Industry

Banking & Financial Institutions

Company Profile

  • The bank was experiencing flat growth in profitability in its payments business due to a relatively saturated market and, most of all, extensive discounts granted by the sales force.

Situation and Objectives

  • One of the main issues was related to the lack of transparency on pricing performance and on the direct costs of delivering the service to clients.
  • Essentially, top management was operating under the assumption that driving volumes was more than enough to generate increased returns.
  • Sales teams, on the other hand, weren’t provided with any guidance in terms of minimum prices to charge to break-even.

Approach

  • Simon-Kucher ran an extensive analysis on the pricing performance of each sales team, each geographical area and each product, identifying correlations between discounts and client demographics.
  • The objective was to highlight the situations and the types of client that were more likely to deliver insufficient profitability due to excessive discounting.
  • Moreover, Simon-Kucher investigated on the real cost of making a payment by allocating direct costs such as materials and network processing, and indirect costs, such as IT and resources.
  • This allowed the bank to have transparency both on the revenue generation and the cost allocation on their products.

Results

  • Simon-Kucher blended the analyses and created an overall profitability model for each product.
  • Therefore, recommending the following points: communicate minimum prices to the sales force; introduce a non-linear pricing model for certain products; launch cash-backs to incentive utilization; re-price the most unprofitable situations.

Impact

  • 6% increase in payment fees on a yearly basis
  • improved pricing and cost transparency
  • helped to change the culture from volume-oriented toward profitability-oriented