reduced revenue from some traditional activities, particularly payments as a result of SEPA. As banks have been forced to go back to basics, as typified by transaction banking, so the often neglected area of pricing, and its associated disciplines of billing and loyalty schemes, have come into focus.
How banks charge is changing. Carole Berndt, head of global transaction services at Bank of America Merrill Lynch, told a roomful of corporates at the Eurofinance event in Monaco in October 2012 that she expected the total cost of banking to stay the same (although the majority of the audience was less optimistic), but it would be how the banks charge that would change. If you have an ‘holistic’ and ‘loyal’ relationship, she said, then this is likely to be reflected in the price. Banks will ask, who our best friends are; corporates will do the same, she felt.
Today, where there are multiple back office systems, each line of business tends to use the pricing capabilities of its own application, and/or Excel, manual processes and point solutions. The enterprise solution is intended to sit across these
and bring the activity into one place, enabling pricing based on the entire customer relationship.
Often, the revenue leakage is the easiest way to build a business case for such a solution. Banks often ‘don’t have a sense of how much money they are leaving on the table’, says Ashwin Goyal, vice-president of financial services at Oracle. Nevertheless, all of the system vendors are keen to emphasise the more strategic nature of such projects, enabling pricing to be matched much more closely to customer value, backed up by transparent billing.
Bernd Richter, partner at Capco, says his company has undertaken a couple of revenue leakage projects for banks but these have been relatively short assignments (six to eight weeks). There is the frustration that unless remedial action is taken, that leakage will only continue, so you could come back one or two years later and do exactly the same project, with the same outcome, he observes. ‘We can almost go to any bank and we can predict that they are losing revenue somewhere, we’ll know where to look, under which carpets.’ While two-thirds of today’s projects in general are probably regulatory driven and the rest are around cost cutting, he feels there is a ‘third pillar’, which is improving revenue. At present, the challenge is to educate banks to think along these lines, he adds.
Richter believes the problems are there across any form of banking and are likely to be worse if there have been mergers and acquisitions. Where portfolios have been brought together, for instance, there are likely to be issues about different tariffs. Some of the problems come down to ‘relationship management’, which has seen terms applied on an ad hoc basis to particular customers in the past. The relationship manager then moves to another portfolio or area and someone else inherits the arrangement without understanding it. ‘A lot of inconsistencies are driven by relationship pricing,’ says Richter. ‘Very few banks have a thorough understanding of how much they really make from their clients.’ Then there are often inconsistencies about billing, related to the different systems where this is carried out. In one project that Capco worked on, one product was never billed for because of a system error, thereby costing the bank around $2 million per year. As he points out, ‘if you bill too much, the client will tell you’, but it tends not to work the other way round.
The drivers are there but how do you go about selecting and implementing solutions, particularly when banks are layering them on legacy back office systems and processes? Typically, the selections take a traditional RFI/RFP approach, says Oracle’s Goyal. Sometimes, where there is an existing relationship, a project in this area becomes a natural extension of other work, he adds. The projects should not be of huge complexity. Many projects start with one line of business or one geography, he says, and then extend from here. Going live with a first phase could be as little as six months, he says, with no more than twelve months for a full roll-out, including all of the integration. ‘Clearly, they are not even close in length and complexity to a core banking project.’
‘Very few banks have a thorough understanding of how much they really make from their clients.’
Bernd Richter, Capco
Despite this confidence, the results have been mixed. Some of the projects have overrun, some have under-delivered and some have failed. This type of cross-departmental, cross-silo project is not easy to do. The challenges are likely to be organisational as well as technical.
There is not a large number of pricing solutions from which to choose. A few have moved into banking from other verticals but, at least at the outset, these might not have the functionality that banks need, with one potential gap being multi-country support. The solutions vary in breadth of functionality (some are specifically for billing, others for pricing) and there is a difference as well in the technology of the offerings, from Oracle’s Cobol-based platform at one end (albeit with Java at the front-end) to Zafin Labs’ much lighter Java-based offering at the other.
Among the oldest suppliers in this sector is US-based Infor (previously known as Infor FMS Infopoint and Trisyn). It has been on the market for nearly 30 years, most of these as part of the larger Infor conglomerate, and has only recently been standardised on a unified brand as a result of the enterprise-wide group rebrand.
Infor’s Complete Billing System (CBS), formerly known as Account Analysis, originates from the US-based commercial/corporate banks, and has traditionally been aimed at the top-tier market. The vendor emphasises that the system’s banking roots (as opposed to a growing number of billing software offerings moving from the telco industry) and its principle to implement directly, not via third parties, are the company’s major differentiators.
