Banking Pricing Wars

Businesses are not the only ones engaging in pricing wars to claim their part of the dwindling consumer and profit pies. Here are two very interesting and recently developing stories from the banking world:

"As Deposit War Heats Up Smart Pricing Is Vital" - US Banker:

"Banks are falling in love all over again with consumer deposits; add to this newfound affection the industry's new entrants Goldman Sachs, Morgan Stanley and American Express - and what you have is an exceptionally competitive environment for deposits at the same time that consumers are more predisposed than ever to switch banks, thanks to the high-profile bank failures during the last year.

"The winners of this deposit war are likely to be those banks that can incorporate pricing-and-profitability techniques, analysts say. At a very basic level, pricing and profitability optimization is understanding at a very granular, segmented level, what the price elasticity and demand is for different types of deposit products in different parts of the market, says Frank Rohde, vp of product development and chief marketing officer for San Bruno, CA-based vendor Nomis Solutions.

"Banks are generally unwilling to talk about results of their pricing optimization efforts, though Rohde says that banks can generate five-to-ten basis points of incremental yield, or 10-to-15 percent increase in balance growth, while paying the same rate as before."

And in the mortgage side of the finance industry: "Perfecting Loan Portfolio Pricing":

"With GSes mandated to shrink, it is unlikely that other buyers will take their place until the risks of purchasing packaged loans on the secondary market are better known. This means that for now at least, a far greater number of mortgages will remain held in bank portfolios, a phenomenon we have not seen in decades. There will consequently be a far greater emphasis by banks placed on due diligence and optimizing value.

"Keeping mortgages within their own portfolios will present banks with enormous challenges, either in managing underperforming loans themselves or in pricing the portfolios for a more sophisticated secondary market. Optimization technology is emerging as a compelling way to price distressed loan portfolios."

It is interesting to me how many industries are responding to this current economic situation by turning their focus to pricing strategy, research and technology. What do other pricers think about all of these recent reports on pricing trends and tactics? - EM