Using data warehouses, bankers are beginning to strengthen an area that many believe has been the industry's greatest weakness in the battle against nonbanks: data management.
Consultants critiquing the banking industry often note that banks are data rich, but information poor.
Although generally adept at gathering data on the people they do business with, financial institutions historically have not done a good job of massaging that data into information that is useful to the bank, its employees, and its customers.
Complicating the situation is the fact that most banks have stored customer data in "silos," with each operating unit housing its own data.
For example, the marketing department maintains its own storehouse of data, as does the credit risk department, automobile finance, etc.
The problem this poses is that each department ends up "working on their own version of the truth," said Rick Makos, director of worldwide industry marketing of the financial services decision support practice at Unisys Corp., Blue Bell, Pa.
Such a scenario hinders a bank's ability to satisfy the rising number of customers that are more interested in relationships than in individual lines of service.
"If you look at it from the customer's eyes, they perceive the institution as holistic, not as islands," said Ian MacFadyen, vice president for consumer banking systems at New York's Chemical Bank.
Chemical is one of a handful of banks in the world that is believed to be managing customer information on a enterprise-wide basis.
To hear Mr. MacFadyen describe it, Chemical is moving beyond the construction of data storage facilities accessible to a wide range of users in the bank.
The bank is moving towards massaging the data to meet specific customer needs and corporate profitability objectives.
"We don't build it and hope they will come. We take a lot of time to understand what people need," said Mr. MacFadyen.
This approach addresses the fact that what bankers need most is precise information about: who their customers are, the propensity of those customers to buy certain products and services, their responsiveness to particular types of advertisements or inducements, how they prefer to conduct business with the bank, the degree of credit risk posed by each customer, and the overall profitability of doing business with each.
Today at most banks, that information is scattered throughout the organization, with access limited to select people - if the information exists at all.
What Mr. MacFadyen and his colleagues at Chemical are trying to do is to put that information in the hands of every staff member who comes into contact with the bank's customers.
That is a tall order for a organization the size of Chemical. Chemical's consumer bank currently provides services to approximately 1.5 million households. And, with the announcement of its merger with Chase Manhattan Corp., the data warehousing project likely will get even more difficult, observers said.
"The idea is to drive deeper into understanding how best to meet the client's needs," observed Keith Von Seggern, senior consultant, ActionSystems, a Dallas firm that has been working with Chemical on implementing its enterprise-wide information delivery strategy.
Managing Local Markets, a process developed by Action Systems, helps Chemical's front-line staff make the most of the information the bank amasses on customers with whom those staff members interact, according to Mr. Von Seggern.
The concept is rather unique in banking, said Mr. Von Seggern. When a customer approaches a teller, say to make a deposit to a savings account, the teller can call up on a computer screen all the information the bank has about that customer - details about deposit and loan accounts, where they live, even how they prefer to do business with the bank.
The teller can then couple that information with the personal knowledge they have about that customer and suggest a new product or service that customer may have a preference or need for, such as a mortgage loan.
The idea, said Mr. Von Seggern, is to provide the means for aiming more accurately the bank's marketing efforts. "You're making a more proactive intervention with the customer, but it's in the context of a relationship," observed Mr. Von Seggern.
"It's clearly more powerful than getting a generic letter in the mail."
With mailboxes bulging with offers of financial services from every type of provider, mass mailings simply cannot move significant shares of market anymore, Mr. Von Seggern said.
"We're trying to leverage information and develop new processes, and new ways of dealing with our customers," said Mr. MacFadyen of Chemical Bank's strategy. And that means looking at customers as individuals.
Technology has played a major role in helping the bank get to this point, Mr. MacFadyen said. With the advent of client/server technology and symmetrical multi-processing systems, it becomes much more cost-effective for a bank like Chemical to embark upon a program of data warehousing and enterprise-wide information delivery, he said.
"The technology is now affordable to the point that we can actually recognize the individual," said Mr. MacFadyen. "Before we were limited in that we could only select categories of people."
A symmetrical multi-processing system is a scalable computer system. A bank, like Chemical, can add literally dozens of new processors to the machine, in a incremental fashion, without making any changes that are discernable to either the software or to the end users.
The concept works well in a data warehouse environment, because itsupports the bank's efforts to expand the amount of information it stores without significantly increasing its investment in technology.
Client/server technology supports the distribution of data throughout the entire banking enterprise. Using client/server technology a bank can take data and logic that has been stored on a centralized host system and move it directly into the branch or other banking office for quick and easy access by bank personnel in support of decision making.
Both of these technologies are integral to Chemical's goal of delivering information to the offices and people most in need of that information to support relationship management.
The large transaction processing data bases that are common to banking generally can handle the examination of only a few records at a time.
But in a true relationship banking environment, bank personnel must be able to access a large base of transaction records frequently and repeatedly. With parallel processing, Chemical can maintain all necessary information in one massive data base. Client/server technology allows the bank to distribute that information efficiently and effectively.
One area in which Chemical already has seen the value of this approach is in profitability management. Using a system developed by Treasury Services Corp., Santa Monica, Calif., Chemical can now more precisely calculate profitability and distribute that information to those places within the organization where it is most useful.
The Treasury Service Evaluation and Reporting System (TSER) extracts transaction-level information from the bank's mainframe accounting system for use in various analytical functions and decisions. Among other things, the system, which Chemical has had in place for just over a year, helps the bank understand profitability at the individual account level, Mr. MacFadyen said. TSER also allows bank managers to isolate and measure the profitability of individual business units and products.
This is a far cry from the way things used to be, when retail services were managed at the summary level only. For example, Mr. MacFadyen said, Chemical can now calculate the effect of pricing changes at a much more exact level - down to the individual customer. That, he suggested, will prove an important capability during the merger of Chemical and Chase.
"It gives you a whole different insight into actual performance, so you can take action," said Mr. MacFadyen.
And using data to support business decisions and activities is what data warehousing is all about, according to Mr. Makos.
"The whole idea of data warehousing is to help the institution make accurate predictions," explained the Unisys executive.
"Right now, they're making gut-feel predictions, and that method doesn't work anymore."
A bank that can accurately measure the profitability of its customers can more astutely mine its customer base for enhanced profitability, Mr. Makos said.
It is really an issue of changing competencies. "In many ways, the transition from transaction marketing to relationship marketing requires new core competencies," observed Stephen Pinto, a partner with Mercer Management Consulting, Boston.
Relationship marketing, said Mr. Pinto, requires changes in technology as well as in the way bankers interact with their customers. And change, suggested Mr. MacFadyen, is at the heart of Chemical Bank's new information delivery strategy.
"We're trying to leverage information and develop new products and new ways of dealing with our customers," said Mr. MacFadyen. "We talk really about the customer defining the bank. That's our objective." v
Ms. Murphy is a freelance writer based in Takoma Park, Md.
