Looking back on a 14-year career at Bank of Boston, Edward S. "Ted" Amazeen recalls that "the big question was always how to bring in new business cost effectively."

Through his experiences heading the bank's supermarket banking project, credit card division, and consumer finance group -- which included credit cards, consumer lending, and small business lending -- Mr. Amazeen has come to believe that "the best source of new business is your existing, satisfied customer base."

Now president of Emanacom Data Services Inc., a Dover, N.H.-based provider of sales tracking services for the financial industry, Mr. Amazeen is building a business around this belief.

His company's Cross Sell Plus -- a bank-administered employee incentive program that tracks behavior and rewards workers with cash for bringing in new business -- is used by 350 banks.

More recently, the company has turned its development efforts from bank employees to customers.

The resulting program, called Frequent Banker, addresses a critical bank concern in an era of stiff industry competition: building customer loyalty.

Building Customer Loyalty

Since January, when Wilmington Savings Fund Society initiated its More Value Program:

* Deposit balances held by MVP participants have risen by $35.8 million

* About 60% of participants have increased their deposit balances; 40% have reduced them

* 1,183 new loans and mortgages have been booked for MVP participants ($40 million in new loans outstanding)

* 185 new households have opened at least one product after having been referred by MVP participants

* 2,439 customers have accrued enough points to redeem them toward a "Something Extra" award

Designed as a service bureau offering to help banks attract new customers and keep existing ones, Frequent Banker rewards customers for conducting transactions that benefit their bank, such as increasing an account balance.

The rewards come in the form of points that can be used to secure better deals on bank services, discounts from local merchants, and cash bonuses.

Points also may be redeemed for merchandise and trips.

The program "does for banking what frequent flyer programs do for the airline industry," Mr. Amazeen maintains.

In some ways, Frequent Banker is just a new application of an old concept. The system updates the type of sales promotion that many grocery stores ran in the 1950s and 1960s.

These programs gave customers credit for purchases in the form of stamps that could be traded for merchandise. The more a customer spent, the more stamps he or she received.

The stamps typically could be used at redemption centers that offered merchandise in exchange.

"It was tremendously popular," Mr. Amazeen noted. "It caused people to consolidate shopping at one store and do more shopping at one store to get more stamps."

As the world of payments evolved from paper to electronics, it occurred to Mr. Amazeen that promotions like the trading stamps programs could be applied to the banking system.

The notion of patterning bank product sales after successful mainstream retailing programs is not a new one.

Visitors to any retail banking conference are sure to hear about the lessons that McDonald's and the Gap provide to financial institutions.

Yet the unwillingness of many bankers to heed those lessons coupled with the successes of Frequent Banker make the program worthy of note.

In Frequent Banker, Emanacom works with banks to administer the program.

The company tracks customer activity through the bank's files, mainframe computer, or third-party processor.

After customer information is imported into the Frequent Banker, the bank works with Emanacom to create a sales promotion that rewards customers based on the bank's goals.

Emanacom handles all of the administrative tasks, including sending out statements that inform customers of the number of points accumulated.

The cost of the program is based on the number of statements and accompanying materials sent out by Emanacom each quarter.

Banks with 5,000 to 10,000 statements pay about $1 a statement. With 50,000 statements and above, the price drops to about $.40.

Several financial institutions currently use Frequent Banker with consistently positive results.

The current users include Wilmington Savings Fund Society, based in Wilmington, Del., Republic National Bank, New York, and Metropolitan Credit Union, Chelsea, Mass. Two other institutions are expected to sign onto the program by the end of the year.

Wilmington Savings was the first institution to go live on Frequent Banker. With the help of Emanacom, the bank developed its More Value Program to encourage customers to keep and build their balances at the bank, increase loan activity, and bring in more customers through referrals.

"The bank is attempting to move away from price as the primary competitive weapon," said Robin Williams, senior vice president of business planning and marketing at the $1.1 billion-asset bank.

