The chairman and chief executive officer of National City Corp. says taking customers' deposits is at best a break-even business for banks.

"We've been talking for years about the fact that the deposit-gathering business is a very low- or no-growth market," David A. Daberko said. "It's essentially the slowest-growth business we're in."

To get more profits from its deposit customers, Cleveland-based National City has spent $50 million since 1997 to create a data warehouse to analyze these accounts.

National City, the 11th-largest U.S. banking company, with $88 billion of assets, plans to roll out a program in May that would give its most profitable customers better service at branches and on the telephone. The company will even experiment with special teller lines for its best customers.

Those who cost the company money are likely to see higher fees.

These efforts could boost National City's retail income 20% and total income 8% by 2003, said James R. Bell 3d, executive vice president for retail sales and distribution. Deposit gathering accounts for about 25% of profits, down from 40% just a few years ago.

"When you've got a business like that, you have got to figure how to run it a lot better, because the growth isn't there," Mr. Daberko said.

National City has been working on the project since 1996, but has yet to use the data it has collected.

Analyst Frank Barkocy of Josephthal & Co. said National City has "been a little behind the curve" of companies such as First Union Corp. and BankAmerica Corp.

KeyCorp, also of Cleveland, has been mining data on its customers since 1996. KeyCorp initially used the information for marketing, but began analyzing customer profitability within the last couple of years.

As the industry works harder to gather and use customer information, it must face lingering public concerns about privacy.

"We would worry about what else happens with that information," said Gail Hillebrand, senior attorney in the San Francisco office of Consumers Union. "Do they cut off a person's account for bouncing a check depending on what tier they're ranked?"

Executives say they are alert to the danger of consumer fallout. But Mr. Daberko said the use of information warehousing and data mining has become a matter of survival.

"The greatest motivator in the merger world-the reason (banks) sell almost inevitably-is a lack of earnings growth and lack of expectation of earnings growth," he said. "The reason they have no earnings growth is because they have not planned to deal with the diminishment of the retail deposit business."

It was this realization that led National City three years ago to begin analyzing its customer information. As is typical of its peers, the company makes nearly all of its consumer banking profits from 20% of its customers.

It has made assumptions about its customers in the past, Mr. Daberko said, but it now has quantifiable information that can be used to refine its strategy.

The profitable customers have now been identified, he said. "There is a lot more we need to understand about them, but at least we know who they are, where they do business, and the kind of business they do."

National City also knows who it loses money on-customers who tend to keep minimum balances and use branches and the telephone banking center frequently. "Now we know who they are by name," Mr. Daberko said.

For these "transaction terrorists," as he calls them, there will ultimately be "negative inducements in terms of price," Mr. Daberko said. The message will be "either use the low-cost delivery system or pay us more for the high-cost delivery system."

The company had told analysts it would roll out the program by the middle of last year, but those plans were pushed back because of the acquisition of First of America Bank Corp. of Kalamazoo, Mich.

National City plans to have a priority system set up for its 10 million retail customers beginning May 17. Every teller in all 1,300 branches and every banker at National City's three call centers will be able to enter a customer's name and see a ranking - a tiered rating system showing how much money that customer brings into the bank.

The level of service and the price of that service will be determined by the value of the customer. The concept, bank executives say, is similar to the treatment airlines and rental car companies give to preferred customers.

Calls to the phone banking center will be monitored by an electronic system that identifies the caller before the phone is answered. Calls will be answered in the order of customer profitability.

Soon National City plans to start testing a teller line restricted to the most profitable customers. The trial would involve about 50 branches and last for a year. If successful, the program would be in all branches by 2001.

Analysts said the idea has merit but would have to be well executed. It could be risky, because giving preferential treatment to some customers could anger others.

"You don't want to do it in a way that you'll insult the rest of the customer base," Josephthal's Mr. Barkocy said.

Mr. Bell, the National City executive vice president, conceded that the issue is delicate. "We are raising the bar for our best customers," he said. "There is clearly a potential trade-off when you provide a separate line.

He expressed a milder view of the unprofitable customers whom Mr. Daberko called "transaction terrorists."

"Those are all good customers," Mr. Bell said. "They're just not our greatest customers."

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