Special Feature - Client-Centric loan pricing boosts Front-Line performance

In today’s hyper-competitive credit markets, consumers expect to get rate information — including negotiated rates — without waiting. Yet many front-line lenders still rely heavily upon pricing desk escalation to finalize their price to the client. For an eager client looking for the right mortgage product, time to decision is of the essence — how can lenders better align their offer with each client’s unique situation?

Does this sound familiar? A client inquires about a mortgage with a mobile advisor, and the advisor immediately engages in a generic discussion about price without a clear understanding of the client’s preferences and goals. Instead of a customized financial solution, the client can potentially end up with an offer that doesn’t meet his/her needs, hurting both the client and the bank. And there is no way for management to know how often this happens because there is no record of these interactions.

It’s a story that resonates well with most of the mortgage portfolio managers I talk to. They know, all too well, that their front-line customer-service people and personal bankers are interacting with clients who range from sophisticated to newbie, each with quite different expectations, but all aiming to find a mortgage that works for them.

In other words, your branch, mobile advisors, and call-centre sales staff are effectively high-stakes asset managers. They’re at the forefront of interactions and negotiations with your most valuable asset: existing and prospective clients. The performance of your front-line lenders—particularly when it comes to discretionary pricing—profoundly affects your revenue and, more importantly, the overall client experience.

"Your branch, mobile advisors, and call-centre sales staff are effectively high-stakes asset managers. They’re at the forefront of interactions and negotiations with your most valuable asset: existing and prospective clients."

How do you design and implement a smarter approach to pricing and offers that maximizes client value while addressing the unique needs of each client? Start by asking these three questions:

1. How much visibility do you have into what goes on in mortgage pricing negotiations?
2. Are you making optimal deals that recognize client needs and your portfolio goals?
3. Are you relying too heavily on discounting, rather than client fit, to match the client and the product(s)?

Your front line (not your back office) is where decisions must be taken

In our work with leading banks around the globe, Nomis has had the opportunity to analyze front-line behaviour and performance in price negotiations across a range of products and markets. We’ve found that a large percentage of front-line negotiated deals—in some cases, as much as 30%—are not only unprofitable for the lender, they also fail to increase the likelihood of acquiring the client. We’ve also seen some interesting patterns emerge:

• A significant amount of negotiation behaviour is random or driven by judgment and behavioural biases
• Front-line negotiators frequently jump directly to the maximum discount or premium to clinch the deal
• Discounts are often rounded to convenient units of 10, 15, or 25bps, and not necessarily to the optimal price

Client-centric pricing on the front line

The challenge is that optimal pricing is complicated because it must balance many factors. With a client on the line, front-line employees are eager to close the sale. And, just like clients, personal bankers bring varying levels of expertise and product knowledge to the table. The best of them—in all likelihood your most experienced bankers—apply client insight to advise and guide clients in selecting a bundle of products optimized to meet their specific needs and goals. So, how do you clone them and enable less experienced bankers to achieve this optimal level of customer-product fit?

What they need is clear, systematic guidance. To meet client needs with products aligned with their goals while still meeting your objectives, you need a pricing process that’s extremely smart at the back end and extremely simple at the front line. In practice, this means combining advanced, back-end pricing optimization solutions (employing granular rate grids and discretion boundaries that balance your volume and margin portfolio objectives) with standardized, knowledge-driven client interaction on the front line. Sometimes referred to as holistic pricing, this approach enables even inexperienced front-line agents to offer clients value with packages of customized solutions that meet their goals.

Connect extremely smart (data) to extremely simple (guidance)

This data-driven process encompasses great sophistication since consumer rate sensitivity and buying behaviour vary for different products, population segments, regions, and channels. Predictive models and optimization engines crunch through all this data complexity to find the best product/price combination and can quickly make adjustments when input factors, such as competitor prices, change.

Of course, your front-line agents should never see this complexity. What they should see are personalized offers for their clients based on the best and most current insights into these clients. These offers are at optimal target prices, accompanied by optimal discretion ranges if negotiation becomes necessary. With this kind of guidance, we’ve seen exception requests fall by as much as 50 percent.

Moving from ‘tribal knowledge’ to customer intelligence

Another point to note here is that every client interaction represents knowledge. Therefore, it’s important to capture everything that happens in front-line negotiations—for both booked and lost clients. This data is constantly consumed at the back end, making price-optimization and offer analytics smarter and smarter and ensuring your client offers are increasingly relevant. Knowledge-based front-line guidance means that new hires receive the guidance and insight that traditionally could only be gathered through experience, potentially require less training, and can derive more job satisfaction as client ‘advisors.’ Lastly, agent-client interaction insights drive real-time dashboards for front-line managers, so they can identify their most successful front-line agents and ‘clone’ their success factors.

"Every client interaction represents knowledge. Therefore, it’s important to capture everything that happens in front-line negotiations."

A closing thought: we often read about how banks are becoming less relevant and need to become more client-centric and responsive. My contention is that banks, with their multichannel client touchpoints and detailed customer intelligence, are in fact better positioned than ever to deliver great client experiences and close more business at scale, regardless of channel, agent experience, and customer demographic.

Johnathan Bant, VP of Canadian Operations at Nomis Solutions, is a financial services industry veteran with nearly 20 years of experience. Contact him at Johnathan.bant@nomissolutions.com.

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