Is deposit pricing another step to the bank of the future?
Fair Isaacs has seen it all. FICO’s James Taylor takes off from a recent piece from TowerGroup’s Kathleen Khirallah by placing it in a larger context.
The key element to get started is that Banks need more finely grained segmentation for their pricing. Most of them already do a great job of segmentation for risk, credit line management and so on but they lack this approach in pricing. They don’t have a comprehensive pricing strategy that reflects the sensitivities and desires of customers.
While traditional segmentation works pretty well for loans (customers expect individualized pricing), this can be tricky in deposits - and banks should tread carefully.
James lays out the major steps in optimized loan pricing (I think careful backtesting is an important omission). He also points out the need to extend deep analytics from his bailiwick of credit scoring to pricing to the rest of the bank.
He’s right. Banks have accumulated huge warehouses of valuable information. The analytics are coming. Where will we be in a decade? Banking will look much the same, but bankers will have a much deeper feel for what drives their customers.
Banks will properly value more of the intangibles like good service, location, etc. instead of relying on educated guesses. In the end, customers will be happier and more profitable.
NB: I wholeheartedly agree with James’ characterization of Kathleen’s thoughtfulness. Specifically, she not only sees price optimization coming on strong in banks, but asks the right questions to drive vendors to better solutions.
We just specified a feature inspired by one of her questions from last week. This feature will automate part of the chain in passing rates from the deposit pricing committee to the branches. Thanks, Kathleen!
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