With MVP, people place value not on the price of services, but on the program and its benefits, she said. "Once they build up points, they are reluctant to abandon the program."

Every quarter, depending on the number of points, customers move into one of three customer tiers.

The higher the tier, the better the merchandise and services offered to the customer.

The bank offers special deals on its own products to MVP participants. These deals include waived fees on loans, bonuses on certificates of deposit, free checking, and rate discounts on loans and mortgages.

Customers may also receive coupons from local merchants. Some sample merchant awards include two-for-one deals, waived cellular phone activation fees, and unlimited car washes at a special price.

The biggest prizes include electronics, housewares, and vacations.

About 23,000 customers, or close to 40% of the bank's customer base, participate in the program, said Ms. Williams.

The program, now in its third quarter of operation, has resulted in increased deposit balances from 60% of participants. MVP members have also booked 1,183 new loans and mortgages.

Though the bank has not tabulated the most recent effect of the program on sales of new products to existing customers, the program in the first quarter helped the bank's cross-sell ratio rise from 2.0 to 2.5. This translates into over 1,000 new products sold to existing customers.

Banks with traditional branch networks need to do this kind of marketing to stay competitive, said Ms. Williams. "National marketers are entering with dynamic price offerings that are extremely difficult to beat," she said.

In the bank's own market, it competes for credit card business with national issuers such as MBNA Corp., Delaware, and First USA Inc., Dallas. The two companies run very aggressive promotions in the area, Ms. Williams said.

Wilmington Savings must also compete with large, traditional institutions, such as PNC National Bank, Meridian Bank, and Mellon Bank. "All have powerful regional offers and deep pockets for advertising budgets," Ms. Williams said.

By building customer relationships through the MVP program, the bank has been successful in stopping the erosion of its business and in winning new accounts, she added.

Wilmington Savings pays Emanacom $60,000 for the year, which covers everything from importing the bank's data to printing customer statements. The bank pays another $80,000 annually for the goods and services used to award customers. Ms. Williams said that the cost is not at all excessive.

"We attribute six times that much to savings and interest expenses in a single year," she said.

"The program is paid for many times over by our ability to price less aggressively."

For example, the bank does not have to compete for certificate of deposit customers on the basis of interest rates alone, because Wilmington Savings customers are finding that having a CD balance can bring them other value, Ms. Williams said.

"The great thing about this system is that it's extremely flexible," she said. "We can use it to encourage behavior in whatever fashion we want."

In upcoming quarters, the bank may use Frequent Banker to encourage the use of its Visa credit card. Ms. Williams said they could reward customers with a certain number of points based on amounts purchased. She anticipates that the bank will highlight different products each quarter, and that the system will evolve with the bank's needs.

Metropolitan Credit Union, with $250 million of assets in Massachusetts, has had a similar experience with Frequent Banker.

Because the company's research indicated that its 12,000 customers generally favored cash-back bonuses, Metropolitan rewards customer credit card usage, not with points, but with checks at the end of the year.

The program has been very successful, said Candace Doucette, vice president and director of marketing at Metropolitan.

"Transaction volumes have increased and the company has been able to retain its card base in a highly competitive market," she said. "It's a great card enhancement."

Since January, Metropolitan has seen an increase in balances of over $1 million and has gained 2,300 new accounts.

Ms. Doucette said the bank is considering tying the program to other products, such as checking, using the point method.

It may also work with airlines to create programs where customers can convert points into frequent flyer miles.

Metropolitan pays approximately $40,000 a year for Frequent Banker, said Ms. Doucette.

She called the program "a very reasonable turnkey operation."

Most financial institutions will use Frequent Banker on a data- management basis, in which Emanacom administers the program as a service bureau.

Republic National, however, has decided to run the software in-house and is in the early stages of testing, Mr. Amazeen said.

While some institutions may see a downside to discounting their services, most can compensate for it in the growth of deposits and loans, and in the referrals of new customers, said Mr. Amazeen.

These benefits "far outstrip the cost of the program," he said.

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