Data warehousing is just the beginning. All that valuable customer information must be

harnessed, enriched, but most of all understood in order to help banks turn a profit.

Knowledge is power, provided you know how to use it. The need to know your customers and what products they'll buy is prompting more banks to turn to the "data experts" to harness and enrich complex consumer profiles. As Don Taylor, president of FISI*Madison Financial, a CUC International company, says, "If Proctor & Gamble knew as much about its customers as banks (know about theirs), it would rule the world."

Easier said than done: Emerging profiles are only as sharp as the thinking that fashions them. What's at stake? Banks must stand out in the market, which becomes harder all the time-despite consumer inertia and their image as "trusted agent"-as nonbanks and the Internet make competition more intense and national in scope.

Ironically, technology is simplifying life for consumers at the same time it complicates things for banks, reports Ned Davis, senior vice president, Lazard Freres & Co. Most professionals interviewed agree that banks need outside help to keep pace with these changes. Outsourcing front- office functions, particularly consumer market research, gives banks niche expertise and puts them on par with competitors.

The consensus is that strategy must come first at the institution, says Barry Wiegler, managing director, Sourcing Interests Group, Bell Canyon, CA. In today's version of outsourcing, companies are increasingly drawing up informal partnerships to capitalize on vendor strengths and add to their own profits. He suggests that senior executives interview companies which might help them within a 90-day exploratory process, providing that the vendors sign confidentiality agreements. "You might say, 'Here's a direction we are going in. What ideas do you have?' Banks must admit that they are thirsty for ideas and be open-minded about what they hear," he adds.

Banks should also establish criteria for choosing companies to work with: financial stability, commitment to the industry, and the probability of being a merger candidate. Most important, Wiegler says, outsourcing is a process, not a goal, which must be managed over time. It is also one of many management tools, not appropriate for every situation.

To be sure, banks have several pieces from the customer profile puzzle on which to focus. These range from setting up loyalty programs, testing ideas and products through market research, and allowing Web site visitors to build personalized profiles, to offering affinity group discount memberships.

In response to bank frustration, retail strategist Action Systems, Inc., of Dallas, has organized a consortium of technology companies, including Hewlett-Packard Co., to alleviate the chaos created by banks' rush to build data warehouses, a costly and often disappointing venture.

For now, those who wish to start small can take a cue from the airlines. After seven years of providing customized loyalty programs, the Harrison Company, based in Denver, CO, took a break while database technology caught up. "When we started, the infrastructure of banks needed a lot of scrubbing. We couldn't work with corrupt data," says Ralph H. Harrison, chairman and president. "Now there are lots of ways to correct and verify information."

Based on the tenet that motivating customers to buy is easier than teaching bankers to sell, Loyalty Banking awards customers points based on referrals and numbers of relationships with the bank (as well as number of years with the bank), not the amount of money on deposit. Customers use points to get bank benefits, such as a bonus over the regular posted rate on a two-year CD or a discount off the regular rates for new car loans. The system keeps track of customer relationships and gives additional information to customer service reps to forge new relationships. By early 1998 the program will be able to deliver statements and/or screens to a bank's registered loyalty customers via direct marketing and the Internet.

Although banks are raiding retail chains for marketing savvy, they have not taken advantage of a basic consumer goods technique: product testing. The idea: Find out what consumers want and how they want it.

In the last 10 months, a handful of forward-looking banks and insurance firms have signed on with The Axiom Group Inc., based in Minneapolis. The company uses Instant-Insight to run focus groups with a new spin: two layers of fast feedback. Instead of the usual group of 10 people, Axiom equips 75 with electronic keypads, presents concepts and gets instant consumer reactions. At the same time, the product development team studies graphs of responses to each question on a monitor in the back of the room. Later in the day the team asks respondents why they voted as they did. Similarly, WebSite-Insight captures opinions of Web site visitors; Axiom analyzes and reports the results to customers.

In addition to helping companies build sophisticated consumer profiles, Axiom can help speed time to market by providing quantitative and qualitative research results in as little as three weeks, reports Jeremy Ziegler, marketing manager. "Banks are a bit remiss in listening to customers; we act as a loudspeaker for them," he says.

By contrast, consumer preferences drive the Web. The Web changes the way banks present information, says John Long, president of Toronto-based Quadravision Communications, Ltd, a Web site developer. Traditionally, banks use customer information files for direct marketing. The product development side creates a product, then chooses the targets. "Direct mail is product focused, but on the Internet, the paradigm switches," he says.

The company's ME!, a database-driven Web server engine, allows banks to create content-rich sites that customers adapt to their interests by answering personal questions the first time they log on. The bank, in turn, matches customized products to customers continuously. Its Evolution program mines the database over time, publishing reports and recommending improvements on a regular basis.

On a much larger scale, FISI*Madison Financial, with 6,000 clients globally and six million U.S. members (CUC has 65 million members through its various divisions, which work exclusively with financial institutions), continues to refine the myriad value-added perks it offers to bank customers. Shopping, travel, and other memberships help banks build brand awareness.

FISI*Madison offers banks exclusive use of almost 20 membership programs. Working within the bank's strategic framework, it mines data to select them according to market segments. Yet the company does not share its consumer group database with banks.

The $2.5 billion, Stamford, CT-based CUC aims to increase consumer value through financial institutions. FISI*Madison helps banks sell insurance, differentiate their retail franchise, and/or increase their credit card customer base. FISI*Madison also develops relationship pricing strategies, from development to implementation to training branch staff. "We create a package of financial and non-financial products: (i.e.) travel and insurance programs and credit card protection from the CUC stable. Every time a consumer touches us, he/she gets a deal," says Taylor, who is also CUC's senior vice president of international business.

The biggest challenge for retail banks is to figure out through data mining, product development, and profit distribution how to reward core customers and penalize cherry-pickers, Taylor says.

Although Taylor stresses that his company's most vital function is to support bank brands, CUC just launched NetMarket, a virtual shopping mall, putting its brand on products for the first time. NetMarket will not engage in banking, nor undercut CUC's appeal to banks, which set their own prices, he says.

CUC recently was drawn into the consumer privacy debate when America Online, Inc. decided to hand over its 8.5 million members' home phone numbers to telemarketers like CUC. Taylor says that neither firm has anything to gain by jeopardizing customer goodwill. AOL reportedly plans to give subscribers plenty of notice and information on how to opt out.

Privacy, and to what extent banks partner with vendors, is an undercurrent through all these possibilities. Service providers say that they sign non-disclosure agreements permitting them to use customer data once. Companies have handed over files to vendors for years with no horror stories so far, say experts. They point to contractual protection in the form of rights of survivorship should a supplier be acquired. But one of the most interesting aspects of change is that you can't always predict it. And Bill Gates is still out there.


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