Community banks are beginning to reap the benefits of customer management techniques that many big banks still find tough to handle.
Experts in this area say small banks have an easier time overcoming the organizational challenges of customer relationship management. CRM is an increasingly popular practice aimed at improving profitability by encouraging customers to use cheaper delivery channels or open more accounts.
CRM efforts at First National Bank of Pennsylvania in Hermitage and at Farmers and Mechanics National Bank in Frederick Md. have brought dividends faster than similar projects at some bigger banks. Many large banks have been slogging away at CRM for years, but are more burdened by structures that emphasize product, not customer, strategies.
"Small banks have some advantages in customer relationship management because they have built themselves around centralized systems in an environment where people still talk to each other," said Mary Knox, a senior analyst at GartnerGroup.
First National of Pennsylvania, a $1.3 billion-asset subsidiary of F.N.B. Corp., began its CRM campaign a year ago at l6 branches it had acquired over five years. The bank knew that it did business with 55% of the households in one of its markets but that it only had a 37% share of "wallet" - that is, of possible accounts - in that area.
The CRM program helped First National learn that 25% of its customers were creating 100% of its profit - a ratio that is typical of all banks - and that branch employees were spending the majority of their time with money-losing customers, executive vice president Thomas Hebble said in a speech at American Banker's Customer Relationship Management symposium last week.
First National installed software to help it segment its customer base and devise strategies for each segment. In the past year deposits rose 4.5%, nondeposit income 26%, and net income 12%. The profitability of its top customers also rose, by 12%.
The goal of the program, which cost less than $500,000, was to make "every branch manager operate the branch as if it were his or her own franchise," Mr. Hebble said.
Fundamental training was necessary, including computer basics and guidance on automating progress reports. A program started in the second half of the year rewards employees for their individual success as well as that of their division and the branch.
Two and a half years into its customer relationship management program, $1.7 billion-asset Farmers and Mechanics National says employee incentives have been the biggest contributor to its 25% increase in profits. Speaking at the conference, Dawn M. Heaton-Allen, senior vice president and chief relationship officer, said customer relationship management "is all about measuring the behavior" of the employee."
After investing $300,000 in software and training, Farmers and Mechanics identified a direct link between aggressive marketing by employees and improvements in customer profitability. The bank now tracks the number of calls and customer profiles completed by each staff member each week, and analyzes its database monthly to produce marketing reports.
Since implementing incentives similar to those in place at First National of Pennsylvania, Farmers and Mechanics has had increases of 7% in deposits, 13% in loans, and 5% in noninterest income, Ms. Heaton-Allen said. Employees receive quarterly monetary rewards based on their own achievements plus the successes of their branch and division.
Both banks hired Customer Analytics of Dallas to help implement the software and draw up marketing and sales plans customized to each customer group.
Every Farmers and Mechanics employee, including the CEO, makes a minimum number of marketing and follow-up calls.
More often than not, Ms. Heaton-Allen said, "I am forced to send the employees back to the drawing board because their goals are too aggressive."
Big banks have had success in CRM, but it usually takes them longer to make it work. Royal Bank of Canada, for example, has been plugging away at CRM for years, having installed one of the industry's first customer databases, in the late 1970s.
Shauneen Bruder, senior vice president of North American markets, told a conference audience that without strong support for CRM from senior management "you just don't have the fortitude to put your foot forward for the number of years that this requires."
Christopher Beede, vice president of finance for Pittsburgh-based PNC Financial Services Group's regional community bank, said: "There are no home runs, no panaceas" in CRM. "You just have to keep getting those base hits."