As the economies of Europe and the US look to consolidate their moves out of recession (and the UK economy has just passed its pre-recession peak – the last major country to do so), the financial sectors of these economies are looking to reassert their status as powerhouses of the national output. Firstly, banks should reassess their internal procedures so to make sure they do not lose out on additional income. Revenue leakage is an expensive problem, costing retails banks and corporate banks 10% and 8% of their annual turnovers per annum respectively.
Crucially though, they’re looking to do that without the very real systemic risks posed by exotic and over-optimistic structured and derivative products. All are also keen to do so without incurring the equally real reputational risks posed by these and many other questionable practices that were treated as cash cows in the early years of this century.
The task at hand is to return the big banks of the world’s major economies to their former glory, without revisiting some of the darkest days of the industry. Since it is plain that the fat margins enjoyed in the past cannot be regained by the same means, it is clear that much more attention will have to be paid to other means of boosting the bottom line.
While revenue leakage is not a particularly glamourous topic, it affects every stage of the customer lifecycle – prospecting, on-boarding, transaction processing, billing and recovery, monitoring and service termination – and is often grossly underestimated in initial business cases for revenue management and business assurance transformation projects.
Furthermore, the solutions that are often put in place are manual, procedural fixes, which drive operational costs and regulatory risks, negating many of the initial advantages of such a scheme. An automated real-time monitoring solution, which can identify every source of revenue leakage (big or small), can go a long way to identifying faults as soon as they appear.
However, monitoring is not enough. A great deal of revenue is lost at banks globally each year, because their core banking and billing systems are simply not flexible enough to account for different customer requirements and eventualities. Often, a customer may wish to purchase a service that the bank simply cannot provide, or the customer uses a service, and the bank is unable to charge them. For example, many applications lack the ability to calculate fees on daily basis (rather than monthly) – this means that every customer joining in the middle of the month cannot be charged until the beginning of the next month.
What’s really needed is better management of, and access to financial, staff and customer data, and the ability to cross reference them at will and without restriction. That requires software layers capable of communicating with both core systems, staff-facing interfaces, and-customer facing applications.
New technology makes this possible, and the ability to do so offers a cost-effective opportunity to implement consistent tender offer margin controls, revenue audits and pricing review automation.
Fundamental business assurance of this type not only addresses revenue leakage, but can also directly enhance business management analytics thus providing critical capabilities needed to rapidly address and resolve low performing regions and products.
Research shows that combined gains can be up to ten percent in the case of investment banking, and 4 percent in retail – welcome news for banks coming under real pressure to recover lost margins. These gains are a stark contrast to the potential losses banks could have if they do not deal with revenue leakage. Although banks’ earnings are up the up, profit margins from the big firms are still tight, stopping revenue leakage is the way to fatten profit margins in an ethical manner.
By Nanda Kumar, CEO, SunTec