Bank Technology News  |  February 2009

By Gregory Goth

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There are times when nothing tastes as sweet as plain old vanilla.

With securitization markets shut down, and the cost of other funds hovering between daunting and prohibitive, the allure of the nothin' fancy retail deposit is growing stronger yet more elusive. Banks that want to survive historic retrenchment and Darwinian consolidation are scrambling, chasing consumers who have less money to deposit and a greater propensity to change banks. In this environment, direct mail's a dinosaur. Institutions will need to shake hands with a new generation of price optimization engines, customer relationship management platforms and Web-enabled tools that expand relationships and grow wallet share.

Unfortunately, banks are playing catch up with other retail verticals that have played the automated customer acquisition game much better. "Banks have to realize - and I think they do - that their customers on the retail side are not comparing them to other banks. [These customers] are comparing them to the broadest spectrum of service providers they deal with," says Jim Eckenrode, banking and payments research executive at TowerGroup. "Yes, it's unfair. But it's a wicked world and that's the reality banks find themselves in right now."

Customers who have adapted to the mass customization of the Internet's long tail - and who are used to getting personal recommendations from e-retailers like Amazon.com - can't understand why an institution that has so much information about them can't offer tailored products and services. Banks that change that perception by using automated tools to fine-tune products will be well-positioned. "The success factors here are precision in the intelligence," says Dan Gellar, evp at vendor Market Rate Insight. "The higher the precision in intelligence, the greater the desired impact on balance...and the lower the cost of funds."

That makes 2009 the year of living granular, as banks dive deeper than ever before to connect with consumers. Get ready for products like high-rate checking accounts that take advantage of e-banking technologies, high-touch stratagems linking behavioral analytics to next-day sales calls, non-traditional premiums such as music downloads, and other offerings called "sugar" by a banking veteran.

Smart Rates Drive New Dollars

In some cases, basic use of existing channel migration strategies can lead to growth. United Heritage Federal Credit Union, in Austin, Texas, has reaped benefits from BancVue's high-interest REWARDChecking, which requires customers to receive e-statements, complete a certain number of monthly debit card transactions, and execute one or more ACH credit or debit transactions each month (the exact requirements vary slightly from bank to bank). Sebrina Verburgt, the credit union's svp and COO, says the accounts have resulted in a 30 percent increase in average checking account balances, as well as increases in new account openings (a 52 percent increase in new checking account openings in September 2008 over September 2007) and a substantial increase in customer acceptance of electronic transactions. For example, ninety-four percent of high-yield checking account owners have signed up for e-statements, with just 15 percent of the credit union's free checking customers doing so. And debit card usage has doubled for the high-yield checking customers over free checking customers.

"Our core processing system can't give us the details this product can," Verburgt says. "We could hire a programmer to do it, but it's easier to maintain a contract with BancVue, who can support the product and provide us with a monthly report with intricate details about that account. We can write our business rules based on that technology."

There are plenty of hosted offerings for community banks and credit unions to choose from, and high-interest accounts and rewards programs are proliferating. In November, core processor Jack Henry & Associates and payment intelligence vendor Saylent Technologies announced a "strategic alliance" around BIG Rewards, which will offer integrated high-interest accounts and cash-back rewards on a Jack Henry-hosted platform. Saylent CEO Tyson Nargassans says the platform, expected to go live in the second quarter of 2009, will go beyond high-interest checking to offer a way to segment customers based on transaction types and demographics, and to craft rewards programs and accounts accordingly.

CRM is New again

Washington Federal Savings Bank in Washington, PA never considered the e-banking-dependent high-interest checking strategy, says svp John Clayton, because 60 percent of its demographic is over 55 and not heavy Internet users. Instead, the bank has found a new CRM platform accomplished the same goal of boosting the deposit base.

In 2006 Clayton purchased an application suite from Pittsburgh-based Quest Analytics that created eight to 10 business rules that identify customers likely to buy a new product or expand their relationship with the bank, and then pushes the leads to the sales force with the highest priority customers listed first.

"Every CRM system we looked at until we found Quest provided a matrix of data that will fill 500 screens," Clayton says. "Then they challenge our moderately educated sales force to select data from this huge, huge matrix and try to make something out of it, and undertake a reasonably intelligent conversation with a customer."

