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For financial services firms operating in today’s market, the challenges are coming from all directions.These organisations must adapt to the demands of a tightening regulatory landscape, innovate and introduce new service models to escape the commoditization of existing product lines, and plug leaking revenue streams that have to be more closely watched than ever before.
At the same time, these firms also have to work out how to exploit the cloud as a new service delivery mechanism.
Financial institutions know that sitting on their hands isn’t an option, which is different than knowing exactly what to do. Best practices in many areas have yet to be created, let alone become firmly established. Furthermore, once they’ve worked out how to compete, firms need to monetise their chosen strategies. That’s a strategic capability that existing IT infrastructure and entrenched solutions will almost certainly not be able to support. Fortunately, early best practices are now emerging. Financial services industry leaders should keep in mind several key principles of agreements-based billing (ABB) and compensation, including:
1. If you can’t monetise it, your service has no value.
The best competitive strategy in the world is worth nothing if you can’t turn it into money. Today’s emerging strategies invariably involve far more complex business models than ever before and often feature interrelated, multi-party relationships that make corresponding monetization more difficult to execute. By basing billing and compensation models on agreements, financial services firms can better serve customers and partners who have many competing options.
2. Agreements-based billing isn’t optional. It’s critical for those who want adaptability in business and service models.
Gone are the days of the simple buyer/seller model. Business models have evolved from products to sophisticated “agreements-based” relationship models. With lending and interest revenue down, financial services companies must increase fee-based income. Mergers and acquisitions with supply chain players is also serving as a way to capture new revenue sources and derive efficiency improvements – assuming that business models can be seamlessly supported by the monetization infrastructure. Now, deals involve an extended value chain of acquisitions, partners, suppliers, resellers and others. Uniquely negotiated agreements, product bundles and bespoke pricing are all commonplace. By managing agreements properly and in one place, a financial institution can define and execute tailored workflows, enable online self-care and easily translate business terms into automated processes.
3. Transparency and auditability requirements are driving change from legacy systems at an unprecedented rate.
Transparency is an inexorable trend across industries. Nowhere is this more the case than in the financial services sector. An ABB solution is critical to calculate, audit and understand the state of financial agreements across many interrelated relationship models.
4. Regulation is proving to be the ultimate killer application in financial services.
As regulators move to limit or even ban financial product commissions, many companies are seeking to outpace regulation by charging clients fees that include monthly charges for debit cards and online banking charges more similar to a traditional professional service model. The impact of regulatory acts such as Frank-Dodd that protect consumers from, “agreement fine print” and SEC requirements for multiparty OTC derivatives clearing and reporting is forcing change in existing systems at a rate not seen before.
5. Monetizing the cloud means more than billing. Online customer care and stakeholder compensation and automation matter, too.
Yes, financial institutions must consider billing related matters such as pricing, bundling, discounting and promotional demands when it comes to monetization. But cloud billing does not mean “billing-lite.” The cloud increasingly demands the inclusion and bundling of third-party content and applications. This results in the need for the automation of fluid, personalised, multi-party agreements that take into account both billing and compensation – including revenue sharing, remuneration and settlement.
6. In a global market, financial institutions need technology and managed services that are multi-lingual and multi-currency.
Let’s consider, as an example, a global trust and clearinghouse. With billions of transactions and trillions of dollars in daily business, such an operation presents plenty of complexity in terms of managing multiple business units focused on derivatives, commodities, equities, mutual funds and more. However, the challenge of billing and compensating for such an institution and for scores of others in the financial industry becomes far more difficult when one considers it operates in dozens of countries with multiple languages, currencies, tax codes and regulatory requirements. Billing and compensation solutions for these use cases must have the functionality to accomplish the required tasks, whether they are in the cloud or in on-premise environments.
7. You can make use of the old while tapping into the new.
The billing component of a business support system is almost never a standalone entity. It needs to be integrated with other software components to create a complete solution. That integration should be seamless, and it should not require a financial institution to scrap existing technology investments in order to adopt an agreements-based billing approach. Billing should fit your solution and not force your solution to fit billing.
The right monetization platform is critical to exploit the unique situations that every financial organisation faces. Whether the need is for transaction enrichment and validation, auditing and transparency requirements, business model flexibility, hierarchical transactions, channel and reseller compensation, supplier compensation, customer electronic invoices for chargebacks or point-of-sale transactions, financial firms should insist on the exact features they need to meet both current and future monetization requirements.
Scott Swartz is the founder and CEO of MetraTech Corp., the leader in agreements-based billing and compensation solutions.
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