I learned early in my career that listening to the customer leads to innovations. Those innovations ultimately make a big difference in the relationship between banks and customers.
In recent years, through countless treasury management practitioner roundtables and interviews, a key theme I continue to hear is the unnecessary complexity of bank treasury management pricing. Customers are consistently asking for an easier way. I would advocate that fixing this problem is a transformational way for banks to differentiate and pull business away from those who make banking difficult for their customers.
Banks have countless line item pricing details that are hard to understand, hard to account for, and hard to justify. Complicated pricing doesn’t sit well with companies buying banking services. Reconciling bills is a time-consuming nightmare for bank customers. Fixing errors with billing can be difficult and ultimately creates distrust between the bank and the customer. And let’s face reality – all banks have billing errors.
And to further rub salt into the wound, forecasting a bank’s bills for budgeting purposes is difficult at best. The combination of earnings credit offsets and month-to-month volume fluctuations can place a corporate treasury manager in a difficult place when it comes to budget management.
Why is billing so complex? I put forward the notion it’s based on old legacy practices and cost structures. Banks started providing these services for very big companies with big volumes, lots of manual processes, and lots of exception handling. Complex line item pricing made sense in this situation to protect the banks. The same practice was then carried to middle market customers and even business banking customers, even though their business was often much simpler to process. Why? Was it thought of as a best practice? The practice certainly helped to provide consistency within the bank. Maybe it also helped maximize revenue? Some say that making the pricing more difficult ultimately makes it harder to compare bank prices, and easier to raise prices in hidden places.
So much has changed since the development of these complex processes. Automation and digitalization have significantly changed the cost structures of treasury management banks. But the pricing mechanism hasn’t changed much. Customers tell me they are looking for easier banking processes. Is it time for customer-focused banks to begin providing another way?
What can a bank do to provide easier pricing? I have some thoughts.
- Understand your true cost-to-process customer work. Back out the fixed and overhead costs and bankers will have an enlightening picture of the marginal direct cost to process a customer’s work.
- Don’t sweat the pennies. The low-cost stuff doesn’t really add up, yet we love to line item price for them. Resist and include the estimated costs in a bundle.
- Group and Bundle: Many bank clients use very similar TM services. If analyzed and grouped into similar clusters they will be found to have similar pricing ranges. Banks should be bold enough to offer a flat monthly price for customers that fit those clusters. Of course, volume caps may have to be devised, but you’ll have happier and stickier clients as a result of your efforts.
Fixed bundled pricing? Why not? Let’s listen to customers and get a whole lot more innovative.
For more principles of ‘easy’ banking, check out our latest report: Make It Easy: In Treasury Management, Client Experience Rules.