Cutting Through the CRM Hype

It is called CRM—shorthand for customer relationship management—and banks are embracing the concept with gusto, making it perhaps the hottest marketing scheme of the moment. But like almost everything else these days, achieving it is accomplished by deploying fairly sophisticated and expensive technology.

In this age of conglomerate banks—some of which have changed their names a half-dozen times in almost as many years—CRM holds out the promise of gaining remarkable insights to each customer and personalizing every interaction, no matter how fleeting or trivial. Not only does this build customer satisfaction but, CRM’s proponents assert, with just the right software package plus some savvy employees, a bank can parlay that information into infinitely more profitable marketing opportunities.

Xchange, a software company based in Boston, offers a popular program used by Fleet Financial Corp. and Royal Bank of Canada, the latter of which is said by consultants to be among the most successful employers of CRM practices. Especially tailored to meet the profitability needs of retail banks, Xchange’s software package makes it possible to identify the precise profitability of every bank customer. Now, whenever the bank has contact with any customer—"touchpoints" is the jargon du jour for the interaction—customer service representatives, tellers and other bank employees can reckon nearly to the penny just how valuable he or she is.

For example, says Andrew Frawley, CEO of Xchange a bank using Xchange’s software can ascertain that Jane Doe cost the bank $200 in the past year in bank services. Yet, thanks to the fact that she has availed herself of, say, personal loans or credit cards, the data shows that she has brought the bank $1,200 in gross profit. Subtracting the $200 in expenses, her net annual profitability of $1,000 ranks her as "a pretty good customer," Frawley says, even if she’s not a VIP.

So fortified, the bank is in the enviable position of being able to calculate Jane Doe’s economic potential and, relying on a comprehensive profile of customers and buying habits, it can pepper her with offers for products and services that she is most likely to snap up. Properly cultivated, Frawley says, Customer Doe ought to be worth $5,000 five years hence. "We’re helping banks find profitable relationships today that could be five times more profitable in five years," he says.

Another CRM provider, San Francisco-based E.piphany, similarly urges financial services companies to locate their best—and worst—customers and quickly take steps to make a profit at every turn. E.piphany’s software can be particularly valuable in winnowing out the wheat from the chaff at call-in centers and other touchpoints, says Vince Bowey, vice president of solutions marketing.

Using screens to recognize those making telephone inquiries—"Did my check clear?" "What’s my bank balance?"—the bank can determine immediately whether or not its most profitable, "high value" customers are on the line, he says. This enables the financial institution’s call-in center to react instantaneously: the carriage trade can be steered to a privileged queue where the wait is brief and where they receive first-class treatment.

What about the least profitable customers? Bowey calls them "bozos"—an acronym for "below zero-profitability customer"—whom banks are urged not to make a fuss over, lest they waste time and money. So identified, bozos can be shunted off to a queue where they are presumably placed on hold interminably and given less-than-stellar service. "Why should I treat you to immediate assistance?" Bowey asks rhetorically, referring to the down-market customer. "You match the treatment with the value of the customer."

Of course, it is up to banks to decide whether to proffer a carrot or a stick to customers once they embark on a CRM program, aggregate data and compile profiles of their customers. In the process, they also must sift through sometimes extravagant claims from vendors to decide which software programs to buy. And even the most attractive software solutions may prove unworkable if they are not compatible with the bank’s existing infrastructure. MarketSwitch, another vendor of CRM technology—which is noted for its ability to offer marketing solutions using the power of "mathematical analytics"—is a case in point. Among its customers is credit card company Capital One Financial Corp., which on any given day can be found using MarketSwitch’s software to market 5,000 products to some 35 million customers over five to six distribution channels, including direct mail and the Internet. In one testimonial, Capital One’s director of cross-selling avers: "MarketSwitch has allowed us to realize approximately a 10% lift in the net present value of many key marketing campaigns."

Wachovia Bank’s Guenther Harfeil, a senior vice president and manger of market information and targeting, says he was impressed by MarketSwitch’s testimonials and found the technology dazzling. Yet he says that the bank was facing a dilemma. "They have very good packages that we would love to grab hold of," he says of MarketSwitch, "and we were excited about what they had. But the question is: Are their tools consistent with our overall architecture?"

CRM does not come cheap. Prices vary and a bare-bones program could run a small bank as little as $250,000, but for a conglomerate megabank the price tag can be as much as $50 million. By all accounts, financial services companies are on something of a shopping spree.

A 2000 study by Computer Sciences Corp. of senior executives at 65 financial services companies found that more than 50% of respondents are jumping on the CRM bandwagon, with 35% already employing a call center, Web-based "self-care," or sales force automation. Meridien Research, moreover, reckons that retail financial companies spent $4.75 billion in 2000 and they are likely to pony up another $5.45 billion this year. By 2003, Meridien estimates spending on CRM technology will rise still further to $6.85 billion.