Instead, Clayton says, the bank focused on factors such as customers' money market balances. For example, the bank's money market highest interest rate kicks in at $25,000, and Clayton says "There is a big difference between Tier 2 and Tier 3. We created a business rule for the Quest platform that said, 'Tell us about any customer who has a money market balance more than $23,000 and less than $25,000.'" This trips the opportunity for the rep to explain to the customer that they are within $2,000 of doubling their rate of return.

"You might ask why would we increase our cost of funds that way," Clayton says, "but we tell them, 'You're only a couple thousand dollars away from that next tier and just wanted to be sure you were aware of how close you are to that.' And they say they weren't aware, and they appreciate the call and - this happens way, way more frequently than you might think - they then ask if it would be OK if they bring more than $2,000. So they'll come waltzing in with a $15,000 cashier's check from one of our competitors."

A Quest case study of the bank's first year on the platform showed $50.73 million in new deposits came to Washington Federal from competitors, and $151 million was retained in new accounts, such as CD renewals.

In 2007, the first full year the bank used the Quest platform (which also includes sales training), Clayton says deposits grew six percent, and he expected to exceed that rate when 2008's results were final. "That's this year, in this economy, and we're pretty darned excited about that," Clayton says. "We are in an area of Pennsylvania that is not growing except in a couple of branch locations. Any growth in our market is remarkable, but at that rate it is beyond remarkable."

To properly serve as a sweetener, CRM must graduate from the monolithic systems of the 1990s to a vault of actionable customer intelligence and Internet retailing expertise. "It's ultimately around understanding what the information I need to best serve my customers is all about, and then implementing the technology behind it," says Tom Brogan, research director at TowerGroup.

Web Services Become Mandatory

Managing a relationship means more than knowing which product to pitch at a specific time. While the term "frictionless economy" hasn't been bandied widely about for quite some time, many of the barrier-removing ideas written about by Bill Gates in his book "The Road Ahead" have taken hold in Web commerce. Banks need look no further than the most successful Web retailers for the best technology-enabled service policies that keep customers coming back.

"Seventy percent of consumer deposits on a household basis - and more than that on a dollar basis - are motivated by factors other than getting the best rate," says Gordon Goetzmann, evp at First Manhattan Consulting Group. "Even if you have the perfect CRM system set up, there are so many other technology-related enablers that would be more valued by the consumer beside offering the better rate."

But the uncertainty of this shotgun merger environment - and the potential for customer-service debacles - has created a situation that could result in millions of customers embarking on a bank "shopping experience" in the next 18 months, says Trevor Gee, principal at Deloitte Consulting, particularly when customers feel an integration has been painful. The area of integration that, if botched, is most likely to cause customers to attrite is the online channel, Gee says, with hassles like re-enrolling bill payees or having years of history suddenly inaccessible among the integration woes likely to cause frustrated customers to flee.

To keep customers happy, some banks are making the customer experience as interactive as possible. MidSouth Bank, based in Lafayette, La., is piloting its Oracle CRM On Demand and Call Center On Demand. Alex Calicchia, the bank's evp and CMO, says the hosted Oracle solution offers a flexible platform that could enable customer feedback to drive product improvements.

"We are integrating a whole service level component into our solution, that will track every service request, every interaction the customer has with the bank," Calicchia says. "Overall, the idea is that the relationship with the customer is now collaborative."

The reason why banks often lag behind e-retailers in mass customization might, ironically, be due to the fact that the financial services sector deployed online capabilities early on, and therefore has more hard-to-integrate legacy platforms still in use. Lee Ann Hoover, managing director of the financial services practice at Chicago-based Navigant Consulting, says service-oriented architecture principles and best-of-breed components make designing such platforms easier than 10 years ago, but it's still an expensive undertaking. Hoover thinks mid-sized banks might actually take a technological lead here, with many large banks reeling from balance sheet trouble and community banks simply not budgeted for the IT and marketing investment such platforms mandate.

When will that be? "The most professional answer is that different banks are at different stages to achieving that nirvana," Hoover says.

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