BY JOHN GINOVSKY, CONTRIBUTING EDITOR

Suppose you had the ability to deduce, in an automated fashion, that a specific customer’s multiple $10 charges at gas stations meant that that customer drove, not an automobile, but a motorcycle. Wouldn’t the best next product to offer that customer, from both the customer’s and the bank’s standpoints, be motorcycle insurance, or something else—anything but a car loan?

That kind of customer segmentation and analytics will be absolutely required going forward. Technological tools coupled with enlightened customer service can build customer relationships and drive profitability.

With thousands of bits of information on every customer in hand, however, the challenge comes in making use of all that information at the precise moment that the customer may be apt to acquire additional products and services. Technology in place today, and in development, can address the challenge of what to offer, when, and at what price.

“[A bank] should really take into consideration the entirety of the customer so that it can understand the whole of the customer relationship for pricing. To do that you need a single customer view. You need to understand not only what accounts that client has with you, but the behaviors that customer [has demonstrated,]” says John Ramsey, who is vice-president and director, core product strategy for Fiserv.

“You’ve got two models in terms of bringing this stuff together,” says Andrew Steadman, director of product management and channel solutions, also with Fiserv. “You’ve got the model that says you need to give me all this information and I’m going to put it into my repository and that’s where I’ll get my single customer view from. [But there’s a] huge problem with that in terms of data organization, aging of data, things like that.

“Our view is very firmly to take the approach of leveraging a service bus so that we can reach out on a real-time basis and bring together the information that we need to be able to make decisions [and] use it in terms of engaging with the customer.” A “service bus,” he explains, is a set of infrastructures that allows, in a real-time basis through messaging, the collection of information only when it’s needed.

For most banks this will mean relying on one or more vendors to do the heavy lifting behind the scenes. Some vendors offer what they deem specific advantages over each other. FIS, for example, offers a warehouse of constantly updated DDA origination data from which it can derive information on individual customers. Raddon Financial Group has a long history of customer behavior analysis. Fiserv offers a suite of automated products to generate single-customer views.

Calculating profitability
“Profitability is the lynchpin from a segmentation perspective, to drive customer pricing,” says Dennis Maicon, vice-president for risk, fraud, and compliance at FIS.

Such a single view requires pulling together data from around the financial institution. “You have your transactional data,” he says, “whether it’s credit cards, ATM, checks, debit card data, even activities at the call centers to transfer or wire money—also online banking. Then you have your loans where you have your mortgages, credit cards, all of that activity. Then you also need to look at the outside information,” Maicon adds, “whether it’s various lists or demographics.”

A particular customer’s profitability will drive the bank’s motivation in either maintaining that person’s relationship or expanding it through special offers, also called segmentation pricing.

“We always come into an institution with a pretty robust profit model,” Raddon’s Leavell says. “We get all their profit data, and that’s quite a lot of information on an account level. What you’re trying to do is figure out which customers have which products and how much are they contributing to the bottom line of the institution…. The customers who should get rewarded are those who are contributing to the bottom line. If they are doing enough with [the bank] we can afford to give more back, such as a better deal for their increased volume, assuming the pricing makes sense.”

Making sure the pricing makes sense requires more calculation, assisted by technology. “What you have to figure out is how to get back what you’re losing in pricing or rate benefits,” Leavell continues. “How do you get increased business? How many customers do you have to move from one sector to another to make up for what you’re losing in the pricing program? In order to be able to get to that answer you have to have all of your customer data, all of your product data and profitability data together so that you can create the tiers and create ultimately your payback point.”

From back office to front line
“There are two things that we see as absolutely key to being successful in gaining a relationship—appropriateness and timeliness,” says Fiserv’s Steadman.

To that end, adds Leavell, if you are deploying a relationship pricing program, the challenge really comes in how easy will it be for the frontline person to gather all the intelligence that he or she needs to talk with the customer and then make a decision about the next product. “You don’t want to have the CSR sit there and look and see that Mr. Jones has $20,000 in relationships with us and then have to do the math and look at a rubric and then make the determination to give the customer an extra ten basis points on a CD,” Leavell says. “Rather, that should be automatic in the system.”

With such a tool in hand, the task for the frontline person becomes one of connecting with the customer, not operating the computer. “The best next thing you should be doing with a customer is the thing that adds value to the relationship. That may be gathering some information with the customer, asking whether they have a car or not. It may be cross-selling. It may actually be that the best thing to do right now is to say, `Thank you very much, we appreciate your business’,” says Steadman.

Reconciling old and new
Central Bank, Lexington, Ky., has used forms of customer segmentation and analysis for some time, including a basic customer relationship management system and an annual customer survey. Steve Kelly, executive vice-president for marketing and sales, says the bank has succeeded in lowering its new-account attrition from 10% annually to 4%, representing a savings of about $450,000 a year.

Now it’s starting a project with Fiserv to dig deeper into the bank’s customer database. “We’ll be able to look at mountains and mountains and mountains of data about our customers,” says Kelly, “so we have a more precise view into not only their transaction patterns but perhaps into their needs. Our goal is to integrate that data with what we already know and to refine the process, and then, through campaign management tools, push it out to the individual personal bankers in our organization who will be responsible for working with the customers.”

These customer-facing representatives will be able to “understand who’s in front of them, understand how profitable they are, understand what the next likely products and services are, whether the relationship is at risk, whether there are cross-selling or referral opportunities, and things of that nature,” says Julie Bondra, Central Bank’s executive vice-president, technology services. “That system will automatically talk back to the [analysis system] to further analyze [the data] and take the next step with that customer.”

What’s of utmost importance, she adds, is “to align the customers with what they need, rather than to sell them just to sell them.” â– 

Online will be customers’ chief criterion

“Online banking has continued to gain adoption over the past decade and will eventually outrank branch location in the list of decision criteria when a consumer chooses a bank,” said Bob Landry, vice-president and author of the study.

Banks are doing well in the online channel, says Landry. His report notes that an independent study of customer satisfaction by ForeSee Results/Forbes.com, in May, found that online banking scored 81 out of 100, while the similar ranking of the top 100 online retailers scored 79.

“High satisfaction and loyalty correlate with increased customer retention, revenue and profitable relationships,” the report says.

Fifteen years after its introduction, online banking is at the same level of adoption achieved by the automated teller machine in its first 20 years of existence. Looking ahead, the study reports, younger population groups represent a vast new potential.

“Young people have much more internet ownership and are much more connected with social networking than previous generations,” says Landry.

As the recession eases, banks should take advantage of online channel opportunities. The report concludes that:

• Banks that aggressively increase online banking adoption and expand its capabilities will have a competitive advantage.

• Mobile banking, e-billing, personal financial management, and check-image capabilities will expand access and usage.

• The approach to take is not just to achieve cost reductions, but to develop new business from the next generation of bank customers.

“Online banking is clearly the channel of the future,” Landry concludes.                             

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