Deposits Precision Pricing Overview

Deposits Precision Pricing Overview
AIM Banking – Customer Facing Innovation
Mexico City, March 2016
Proprietary
andMay
confidential
to Novantas,
Inc.
Proprietary and Confidential to Novantas,
Inc.
not be used
or distributed
without our written permission.
“La información es el petróleo del siglo 21, y
Analytics es el motor de combustión.”
-Peter Sondergaard, Gartner Head of Research
Proprietary and confidential to Novantas, Inc.
Ahora es el momento ideal para que los bancos aumenten sus
capacidades analíticas
MACRO LEVER
MICRO IMPACT ON BANKS
Interest rate will go up
Analytics Capabilities for Deposits will
become more valuable within the banks
• Macro interest rates are at historic lowest
levels and have been very low for many
years
• But in the US, the Fed rate has started to
increase, and the Mexican Central Bank is
moving faster in tightening their monetary
police
• The market is already pricing an interest
rate increase in the next few years
• Elasticity dynamics change when rates
move – customers come off the sidelines
• Rate positioning in the market is more
relevant for
– Maximize Growth
– Optimize Margin
– Combination of both
• Increase importance of the type of
deposits‘ customers each bank has
– High vs. Low elasticity customer
segments
Proprietary and confidential to Novantas, Inc.
2
La definición del precio se está moviendo hacia una
segmentación más granular, hacia un nivel cliente individual
Increasing Sophistication of Analytics
Product Level
Segment/Customer Level
Granularityof Actions
‘Price off the
Loan Book’
FTP-based
Pricing
Elasticitybased
Optimization
Relationship
Optimization
Tiers,
Terms
Geograp
hy
Single
Product
Multi
Product
Proprietary and confidential to Novantas, Inc.
End-State
in a
Virtualized
World
3
En los últimos años hubo un desarrollo en las mejores
prácticas y en la sofisticación de la fijación de precios
Evolution of Pricing Practices
Supply Side Pricing
“What is the Value to the Bank?”
“Cost Plus” Pricing
Regional ElasticityBased Pricing
Segment- and
Customer-Based Pricing
• Pricing to fund loans
• Pricing to target spreads
vs. FTP
• Financial market view –
pricing typically applied
nationally
• Pricing based on localmarket competitive
conditions and
customer elasticities
• Typically starts at the
state level; ultimately
can move to MSAs and
micro-markets
• Pricing at the segmentand customer-level
• Pricing to achieve a
target portfolio spread
• Single, consistent rate
across regions and
approved customers
• Basic risk-based
decisioning (e.g.,
approve/deny by FICO
band)
• Segment-level riskbased pricing
• Understanding of local
market competitive
conditions and elasticity
of broad customer
segments
• Customer-level elasticity
analysis and risk
assessment
• Relationship value
assessment
• Controlled POS
decisioning and
negotiation latitude
1000 Price Points
15 bp improvement
10,000 Price Points
25 bp improvement
Deposits
Loans
FTP-Based Pricing
Demand Side + Supply-Side Pricing
“What is the Value to the Customer”
5 Price Points
25 Price Points
5 bp improvement
Proprietary and confidential to Novantas, Inc.
4
Precision Pricing de Depósitos es identificar segmentos de
clientes que tengan diferentes respuestas y perfiles de valor
Key Concepts: Precision Pricing Foundations
1. Segmentation
2. Elasticity
Use competitive landscape and historical customer behavior
to estimate demand as a function of price
Change in Demand
PRODUCT ATTRIBUTES
Varies by flow (e.g.,
Acquisition vs Existing)
Reference Price
Rate
Area of Indifference
3. Valuation
z
Customer / Account
Attributes
Need to be able to offer different
rates to each segment
• Systems capabilities
• Regulatory requirements
• Sales force delivery
Percent of Balances Remaining
Estimate variation in value of balances at a segment level
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Opening 3M
6M 12M
Proprietary and confidential to Novantas, Inc.
