Retail Channel Integration Gaining

More than half of U.S. financial institutions with $4 billion or more of deposits report their retail delivery channels are based on common computer systems, according to Mentis Corp.

The movement toward this so-called channel integration is aimed at giving bank customers consistent access to information and transaction capabilities - though customers may bank through a variety of delivery mechanisms.

Experts said integrated delivery can help banks retain customers in a retail market that has grown more competitive. Integration also encourages use of alternative delivery channels, such as automated teller machines and personal computers.

Mentis, which is based in Durham, N.C., said the move toward integrated retail delivery is being driven in part by bank consolidation.

As large banks continue to acquire other institutions, the acquirers are compelled to create a single corporate image. Delivering consistent retail services plays an important part in this effort.

Channel integration often piggybacks on data bases and information warehouses originally constructed to let bank employees have access to whole customer relationships.

"Integrated channels use common applications and present a common, seamless face to customers," said James B. Moore, president of Mentis.

Mr. Moore also said, "Integrated delivery channels enable financial institutions to easily collect information about channel preferences and usage rates."

Despite the emphasis many put on channel integration, many institutions do not fully understand the distinction between integrating information and simply linking delivery channels, Mr. Moore said.

With integrated channels, a common system feeds information to both bank employees and customers. The system is updated whenever someone gains access to it.

By contrast, some institutions have tied together all their delivery channels, but activity through these channels must be reconciled with the systems used by bank employees.

Because of this confusion, Mr. Moore estimated that many banks reporting they have integrated delivery in fact do not.

Of the financial institutions currently without integrated services, 23% plan to integrate distribution channels in the next 12 months, according to Mentis.

One institution that has fully integrated its channels is Huntington Bancshares, Columbus, Ohio. Huntington initiated its "E-bank" in 1994, featuring an "integration engine that will allow the bank to fully deal with the customer regardless of the channel," said William Randle, director of marketing and strategic planning.

Huntington, a $20 billion-asset institution, offers customers access to banking functions through a variety of electronic channels, including video kiosks and the Internet.

Users of the video kiosks can link up with a service representative at Huntington's "direct bank" center, which also handles telephone calls.

As banks get more sophisticated in their use of integrated systems, they will be able to gather data on customer activity, use the information to tailor marketing messages to individuals, and present the messages consistently across multiple channels.

For example, a customer could get a statement indicating the number and cost of checks written from multiple accounts, along with a promotion for a credit card that would save the customer money.

This information could then be linked to an ATM so that when the same customer is waiting at the machine for cash, a message would come on screen indicating the number and cost of checks written since the customer's last statement, plus another plug for that low-interest credit card.

Most banks are nowhere near completing the systems architecture changes that such services would require.

"It's taking banks, that have been operating the same way for the last hundred years, and turning them upside down," said Mr. Randle. "With the multiple silos of information and legacy systems, it's difficult to use information on a dynamic basis."

An integrated retail strategy would "require banks to organize around information as opposed to branches and products," he said, "and handle information live as opposed to batch processing."

Mr. Moore said channel integration would be driven by sophisticated software that can draw information from many different systems and deliver it to the customer.

Banks will likely work with vendors to develop integration capabilities, he said.

Huntington has worked with a number of companies to develop its alternative delivery strategy, including NCR Corp. and Visa International.

For reprint and licensing requests for this article, click here.
MORE FROM AMERICAN BANKER