Earlier than most banks, First Horizon National Corp. faced trouble in its mortgage business. It lost nearly $250 million in the last quarter of 2007, unloaded the business into the arms of MetLife, and took a $50-$70 million charge to earnings. It was a painful episode but, ironically, one that put the bank on its current path of technological renewal-and ahead of many rivals when it comes to deploying cutting-edge sales and service technology.
In other words, while many banks were just waking up to the magnitude of the financial crisis, First Horizon executives were already busily cleaning up the balance sheet and plotting a way forward. Bruce Livesay, evp and chief information officer for Memphis, TN-based First Horizon, explains that the bank's early maneuvering freed up capital and allowed the executive team to make a bold decision in early 2009 in the depth of the financial crisis: commit to a three-year, $100 million upgrade of its technology systems, particularly sales and service technology, to create an enterprise-wide view of the customer and provide a consistent customer experience across channels.
"While most banks were laying low and not spending any money anywhere, we were making these decisions to spend money on this technology, and we think it's going to pay huge dividends," says Livesay, a 23-year industry veteran who joined the bank in the summer of 2008. He believes First Horizon has a 12 month head start on many rivals to create a multichannel, customer-focused enterprise. "All these core systems and decisions we are making are directly related to the type of service we offer and how convenient we are. Banks need to understand the customer, to understand the type of relationship they have with them, and to understand the types of products and services that might be beneficial to them."
Two issues in particular are forcing banks to be more creative about generating revenue. First is the heavier hand of regulators. Specifically, Regulation E clamped down on overdraft and other fees that banks had grown to depend on. Gone are the days when banks could offer free checking accounts and then collect hefty overdraft charges that more than made up for that free service. "It's a broken profitability model," says Nicole Sturgill, a research director at TowerGroup. The best antidote to lower fee revenue is higher sales revenue. New regulations are "what are really driving the focus on sales and service," Sturgill says.
In the past, banks might have been able ramp up sales by improving product and service offerings at the branches. But branch traffic and fee income are down, so more banks are following the multichannel sales and service strategy being pursued by First Horizon's First Tennessee. Michel Jacobs, evp of new solutions development at FIS, says, "Sales and service functionality is a priority to banks to help them offset the loss of revenue these regulatory changes are creating by finding new and creative ways to drive additional revenue or reduce costs. In addition, new regulatory requirements are forcing banks to implement solutions with a flexible and modern architecture that not only assures their compliance with the regulatory mandates but also allows them to develop and deploy new capabilities once and leverage them within and across all channels."
In its ideal form, a multichannel strategy breaks down silos and links all channels-branch, call center, Internet, ATM and mobile-to a common repository of data. This enterprise-wide sharing of customer data allows the bank to have a single, holistic view of the customer and allows a consistent customer experience at all channels. JPMorgan Chase, SunTrust, US Bank, Regions, Associated Banc, Union Bank, BBVA Compass and Umpqua are all cited by analysts and vendors as having a sales and service re architecture underway or complete. "The goal is to simplify the environment, to get to a common repository where you understand all your customer relationships and make sure all the different delivery channel leverage that one common repository of relationships," Livesay says. "So if the customer is on the Internet on their mobile phone or they are walking into the branch or ATM, or whatever, they have a consistent, personalized experience."
Offers Get Smart
At a bare minimum, this single view of the customer means a bank can finally offer an accurate account balance from any channel (still a remarkably rare feat). But banks like First Horizon are aiming higher. They are applying sophisticated business intelligence to customer data to analyze relationships, select potential products and services based on past behavior or the behavior of peers, and coordinate offerings across channels so these offers are consistent and continuous. So, for instance, an application abandoned online could be continued at the branch. "We're seeing more banks wanting analytics that can make smart offers to each customer," Sturgill says. "Business intelligence, which goes hand-in-hand with sales and service, has risen to the top of the agenda."
The ability to make smart offers is becoming critical as consumers grow accustomed to smart offers from other industries. If Amazon can make book suggestions based on what other people have purchased, bank customers begin to expect something similar from their banks. "Historically, banks' banner ads have been ugly and dumb," says Andrew Steadman, director, product management, bank solutions at Fiserv. "The average person sees 8,000 to 10,000 ads per day. We as consumers turn ourselves off to that, so an ad has to have relevance or people don't pay attention. That takes an increased use of intelligence-to understand what makes you tick, to understand how you will behave."
