Industry

Banking & Financial Institutions
Corporate Banking

Company Profile

  • One of the top five European banks

Situation and Objectives

  • In a scenario of low interest rates and high levels of competition, where squeezed margins jeopardized the whole bank’s profitability, our client had turned its attention towards pricing management in its Corporate & Investment Banking division.
  • The pricing practices were based on a pure cost-plus approach, where margins charged to the client neither reflected a strategy nor did they reveal the wider scope of price itself as commercial leverage.
  • High misalignment between discounts and the clients’ value or risk level indicated a lack of control over final prices offered to clients.
  • Lastly, the pricing process was managed entirely through an outdated stand-alone tool, which did not provide any insights into the overall relationship with each client.

Approach

  • Developed a holistic pricing model for C&IB lending products, considering strategic goals, internal and external market prices.
  • Pricing logic shifted from a purely risk-based approach towards a value-based model. Thus, instead of focusing only on the cost recovery of single transactions, pricing now considered the whole customer relationship.
  • Defined strategic guidelines for key client and product segments (with top management) and translated the strategy into actual price points.
  • For transactions closed below their supposed price, the pricing model contained a compensation mechanism with trade-offs between lending products and cross-selling solutions.
  • Prepared implementation of the pricing model online, integrating the tool with the bank’s CRM, approval workflow, and monitoring system.

Relationship Pricing Model

Results

  • The project increased the bank’s sensitivity to pricing culture and supported management in optimizing the capital allocated to the clients, products, and areas considered strategic for the bank.
  • The initiative created a direct link between the bank’s strategic objectives in terms of its market positioning and pricing policy.
  • By completely integrating the pricing models into user friendly tools, the salesforce was able to perform pricing simulations without increasing the operational effort.

Impact

  • Increased C&IB division’s risk-adjusted profitability by +0.3 percentage points on a yearly basis.
  • Enhanced pricing transparency obtained by monitoring billions of Euros of deals every month.
  • Immediate reaction of pricing policy to changes in market conditions, much faster than competitors.

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