Telephone banking's rising popularity has introduced bankers to a new breed of "abusive" customers: those that over-use phone banking systems. To discourage such behavior a number of big banks, including Wachovia Corp., BankAmerica Corp., and Wells Fargo & Co., now charge some customers for call center service. But others are reluctant to charge, saying they don't want to discourage customers from using the telephone, which costs banks a fraction of a branch transaction. It's fair to say the industry is in a bit of a pickle over the dazzling success of telephone banking. Banks are now struggling to establish rational pricing that encourages customers to use electronic channels while making financial sense for the bank. "We believe that there is a balance point between the number of branches that you have in the right locations and the use of the call center," said Patrick M. Blanchard, general manager and senior vice president of Wachovia Corp.'s call center. "The marketplace will tell us over time what that equilibrium is." For now, the bottom line on call centers is difficult to gauge. To be sure, telephone banking offers greater customer convenience and frees branch employees from answering routine questions. That's been a big help in reducing costs. But the popularity of call centers has also led to dramatic growth in transactions - and ever-larger telecommunications bills. Offering 24-hour service and deploying better software to aid in cross-selling doesn't come cheap, bankers said. Industrywide spending on call center technology alone will grow from $365 million in 1994 to $823 million in 2000, a 15% annual growth rate, according to the Tower Group, Wellesley, Mass. The consulting firm also estimated that the number of telephone customer service representatives would rise from 57,500 in 1995 to 64,400 by the end of the century. But while telephone banking is flourishing, most banks haven't shuttered nearly enough branches to offset the added cost of serving customers electronically. The puzzle is similar to the one posed by the automated teller machine, which was intended to reduce bank infrastructure but actually added to it. "If you are going to increase your telephone channel, what are you not going to have? That's where your benefit comes," said Ashish Bahl of Andersen Consulting in Atlanta. "For you to quickly go to a channel, you can't just build up new capacity," Mr. Bahl said. "You have to come up with an overall channel strategy. Banks are getting higher service levels but not necessarily seeing any short-term payoffs." And while bankers see great potential for making sales by phone, they readily admit the industry is far behind such nonbank companies as Charles Schwab & Co. and Fidelity Investments in using call centers to generate revenue. Not surprisingly, U.S. banks have looked to such competitors for ways to get more from their call centers. Wachovia's Mr. Blanchard, for example, was American Express' director of telemarketing for the national portfolio. "I was brought on board to help move Wachovia in a more aggressive, entrepreneurial direction," he said. The Winston-Salem, N.C.-based company's telephone banking center, known as Wachovia On-call, was opened for business two years ago. The growth in call volume, and a corresponding rise in telecommunications costs, led the bank to rethink its pricing. Beginning this month, customers will be allowed to talk to a call center or branch banker twice a month for free. After that, they will be charged $2 a pop for information they could have gotten from the voice-response system. At the same time, Wachovia scrapped all fees for using the automated system. Previously, customers were allowed five free calls to the automated system before a 35-cent fee was imposed. The North Carolina bank wants to boost the percentage of calls that are completed without human intervention. Currently, it handles about 65% of inquiries automatically, compared to 70% at Bank of America and 79% at KeyCorp, two others that have emphasized telephone banking. "We want to try to influence people to use the most efficient, cost- effective delivery channel that we have to offer," said Mr. Blanchard. Banks say the fees are aimed at covering costs, not building profits. The cost of a call handled by a voice response system ranges from 25 to 35 cents, say bankers and consultants. That compares to $1.50 to $2 for calls handled by an agent and $2 to $5 per branch transaction. "It is going to be imperative for banks to come up with a pricing strategy" for call centers, said Andersen's Mr. Bahl. Bank of America has reached the same conclusion.
Its customers are given six free calls per month. Additional calls to the automated system cost 50 cents, and those handled by live agents are $1.50. But many types of calls - to alert the bank of an address change or to request product information - are free. "We didn't want to discourage people from using the phone, but some people were using the phone multiple times a day," said Don Owen, senior vice president at Bank of America's telephone banking center in Glendale, Calif., which gets more than 14 million calls a month. "It seemed as though that was a good position to take." Despite the rising costs of call centers, other banks have been reluctant to charge. But U.S. Bancorp and KeyCorp are among those considering fees. "We are playing with all those options through our modeling capabilities," said Patrick J. Swanick, a KeyCorp executive vice president. "And we'll come to some conclusion." Most banks that are charging, or exploring that option, avoid imposing fees on their most profitable customers. Regarding profitable customers who, "based on their relationship with us, want to call us every hour, that's fine. We're happy to talk to them," said Robert D. Sznewajs, vice chairman of U.S. Bancorp, Portland, Ore. To set pricing schemes based on behavior and customer profitability requires a technological capability many banks lack. U.S. Bancorp, for example, wants to be better able to alert live operators about the profitability of customers who call. "The level of service we can provide to them based upon the amount of business they have with us is different," said Mr. Sznewajs. The bank expects to install such a system next year. But bankers say the greatest potential for call centers is not in covering costs by imposing fees but in using information technology to find opportunities to cross-sell. Already, many companies make loans over the phone. U.S. Bancorp, for example, said two-thirds of its consumer loan applications are taken by phone. The bank is able to give customers an answer within 30 minutes. But despite call centers' success so far, banks say much remains to be done. "We manage it as a cost center and look at efficiency and productivity, and also manage the sales side of it," said Mr. Sznewajs. "It's really not a profit center."
But Andersen's Mr. Bahl said that outlook has begun to change. More and more banks, he said, are asking, "What's the revenue per call? How many products have you originated?" "They are going to start setting targets," Mr. Bahl said. "These guys are being measured on the revenue side."