First Horizon, for one, is taking concrete steps in this direction by re-architecting its technology from top to bottom. The latest major announcement came in the fall when the bank announced that its subsidiary, $26-billion asset First Tennessee, would be the first U.S. bank to license CSC's new Celeriti Customer and Deposits software to accelerate the bank's channel modernization initiatives. First Tennessee will implement Celeriti's Web portal, service oriented architecture's business processes and Web service. At the same time, the bank will upgrade to CSC's Hogan Core Banking System.
But even before that engagement was announced, First Horizon had been busy implementing sales and service technology at the bank. A major upgrade, Livesay says, was last year's rollout of salesforce.com across all the bank's channels so every single relationship manager has one common platform. The initiative eliminated seven separate sales and service systems. "They have a lot more visibility into customer relationships, and they can share referrals across different lines of business. The whole cliché about knowing your customer sounds kind of corny, but we do think that is going to be a real differentiator for banks."
Open Heart Surgery?
Also on the sales and service front, First Horizon recently upgraded its retail and commercial Internet banking. Working with technology vendor Sybase, the bank has done away with requiring numerous passwords. Now commercial customers have single sign-on capabilities. "It gets back to being easy to work with. Convenience is important and the banks that are going to win in this new world need to be convenient, efficient and effective. If people don't think it's easy to work with you they are going to go someplace else," Livesay says.
In the ATM channel, the bank worked with Diebold to digitize the ATMs and enable deposit automation and check imaging. In the mobile channel, the bank worked with mFoundry so successfully that it reached its twelve-month adoption target in just two months (5 percent of Internet users). Meanwhile, First Horizon is in the middle of updating its teller, platform and loan origination systems. If all this weren't enough to keep Livesay and his team busy, they are upgrading the bank's data warehouse and in-sourcing the data center.
In many ways, First Horizon is perfect example of enlightened bank thinking, but in one conspicuous way it is a distinct outlier. Few banks are willing to tackle so many vital systems at once. Analysts and vendors likened such an approach to open heart surgery. As in First Horizon's case, such sweeping projects take two or three years. Even if they are not disruptive to daily operations they are expensive with ROI a long time in coming.
"There's just no appetite to wait two or three years for ROI, and there's no appetite for the expenditure," says Scott Andrick, senior industry consultant, financial services, at Pegasystems, which last year bought Chordiant Software and is a provider of sales and service solutions. The good news, he says, is that sales and service technology can be rolled out channel by channel without a large-scale core replacement initiative. "You start deployment with the most immediate need, get some ROI, deploy something more, and get some more ROI. You get return in a reasonable amount of time with short projects. It becomes almost a self-funding model."
"You can separate sales and service from the core," agrees Sturgill of TowerGroup, and it's certainly possible to roll out the technology piecemeal. But there are other factors that often trip up a sales and service upgrade: no high level executive champion, and no budget. Without a senior executive champion, new sales and service initiatives often don't get rolled out beyond their initial deployment. "You often have to get buy in from multiple silos," says Steadman of Fiserv. "Sometimes you'll get huge enthusiasm from one, but then you'll talk to the others and realize they aren't going down that road." Today, the budget for a sales and service upgrade usually comes from either a chief marketing officer or a channel head who believes the project will improve his or her sales and service regardless of whether other channel leaders sign up.
Culture Shift
One obvious solution, and one that some large banks are trying, is to appoint something akin to a chief customer officer. The idea is for this executive to have the clout to initiate and keep enterprise wide customer experience initiatives such as sales and service upgrades on track. These are relatively new positions and a final verdict on their efficacy is pending. However, Celent's Bart Narter is skeptical. In practice, he says, these executives have influence but no real budget. "There's no multi-channel P&L and P&Ls are what fund projects."
But the challenges for sales and service upgrades go beyond the issue of technology, budget and even leadership. To be effective, a sales and service technology upgrade requires the company have a particular type of organizational design and culture. As Sturgill points out, a multi-channel sales and service strategy won't work if the organization is not designed to look across channels and if compensation structures hamstring cross-channel cooperation and sales.
That comment is spot on, says Livesay. Change management has been a huge issue for First Horizon, which has spent significant time and money to train employees in preparation for deploying the new technologies. "A lot of the things we're doing are culture changing," Livesay says. "For instance, we're creating a new sales culture with common sales tools. These are dramatic changes for the company and you cannot over communicate."
