Customer Value Pricing - Optimum Bank

8/13/2019 Customer Value Pricing - Optimum Bank

1/11


2/11

2Segah MeerSegah Mee

Need to understand how an increase in price

decreases demand

Observations Suggestions

Missing actionable information on theportfolios duration mix

Makes use of traditional pricing based onmarket rates and target spreads

GrowingDepositBalances

AcquiringNewCustomers

RetainingExistingCustomers

Price Optimizationto determine the best combination

of price points across thousands of

pricing segments in the market.

Few mechanisms to create expectationsaround external pressures on banks

profitability

Lack of understanding in how to relatehistorical flow of funds to forecasted flow

Inability to differentiate between segmentswith varying attrition rates

No classification of customers based on pricesensitivity

Customer and Competitive PricingAnalyticsto enable business users to test

what-if scenarios

Pricing Executionto ensure that each customer

interaction results in the bestpossible outcome

To increase deposits, the bank needs to understand price sensitivity.

Optimum bank lacks the tools and insights necessary to use pricing as a strategic lever to achieve

performance objectives.


3/11

3Segah MeerSegah Mee

Price Optimization is a key driver when it

comes to flexibility and scope

Increased

Presence

Improve

Relationship

Building

PriceOptimization

New

Geographies

New Products

and Services

Reach New

Customers

Improve Brand

Awareness

Decrease Deposit

Volatility

Retain Existing

Customers

Improve

Customer

Satisfaction

Decrease

Customer

Attrition

Increase Average

Balance

Reach NewCustomers

Retain Existing

Customers

Optimize Product

Mix Goal Alignment

Across Offered

Products

Outcome to Ease

of Implementation


4/11

4Segah Meer

Using Customer Value Pricing as opposed to

Relationship Pricing

Real

Perceived

Banks ability to

drive demand

deposits

Branding

CustomerValue

Pricing

Internet

Banking

Uniform Rates

Deposit Rate

Premiums

Empoweredfront-line staff

Differentiation

ActionableInsight

Products

Offered

Bundling

Frequent

Customer

Engagement

RelationshipPricing


5/11

5Segah Meer

Growing deposits is not just about building

physical relationship gateways

Depo

sitsinIllinois

Growth Dynamics for Top 3 Banks Observations

DepositsinIndiana

$300

$350

$400

$450

$-

$25

$50

$75

$100

$125

$150

2009 2010 2011 2012 2013

TotalDeposit sions

The Northern

Trust Company

BMO Harris Bank

JPMorgan Chase

Bank

Total

The top 3 banks hold 33% of alldeposits in the state of Illinois, while

maintaining only 14% of all

branches

The Northern Trust has about x10-11 times more of deposits per

branch than the other two banks

Northern Trust has seen its branchnetwork decline by almost half over

the past 5 years while others gained

$85

$90

$95

$100

$105

$110

$-

$5

$10

$15

$20

$25

$30

$35

2009 2010 2011 2012 2013

ions

Fifth Third Bank

JPMorgan Chase

BankPNC Bank

Total

The top 3 banks hold 31% of alldeposits with just 21% of all

branches All three have seen their branch

networks decline or remain near

stagnant

These largest three banks have seenmarket growth well below the

market (50% and more)


6/11

6Segah Meer

Remaining competitive in stagnant regions

requires more than network coverage

DepositsinMichigan

Growth Dynamics for Top 3 Banks Observations

DepositsinOh

io

JPMorgan has seen the biggestgrowth, of 12% - despite a near zero

market growth of 3%

Number of branches has declinedfor the market as well as for

Comerica and PNC

Comerica has absorbed the largestshare of deposit declines in 2010

Huntington is growing x2-3 slower

despite the growth of 20% in itsbranch network

Other two banks have seen theirbranch networks decline at similar or

greater rates to the market, yet are

close to market in terms of deposit

growth

$-

$50

$100

$150

$200

$-

$20

$40

$60

$80

2009 2010 2011 2012 2013

Total Depositsions

Comerica Bank

PNC Bank

JPMorgan Chase

Bank

$-

$50

$100

$150

$200

$250

$300

$-

$20

$40

$60

$80

$100

$120

2009 2010 2011 2012 2013

ions

The Huntington

National Bank

Fifth Third Bank

U.S. Bank


7/11

7Segah Meer

Is past performance the best predictor of

organic growth for banks?

Deposits by Volume in the State of IllinoisBillions of $

Number of Branches in the State of Illinois

2,000

2,500

3,000

3,500

4,000

4,500

5,000

5,500

1994 1997 2000 2003 2006 2009 2012

$100

$200

$300

$400

$500

1994 1997 2000 2003 2006 2009 2012

119%

43%

Future volume of depositsis better explained by past

volume itself


8/11

8Segah Meer

Dynamic panel data to express historic

dependencies with institution-specific factors

Deposits Aggregate deposits across branches for each institution in each state Branch_Count Number of branches in a state for each institution institution-specific unobserved factors (i.e. management, compensation structure, etc.) time specific market-wide unaccounted for factors (i.e. regulation, economy, etc.) corresponds to each institution/bank (uniquely identified) t corresponds to each annual report date (1994 2013)

State specific forecasting function:

1% difference in yesterdays deposits has a 0.84% positive effect on todays deposits for the state

of Illinois *

* See attached write-up


9/11

9Segah Meer

Importance of other factors for consideration

Making use of dynamic panel data to express relationships across time and section: Greater number of observations - N*(T-1)

Unobserved institutional effects can be treated either with First Differencing or Fixed Effects

Time specific events can treated with Random Effects

Simple model form This is a simplistic form for two reasons: 1) with first differencing, all dummy variables disappear, 2) it

achieves robustness that more efficient models might forego

Log-linear form expresses constant elasticity relationship between deposit volume in different periods Branch_countis assumed to be a forward looking, but known variable ahead of time

Additional variables to be considered in balance with the decision about treatment of unobserved effects Type of bank (SPECGRP), size of the bank by national deposits (DEPDOM) individual factors that might

make first differencing not an issue

City of the branch (CITY2BR), nearest metropolitan area (CNTYNUMB), founding of the branch(SIMS_ESTABLISHED_DATE), branchs zip code (ZIPBR) or some function thereof

State (STNAMEBR) can be treated through dummy variables

Additional variables to be used for instruments Great number of variables while might not have any predictive power as independent factors, add value

as instruments in general method of moments used with dynamic panel data


10/11

10Segah Meer

Insight

Forecasting

PricingExecution

Forecasting, Price Execution and Insight are

necessary together to drive growth in deposits

Intelligent PriceOptimizer

Intelligent Score

Our value proposition

takes a deep dive into customer-level price sensitivity across retail

banking products

used to segment consumers,define pricing offers, manage

attrition risk in changing rate

environments, and design newproducts

designed to optimize rate sheetsfor deposits

maximizes profits and volume enables rapid learning and quick

time-to-market


11/11

11Segah Meer

THANK YOU QUESTIONS?Segah Meer

Documents

Customer Value Pricing - Optimum Bank