IBM to Co-market Customer Profitability Software

International Business Machines Corp. announced a software marketing partnership that it said will help banks target their most profitable customers.

As an option, IBM will bundle Profitvision from Chicago-based Financial Technology Inc. with some of its own current offerings. IBM says the software complements its data warehousing software and a targeted marketing software program it recently acquired.

Profitvision, which assesses the profitability of relationships with individual customers, has been used by about 30 banks with $100 million to $22 billion in assets, IBM says.

Added to a series of IBM "customer relationship management" packages, Profitvision will help banks tailor fee structures, loan decisions, and marketing campaigns to maximize profitability, the computer giant said.

"A lot of banks understand profitability on an overall level," said William I. Levine, IBM vice president for banking, finance, and securities. "This allows an entity to get down to understanding the profitability of a customer, product, branch, or geographic level."

Profitvision calculates the marginal cost of each customer relationship. The monthly cost of a check processing department would be divided by the total number of checks, for example, and then multiplied by the number of checks written on a single account. The cost of handling a bounced check would be subtracted, and fees added.

"The profitability analysis must be present to see the effect of contemplated marketing strategies," said J. Michael Thompson, chairman of Financial Technology.

"Currently, what a lot of banks do is use a standard or average rule of thumb to allocate overhead," said Kitty C. Chen, a manager in IBM's banking and finance division. Measuring costs precisely helps banks charge higher fees to customers who aren't profitable. Conversely, banks that charge to use tellers might waive that fee for their profitable customers.

Knowing the value of a customer relationship could help a bank decide, for example, whether to approve a delay in a car loan payment or a request for a lower credit card rate.

"If you have a customer with a mortgage, that overwhelmingly makes up for a lower (credit card) interest rate," said Mr. Levine. "Lowering the rate on a card or a student loan doesn't erode the profit margin for the bank."

Financial Technology Inc., which has 50 employees, has been marketing Profitvision since early 1994. Banks that buy it bundled with complementary IBM products will pay $100,000 to $900,000 for it.

IBM will co-market Profitvision and receive a percentage of revenues, which company officials declined to specify. The program can encourage sales of IBM hardware and software even though it can run on a variety of computer platforms, the computer giant said.

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