PwC's Banking Views

How banks can analyze the impact of product changes on their customers: PwC

While new banking rules raise the cost of doing business, they could produce some unintended benefits. Banks now have an unusual opportunity to improve their decision-making, setting the proper balance between customer experience and risk.

New regulations and standards are coming into effect under Basel III and the Dodd-Frank Wall Street Reform and Consumer Protection Act. These post-financial crisis interventions are likely to lift capital requirements and increase compliance expenses. Profit margins and return on equity will probably be lower.

The pace of change under these new and emerging regulations places significant pressure on institutions capacity to effectively manage their businesses.

Especially because the new regulatory environment influences so many areas in both retail and institutional banking–including deposit management, derivatives, prime brokerage, credit cards, mortgage servicing rights and securitizations.

Banks should take the opportunity to reassess their mix of clients and products. All parts of the business should be included in the process starting with an end-to-end review that balances a firm's customer relationships with its management of capital, funding and risk.

Improving the decision-making process

Across the board, banks are examining their product mixes, target clients and delivery architecture to decide whether to stay in, expand in or leave certain markets.

It can be hard to make informed choices in these circumstances. Especially when – by design – key stakeholders and information haven’t traditionally been part of the decision-making structure. For example, financial institutions have typically split the decision-making roles on the approval of new products and services.


Responsibility is often delegated to sales and marketing leaders who aren’t authorities on the capital and funding implications of their choices. Finance and risk professionals aren't full partners in the process and they seldom have enough data about products, segments or customers to make informed judgments. These practices are repeated beyond individual product reviews. And they can cause a less-than-optimal allocation of banks’ limited resources.

Involving leaders from across the institution

Leading banks are beginning to implement an integrated approach that manages the interrelationships of customer impact, product portfolios and pricing.

This approach – including the sharing of a properly detailed level of information – aligns the increased capital and liquidity requirements under Basel III and Dodd-Frank with the impact on a firm's customer experiences.

On their way to forming a strategy, best-in-class banks consider an array of factors: product economics, customer analysis, likely competitor reactions and regulatory issues.

Importantly, their reviews engage CEOs and business line leaders, along with marketing, operations, finance and risk. In that way, the firm can make holistic decisions about the allocation of scarce resources.

Addressing the impact of new rules on deposits, securitization

End-to-end customer and product analysis can help banks mitigate the impact of new rules and regulations.

Consider reserve requirements: New rules call for banks to set aside high-quality liquid assets to cover a potential deposit runoff. If they adopt strategies that identify and attract stable depositors who control "sticky" assets, banks can effectively lower the cost of meeting their obligation. Likewise, capital requirements for securitizations will rise under Basel III. But using approaches that precisely measure the risk of underlying exposures could help limit the impact there, too.

A full-scale product assessment framework won't replace enterprise-wide risk management. Still, it can help banks understand and manage the interplay of financial, product and customer experience issues.

To learn more

To learn more about PwC's views on the product and market decision-making, please see our report Look before you leap: Analyze customer and business impact carefully before implementing product changes.

To begin a conversation, contact John Garvey, PwC's U.S. banking leader.