The latest version of CBS was unveiled in October 2012. It has a reengineered billing engine (a result of a three-year undertaking, which saw the system transformed from an account analysis solution with added disparate functions into a fully-fledged billing system), a rich Java layer and web services, and Microsoft’s SharePoint portal for web interface delivery. CBS now supports multiple platforms and databases, and is available on a fully hosted, Software-as-a-Service (SaaS) basis. With these new features Infor hopes to tap into the mid-tier and smaller markets.
To date, nearly all of CBS’s 50 or so takers are top-tier American financial institutions that use the system at home and abroad. The system’s first international foray took place in 2000 and today it is claimed to cover 140 countries (with the bulk of business residing in Asia and EMEA). According to Glen Chancy, senior business analyst at Infor, the vendor has ‘clients that use CBS as their truly global billing solution, so any corporate customer with entities across the globe can get a single summary of the services they purchased across the board’. Also, there are users that provide the CBS services on white-label basis to other banks.
Infor’s younger rival, Zafin Labs, was set up in 2002 and now claims around 20 banks as customers across 40 countries. Its head office is in Canada where it conducts research and development, with delivery in India. It now has around 250 staff. SVP, global sales and marketing, Chris Kenney, says the supplier spoke to a lot of banks and found that they were unable to bundle and price the entire relationship. The company built a standard product with a price engine and a rules engine on top so that users can define pricing exceptions, at an individual customer level or by other criteria, such as geography or sector. There are also simulation facilities to test the impact of price changes, and there is a loyalty feature which means that banks can define rules for rewards. The scope of the Zafin Labs platform to cover pricing, billing and loyalty is a key differentiator claimed by the supplier.
Kenney (who is ex-Oracle) cites SEB and Bank of Ireland as wins for Zafin Labs over his former employer. Standard Chartered is also a notable client, with other customers including HDFC Bank and Indusind Bank in India (interfaced to Oracle FSS’s Flexcube and Infosys’ Finacle, respectively), Bank of the West (the supplier’s first taker in the US and interfaced to an FIS back-end, see Pricing and Billing Focus: Case study – Bank of the West), Zurich Kantonalbank (ZKB, interfaced to SAP’s core banking platform), National Bank of Abu Dhabi and Bank Muscat in the Middle East (the latter with Temenos’ T24), and CIMB in South-East Asia.
The latter involved interfacing to this bank’s SIBS core banking system from Malaysian supplier, Silverlake, which is a regional partner for Zafin Labs. Other partners are cited as HCL, Cognizant, Perot and Dell. Not all customers have the whole suite, with some only for loyalty schemes, for instance. Only one customer, ZKB, is currently using the simulation capabilities.
Oracle’s product is now called Oracle Revenue Management and Billing (ORMB). The roots are within a product acquired five or six years earlier, SPL, which was focused on the tax and utilities sectors. Reflecting its age, it has a Cobol-based core but much of the code is now Java and it is Unix-based. The product roadmap is an evolutionary one, says Goyal, so there is no rewrite planned, as Oracle has done on the core banking side. It is making more and more use of Oracle Fusion technology, he adds.
Oracle decided to form a business around the platform for financial services, says Goyal. There were significant modifications for the sector, he explains, and it has now been available for around three years. There was a ‘facelift’ for financial services and, particularly for commercial banking, a need to support complex hierarchies. ‘For instance, almost every legal entity of Citi is dealing with every legal entity of Coca-Cola.’ When the customer asks for a single statement for the entire business, combined with a breakdown of the consolidated picture, that is a complex request taking in tens of thousands of interactions. It is not something that is required by utilities, says Goyal. The same is true of insurance, where there is group account billing for commercial insurance and potentially complex pricing and billing requirements.
Commercial banking, insurance and payment services have been the main areas of demand to date, says Goyal. For payments, this is largely for cards. In the cycle of consumer, issuing bank, merchant bank, network provider and others in the middle, ‘the way one dollar of revenue gets distributed is fairly complex and under pressure’.
The main integration is likely to be with the transactions systems and general ledger within the bank, or with the policy administration systems within an insurance company. The feed from the back office systems could be at the end-of-day batch run or less frequently, depending on the invoice cycles. For instance, if all invoicing is done at the end of the month, then it might not make sense to take daily feeds.
‘The way one dollar of revenue gets distributed is fairly complex and under pressure.’