But purchasing the software packages is likely to be the easy part. Industry veterans say banks that aim to have a successful CRM program must bolster the technology with a meaningful support system that includes a sustaining corporate culture as well as ample training, incentive programs, sound hiring practices and measurement and tracking systems. "Generally speaking, CRM applications are tools," says Wachovia’s Hartfeil. "The tool has to be used by somebody who knows how to use it and use it right."

That was the experience at Cincinnati’s Fifth Third Bancorp., says Robbie Jennings, director of public relations. Fifth Third, she says, acquired CRM systems (actually the bank prefers the nomenclature "master customer information file," or MCIF, rather than CRM) almost by accident when it took over banks in Detroit and Florida. "When you first get the system, it’s like having a Lexus in the garage and you only have keys to a Honda," she remarks. "CRM is a highly sophisticated killing machine and your first question is, ‘Who’s going to drive this thing?’"

Similarly, Kathleen Khiralla, senior research analyst at TowerGroup, a Needham (MA)-based research organization, warns bankers that CRM technology is unlikely to be a magic bullet and counsels them to maintain a measure of skepticism in the face of technologists’ claims. "CRM as a business strategy is a lot more difficult to implement successfully than most bankers are led to believe," she says. "It’s a long-term process and requires a significant commitment of human resources, financial resources and technological resources. I think of it as a three-legged stool."

She is also dubious about whether call-in centers should realistically be seen as essentially a venue for sales opportunities. One common component of a CRM program is to have persons who staff telephones at a call-in center identify a top-notch customer and, using a prompt on the computer screen, offer the customer a credit-line increase or some other product.

"CRM should not be about selling more products to customers at call-in centers," Khiralla says. "The vast number of people call in to ask about their balance, reorder checks or ask where the bank’s nearest ATM machine is when they go to Florida," she says. "Banks should use CRM to increase service levels and build credibility for when a sales opportunity does arise."

Banks that have purchased and implemented CRM-style programs differ markedly in ways that they use the information. Fifth Third attributes much of the success of a direct-mail and telemarketing campaign in January to the introduction of new software packages that allowed the bank to hone in on prime targets. The bank reports that its 14 affiliate financial institutions cross-sold $9.1 million in new savings accounts and accepted $5.4 million in assets-under-management from new customers opening bank-managed mutual funds; at the same time, it lent out $55 million in home-equity loans to new borrowers.

"We went after customers with new checking accounts who didn’t have savings, mutual funds or loans," explains Will Daly, chief marketing officer at Fifth Third. "Following up with a telephone call after customers have opened a new checking account is where we have had the highest success ratio. The software has made it faster and easier to pull information together."

Indeed, Daly says that with the new technology, the bank can build a profile on a customer in 22 minutes—compared with the all-night effort that was entailed in times past. Even so, he says the company, which uses an MCIF program offered by Atlanta-based John H. Harland Co., has so far steered clear of the priciest systems. "Ours is probably more manual and labor-intensive than many of the others on the market," Daly admits, "but we’re not willing to make the investment now."

Such circumspection would probably seem alien to Jay Freeman, a hard-charging, senior vice president who is head of sales and customer development at Wells Fargo. Freeman, based in Minneapolis, reports that Wells Fargo has 1.25 billion interactions with customers each year through channels as varied as telephone contacts, in-person interactions with tellers, ATM transactions, mail, and Internet banking. Wells Fargo uses state-of-the-art technology supplied by several vendors, including E.piphany, which boasts a Wells Fargo encomium on its website. The bank’s chief aim is to increase the number of products used by each customer. "We continue to believe that success is predicated on our ability to get all of a customer’s business and supply a full array of services," he says.

Since Wells Fargo merged with Norwest, Freeman says, the bank has expanded its reach to 3.7 products per customer at yearend 2000, up from 3.3 earlier. The goal is to reach 8—a doable number, Freeman asserts. "If you take the average customer and turn him upside down you’ll find that he has probably 12-15 financial products, so 8 is still less than the total," he says. "Even though we have loyal customers, many are making conscious decisions to buy products from other sources."

The Royal Bank of Canada, which TowerGroup’s Khiralla lauds as perhaps the leading practitioner of CRM, gauges success according to income growth. RBC managed to grow its net income at its core banking unit to $1.2 billion in 2000, a 26% jump compared with 1999 earnings, says Richard McLaughlin, vice president for CRM and information management. He says that pre-1997, when the company began instituting CRM programs, annual growth rates at the core banking unit were in the 4% to 5% range. Core banking is largely Royal’s retail banking operation and does not include wealth management or insurance.

How has the bank done it? RBC has taken advantage of the information it gathers and put it to use in fairly innovative ways. For example, after gathering information on its customers in the Toronto suburb of Burlington, it completely overhauled the geographic layout of the branch network and ATM machines there. "We want to make sure that all of our delivery channels are cost-effective for us and convenient for our customers," says McLaughlin.

Despite the bank’s success—or perhaps because of it—McLaughlin is leery of claims by software peddlers. "There are absolutely a ridiculous number of claims made by technologists about what software can do and how easy it is to implement," he says. "When they tell you that a CRM program will be fully functional in less than a month—and it takes you a full year—it leaves a real sour taste in your mouth."