Active Checking:
Inactive Checking
No Checking
15M
18M
21M
24M
27M
5
Creamos curvas de elasticidad precio para difernetes
productos, mercados y segmentos
Elasticity Methodology: Typical Price Elasticity of Demand
Non-Linearity of the Elasticity Curve
Typical Bank Pricing
Area of Indifference
• Price into the “No man’s land”
Demand for Bank Deposit Balances
• Reactive to perceived
competitor actions
• No recognition of product,
segment, and regional
differences in pricing
“No man’s land”
Uncompetitive
pricing:
“falling off
the cliff”
Typically,
profitmaximizing
point
Must
exceed
to achieve
acquisitions
Opportunities
to pick up
balances; likely
focused on key
price-sensitive
segments
• Minimal reinforcement of
desired pricing activity at front
line
• Minimal view of potential
margin opportunity available
Prices Considered Relative
to Reference Point
Relative Price vs.. Market Reference Price (e.g., WAMP)
Proprietary and confidential to Novantas, Inc.
6
Otro concepto clave es la segregación sistemática del
crecimiento de balance según el “flujo de fondos”
Key Pricing Concept – Flows
Acquisition balances
are the most elastic
Existing balances are far less elastic
Relative Rate
Relative Rate
Relative Rate
Relative Rate
Attrition
Ending
Balance
Balance Change
Switch-Out
Balance Change
Diminishment
Balance Change
Augmentation
Balance Change
Switch-In
Balance Change
Acquisition
Balance Change
Starting
Balance
Relative Rate
Relative Rate
Different relative rates and elasticity curve dynamics
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7
El modelo de optimizacion junta todas las partes
Key Pricing Concepts – Optimisation
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8
Los beneficios que pueden realizarse son muy significativos
Shift in Pricing Strategy
Estimated Lift for Every $5B in
Deposits
Elastic Segment
Balance
Growth
Inelastic Segment
Balance
Growth
Final
Rates
Initial
rates
Final
Rates
Interest Rate
Range
Est. Lift in
BPs
Est. Annual
Benefit ($
mm)
0 to 25 BPs
3-5
$1.5 - $2.5
100 BPs
5 - 10
$2.5 - $5.0
200 BPs +
10 - 20
$5.0 - $10.0
Initial
rates
Proprietary and confidential to Novantas, Inc.
9
La plataforma de PriceTek permite incorporar más fácilmente
el Precision Pricing de Depósitos a las operaciones del banco
$1.3 TRILLION
deposits and loans under management
30
active
banks
across
FIVE
countries
with
regularly recurring refreshes of
price elasticity models
of client system usage
110
YEARS
of account level data
290 client system users
90,000,000
accounts
under management
99.9%
Uptime
typical banks use
PriceTek
75%
of business days
100%
existing client renewal rate
Proprietary and confidential to Novantas, Inc.
3,000
banking products
analyzed
10
Precision Pricing ya ha demostrado su impacto significativo
Resultado de Bancos con Precision Pricing vs. Otros
0.28
4.00
3.65
0.28
0.26
3.50
-32%
0.24
+54%
3.00
0.22
0.20
2.50
2.37
0.19
0.18
0.16
2.00
0.14
1.50
0.12
Bancos con Precision Pricing
0.10
Bancos Comparables
0.08
1.00
0.06
0.04
0.50
0.02
0.00
0.00
Crecimiento del
Balance CAGR
Tasa
Promedio
El conjunto de bancos comparables incluye bancos en el Top 25 de US por volumen de depósitos, excluyendo clientes de PriceTek y BofA, Wells, JPMC, Citi, CapO,
Schwab, Ally, Santander.
Fuente: FDIC data ajustada por fusionas & adquisiciones, Análisis de Novantas. Refleja depósitos en oficinas en US, datos del 1H anualizados
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11
www.novantas.com | NYC +1-212-953-4444
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