Ashwin Goyal, Oracle
Given the requirement to consolidate pricing across multiple systems, it tends to be the larger financial institutions that take separate pricing and billing platforms. ‘Basically, you are looking to break silos so if it is a single line of business, the benefit is less,’ says Goyal. Oracle’s largest market to date is North America, although he says demand is growing in EMEA. There is some demand, ‘in pockets’, in Asia Pacific.
Oracle’s flagship customer is Citibank, with a twist here in that there was previously a failed implementation at the bank with Suntec, believed to have been over three years. Citi has implemented the Oracle platform on a global basis, using one instance, mainly for cash management billing. Goyal believes no competitors have managed something on this scale. It is difficult to tell the cause of the Suntec failure but it was a relatively early win for the supplier (around its fifth project in financial services) and the implementation was being run by I-flex Solutions/Oracle FSS. Moreover, Suntec has gone on to have a decent number of wins since then.
Suntec has been offering its Transaction Business Management System (TBMS) for over two decades (although far shorter than this in financial services). ING was its first customer in this sector, followed by HSBC, Lloyds/HBOS and RBS. Others since then include OCBC and DBS in Singapore, Commerzbank, ICICI Bank, Standard Bank and Charles Schwab.
Suntec has recently launched what it is touting as its next generation platform, Xelerate, which brings a range of new features including negotiated price modelling, pricing proposal generation and product and client management dashboards, as well as an iPad option at the front-end. The emphasis is on real-time charging, driven by the rules within the platform, says Suntec president and CEO, K Nandakumar. It could be that a deposit has come in that changes the charges but banks are not set up for this because of their batch-based systems, he says. Via an ETL middleware layer, the platform is monitoring relevant events in real-time. There is then an interface layer to end systems, including the branch, so that the up-to-date information is used to make the most appropriate offer to the client.
Where is SAP in the pricing and billing mix? It has an offering called The Contract System which, says head of solution architecture, Jens-Peter Jensen, ‘takes all pricing-relevant events, applies rules across all product systems, then applies customer-centric pricing’. In many ways, he says, pricing is the complicated bit; next to this resides SAP’s FICA billing component, although they can be taken independently. The bulk of the uptake of SAP’s offerings has been in institutional banking, he says. Typically, he points out, the core banking system has its own pricing capabilities but this is product-centric, so it is not easy to do customer-centric pricing.
Product lifecycle management
So, there are now a number of systems that can be applied to the problems but Capco’s Richter believes that the overall issue is about product lifecycle management, and pricing and billing should be seen in this context. Too often, when a new product is launched, this is not considered. A new product requires people to support and understand it from all relevant departments, including billing and IT. ‘If the new product process has problems, you can be sure there will be problems with billing,’ he says. ‘Most banks are not there from an organisational perspective. The product development area is often very isolated.’ Other industries tend to look at the full product lifecycle from start to finish but banks do not, he concludes. There should be clear workflows defined at the outset for pricing which are then tied to the billing engine, so that a pricing change is automatically reflected in that engine.
So sending out an RFP for a pure pricing and/or billing system and then seeking to implement this is unlikely to be a major leap forward unless there is also consideration of the overall product lifecycle and how the pricing and billing disciplines fit within this. Indeed, Richter has seen one pricing and billing system taken for one silo, another system taken for another silo, one taken for billing, another for pricing within the same silo, just adding to the fragmentation. The larger transformation type projects will bring better results and there needs to be buy-in from a range of people, but the good news is that they can bring a relatively fast pay-off, he feels.
‘If the new product process has problems, you can be sure there will be problems with billing. Most banks are not there from an organisational perspective. The product development area is often very isolated.’
Bernd Richter, Capco
Suntec’s Nandakumar believes there is emerging an overall need for infrastructure that will continually monitor customer behaviour and the experience they are receiving, with the cost of a transaction becoming part of the experience. Such systems need to be real-time, reactive, predictive, flexible and scalable. If achieved across all services of a bank, it can bring back transparency and confidence in the brand, with the latter particularly under attack of late.
Gordon Gray, practice head at Suntec, has recently moved to the supplier from Charles Schwab. ‘Five years ago, we were singing in the desert,’ he says, of his former employer. The introduction of relationship pricing meant going outside the US for a solution, he says. Schwab claims to be in the top two for customer loyalty, along with USAA, which has a traditional focus on financial services for customers linked to the US military. Pricing and billing becomes more transformational than tactical when it is real-time and part of the overall product management, he says. ‘It radically transforms the way an organisation thinks’ and allows a completely different business model.