Customer Relationship Management: Chase is Creating Value Packages for

Cognizant that information is vital to cross marketing and CRM, Chase migrates its consumer bank to a single platform supporting all products, segments, markets and channels.

Few consumers would argue that customer relationship management has taken a back seat to the profit motives of CEOs looking to benefit from the rapid consolidation underway in the financial services industry. While many players are busily shoring up potential merger partners-only to spend more time away from customers digesting an acquisition once a deal is consummated-Don Boudreau, vice chairman of Chase Manhattan Corp.'s national consumer services, is hopeful that his competitors' distraction will play in his favor as he and top officers Bill Hoefling, Mike Urkowitz, Tom Jacob and Denis O'Leary migrate the $110 billion-asset consumer bank to an information-based business system.

The vision: To create and price lifestyle-focused packages for customers by using a single platform to support every product, segment, channel and market across the consumer bank.

The ambitious model is intended to grow Chase's consumer reach nationally, something that analysts are cautiously optimistic about given its relatively small physical footprint compared to mega-institutions like Bank of America. Boudreau's matter-of-fact response to Wall Street's fence- riders: "When people (say) that cross-selling doesn't work, they haven't considered the impact of obtaining and leveraging information across business units at the point of contact with customers."

To achieve growth by getting closer to customers, Chase is not only relying on its direct experience with customers, but also augmenting and analyzing historical information with demographic and psychographic data from external sources. This allows the bank to conduct pattern analysis of data, observing phenomena in some customers and projecting that into the institution's database of a much larger group to find common patterns.

The key: constantly testing analyses in the marketplace, using a cell made up of experience, demographics and psychographics, reading the response and then continuously refining it to create profitable products and value propositions. "Banks haven't been good at doing the measurement to see what's profitable and then walking away from unprofitable products," Boudreau says.

To ensure the model's success, Boudreau is altering how senior NCS executives are compensated, basing packages not only on what new revenue they generate in their own businesses, but also on what they contribute to the consumer bank's aggregate business.

With 30 million customers and 15 percent of households nationally-many served through the credit card, auto finance and mortgage businesses- analysts say that NCS's solid performance in the past year bodes well for Boudreau's desire to target profitable customers and create value packages that more tightly bind them to the bank's existing businesses. This includes cardmember services (the ##4 bank card issuer in the United States), home finance (home equity, manufactured housing and mortgage, in which the bank is ##3 nationwide in originations and servicing) and diversified consumer services (insurance, investment, educational, personal credit services and auto finance, in which Chase is the ##1 bank originator). "In every one of our businesses, ultimately we will be using information that our customers have given us to provide them with better service and more value," he says.

In the third quarter of 1998, NCS's revenues from diversified consumer services increased by 17 percent; cash operating earnings rose 19 percent. Revenues from cardmember services grew 16 percent to $979 million, primarily driven by portfolio acquisitions (Charge-offs rose, reflecting the effect of newly acquired portfolios, and increased marketing costs resulted in a modest decline in cash operating earnings). Revenues from regional consumer banking grew by five percent, a result of deposit growth in excess of $1.5 billion and higher fee income from product and pricing initiatives; cash operating earnings rose seven percent from prior year levels. Home finance revenues grew by eight percent; cash operating earnings grew three percent.

The strongest signs of Chase's information-based business system acuity can be found in evp Bill Hoefling's diversified consumer services group, composed of insurance, investment services, auto finance, and educational and personal credit services. "In our auto finance business, we can get an application from a dealer (in Chase's network), credit score it, get the appropriate credit bureau report and fund the loan in less time than it takes to drive the car," says Boudreau.

Across its 7,800-dealer network, transaction turnaround time takes three to seven minutes from application to scoring to decision rendering-the majority of loans decisioned without human intervention. Says Hoefling: "Chase can register, insure and license the car while you're sitting in the dealership."

tracking dealers

In addition to quick turnaround times, Chase further incents its dealers by triggering an EFT funding of their accounts at the time of a loan financing.

The new system also allows Chase to track marketplace activity-what cars are selling, how they're being financed, what share is one dealer getting versus other dealers in the region; whether customers that are five miles from a specific dealer are traveling 15 miles to another dealer in the same market, says Chase's Denis O'Leary, evp and deputy executive of national consumer services.

On the disposition side, O'Leary says that Chase created an arbitrage system to track the secondary market value of vehicles, the logistics of its leased cars and when they're coming off lease. "We've actually shipped four-wheel drive Jeeps out to California for auction from the east coast. It's sound counter-intuitive because there's not much snow in California, but we're finding that the secondary market is behaving better (there)," he says.

The objective of this market precision is to dovetail the innovation of category killers with the economies of scale derived from large organizations and capitalize on the overlap between mortgage, credit/debit cards, deposit, investment services and channel implementation. "You're not going to get (evp) Tom Jacob, who runs our mortgage company, to spend his first waking moments every day figuring out how to sell more credit cards. But Tom sure as hell will respond to being able to do more mortgage business because we have a relationship with (a customer)," says Boudreau.

If someone becomes a Select Direct customer (telephone and PC banking platform for upscale clients), for example, the bank will offer that person a better mortgage offering. The value in this kind of initiative is that it nabs Chase more mortgage business and creates an alternative channel customer.

Boudreau says that Chase's cross marketing premise is to identify value packages that cross products, handing off the implementation-specific product pieces to the Chase companies involved. For Mike Urkowitz, evp of cardmember services, that means discerning through analytics which of Hoefling's auto finance customers will also make a good Shell credit card customer-and will deem it valuable.

Creating value is imperative in a market swiftly becoming commoditized. In Chase's cardmember services group, for example, which has $31 billion in credit card receivables, Urkowitz says that the sophistication of technology required to play in the consolidating card market is now beyond the reach of players that don't have the revenue to invest in right analytical technology and people-or build scale, which, in turn, allows an institution to build more sophisticated models and conduct finer segmentation.

Urkowitz says that Chase's value proposition to customers-hence, its growth-will be bolstered by the bank's scale; analytical tools, organizational strengths and businesses processes; acquisition of portfolios from second-tier issuers; changing the economic performance of those portfolios; business extensions, such as its merchant acquirer venture with First Data Corp, or the ability to marry cardmember services' capabilities elsewhere in Chase's retail business to bring something different to market; and new markets (Mexico, Hong Kong, Thailand) or lifestyle/ethnicity-focused segments (young parents, hispanic/Latino, seniors and homosexual consumer groups). "Some ethnic segments in the U.S. are new arrivals in this country. They bring with them distinctly different behaviors, and, of course, they have much less history. As a consequence, the traditional tools we use to help make credit decisions and line assignments to determine creditworthiness for a card don't apply," he says.

systemic value

Before the end of the year, Urkowitz says that the bank will have a significant card launch targeting an important ethnic segment, and that his group is working hard to tie the young parents segment into Chase's co- branded card with Toys R Us.

Boudreau's hope is that creating value across groups will become systemic. That means that Tom Jacob, evp of Chase home finance will work with Urkowitz to devise solutions. If purchasing a home is a critical event, then the value proposition, he says, starts with trying to understand the real problem that people are trying to solve, and then bringing together capabilities that the consumer will view as a solution to the problem.

If it's an older couple buying a house, they are likely concerned not just with getting a mortgage, but also with tax efficiency, which is not just relevant to the mortgage, but also to credit card usage, investments and asset allocations. With that in mind, Chase wants to deliver a solution, as opposed to just trying to peddle the next mortgage.

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