Corporate banking engagements are complex with multiple iterations and engagement models that offer the customer the best rates and value for their money while ensuring profitability and long-term relationships for the bank. When it comes to banking deals for the entirety of a corporate entity, a linear approach may not always work. Most corporates have legal hierarchies as well as those not defined by legal terms that may also need to be considered when creating personalized deals. The bank’s revenue management system must be capable of considering linear or vertical relationships as well as non-linear hierarchies when formulating deals and offers for corporate customers. Some of the horizontal hierarchies to be considered include franchisee pricing, pooling arrangements, and template pricing models.
Let’s look at each of these.
Franchisee Pricing
Not all businesses lend themselves to expanding across regions via an owned model set up. For instance, a franchisee business involves a contract between an established brand and independent business owners or the franchisee which allows the brand to expand to newer regions and customer bases. The brand wants to have some level of control and standardization across their franchisee network. And they want to get the best banking deal/ pricing deal they can from their banks. For the bank, the ability to offer deals created for the business can ensure revenues and help expand their customer base across the organization’s franchisee network.
The negotiations take place with the brand owner or the business franchisor. Commitments are made by the company at the group level, on behalf of all the franchisees in the network. The deal is made for different variants of banking products and services at the prices negotiated and set at the group level. The individual franchisees inherit the pricing set by the company, but they have the flexibility to choose from the products and services decided by the bank and the franchisor. They can also add more offering variants from outside the group deal, based on their requirements. These are managed as individual deals with the franchisee. For example, a fast-food chain in a country can strike a deal with a bank and establish a negotiated price list for banking services and products. Their franchisees across the country can then avail themselves of this negotiated rate and product portfolio.
A franchisee deal management approach helps to standardize prices across the entire group, making it easier for the company to manage the business. Any modifications made at the group level, or renewal of deal are automatically shared across the franchisee network. This model provides the bank with a better and more consolidated idea of business value and volume across the business network. And the company can leverage the overall group business to come up with commitments and secure a better deal. All franchisees in the network can enjoy the best rates negotiated by the company. This would most likely not have been possible if each of them was negotiating independently based on their own business value.
Pooling
In the case of a franchisee pricing model, there is a legal relationship connecting the different entities – legal contracts that bind the brand to each of the franchisee or independent business. But there are occasions when entities within an organization are not contractually bound together and yet can be clubbed together for benefits and better cash management options.
Pooling contracts are a non-linear and horizontal hierarchy and relationship that are different from a franchisee model and usually pertain to the deposits line of business. In this, a group within a customer organization who are not in a legal relationship – for example Board of Directors in an organization – pool together their deposits to earn better benefits from the bank. Different entities within the organization may have their own deposits of a certain amount with a bank. For the bank, the value of these individual deposits may be not be high enough to warrant specially negotiated deal prices or benefits. But if a group of diverse entities come together to pool in their deposit amounts, the total value of the deposit increases significantly. The bank will then negotiate better benefits ranging from higher interest rates to higher overdraft limits and more for every entity in the pool. A pooling contract allows individual entities to avail of benefits that they would not have been able to enjoy independently. And for the bank, the pool ensures a deeper deposit pool, more float money that can generate higher revenues from fees and charges for the administration and management of the pool.
With a robust revenue management system in place, banks can seamlessly create a pool and record the pool level commitments and negotiated rates. The arrangement and terms and conditions of the pool are documented as a proposal. A pooling contract is timebound and can be extended or renewed easily. Repricing options are available once the deal period is completed.
Template Pricing
Banks also use template pricing models to similar kind of customers to simplify deal management. In this the pricing for a set of products and services is fixed based on the best applicable rate. This pre-determined model also establishes some reasonable commitments for the customer to adhere to. It bases revenue projections and profitability analysis on these pre-fixed rates. This then becomes an approved template for the bank to apply to customers with similar profiles and business values. For example, a bank can create a template pricing model for business hotels in a specific country. The relationship manager does not need to spend time capturing commitments, negotiating rates or getting them approved, and can quickly roll out this template-based pricing model for another business hotel that may come to them for their banking needs. In this the template is preset but the rules on the customer profile or accounts where the pricing would be applicable are also defined. A rule can be defined to indicate that a specific template can only be applied for customers with similar types of business, or from a region, or a specific segment.
Template pricing allows for quick and hassle-free on-boarding of new customers. Since pricing, commitments, and even revenue projections for the bank are pre-approved, this model allows for self service via online channels like mobile or internet banking. Contract extensions are also easy and quick and re-pricing is as easy as migrating to a different template.
Banking on a Robust Revenue Management Engine
Banks cannot implement, manage, or track either franchisee pricing, pooling or template pricing without a robust revenue management platform or a deal management solution in place. They need to be able to register commitments, calculate revenues and profitability, and roll out negotiated prices for various businesses. And they need to be able to monitor commitments, automatically flag discrepancies, manage extensions, and ensure re-pricing seamlessly. They also need to be equipped to handle multiple templates for multiple customer segments. Legacy banking cores lack the agility and scalability to handle these demands. A powerful revenue management system can help banks personalize and manage deals for franchisee business efficiently.
The banking landscape is facing incredible disruption with increasing competition, changing customer demands, and global events that are adding to the risk environment. Banks now need to tighten their deal management processes and ensure that they offer profitable yet personalized pricing deals to all corporate customers. At the same time, they must be able to simplify the deal negotiation process with some pre-approved templates. This flexibility and efficiency in managing deals will translate into bigger profits and holistic growth.