CRM Helps Formerly Conservative Retail Banking Loosen Up and Win Customers

Retail banking is among the most financially conservative (and regulation-laden) of all vertical industries, and as such, CRM has tended to focus on things like branch automation, fraud detection, straight-through-processing and other internally-focused efficiency plays. Interestingly enough, CRM vendors with a foothold in retail banking got there with largely operationally focused, "middle office" offers (as opposed to more traditional front-office CRM fare). Essentially, CRM was acting like "ERP" for services industries, where the product is an intangible and information is the currency.

Just by way of example:

• Onyx partnered with Metavante (2001) and was ultimately among the first partnerships to yield a straight-through-processing solution.



• Siebel acquired Eontec (2004) and proceeded to offer up branch teller and Internet banking services.



• Chordiant unveiled a full teller system (2004).

Of late however, I've seen a real change in how CRM is being applied in retail banking. This change is not surprising, given recent consolidation among retail banks and its inevitable result: increased commoditization of retail banking services. As such, the need to differentiate has moved way beyond operational efficiency, and the marketing domain in particular has become rife with opportunity to improve the effectiveness of CRM and increase competitive advantage.

To this end, I've identified three critical marketing trends:

1. The "new" event-based marketing. Of all the trends in retail banking that I'll mention, this is the most significant. Why? Because it provides the opportunity to do all kinds of good financial things, such as significantly lowering customer acquisition and retention costs, increasing customer profitably, decreasing churn and increasing cross-sell rates.

   Event-based marketing is when a marketing activity takes place as the result of a particular event, such as a customer applying for a mortgage or an account balance surpassing a preset ceiling. Banks have been doing that for a while. But what's new is how event-based marketing is now being applied. Rather than monitoring the customer-base for general events—the customer makes a deposit of $10,000—the company monitors the base for significant events relative to an individual customer's patterns—the customer makes a deposit of $10,000 when her normal deposit is $1,000.

   In this case, the teller might offer a high-yield certificate of deposit or suggest an appointment with one of the bank's wealth management specialists. For example, HDFC Bank, located in Mumbai, India, applied event-based marketing (in this case, using technology from Unica) in an attempt to increase its credit card activation rate. The results were impressive: Its incremental activation rate increased 30 percent compared to activation efforts without event-based techniques, and its debit card early activation program resulted in an incremental response of 5 percent over the normal activation rates.

2. CRM as innovation. In highly regulated and commoditized industries, product innovation is no longer enough to differentiate a business. As soon as one bank offers home equity lines of credit, so do the rest. Innovation, then, is less about offering new and different products or even lower "prices" and more about how the product is offered to the marketplace, such as banks staying open on Sundays or offering on-the-spot mortgage approvals.

   OCBC Bank, located in Singapore, provides a great example. When the bank's CRM director reviewed its business model in 2001 with an eye toward innovation, he noticed that the communications processes around the customer were an area of opportunity. To make a long story short, he championed an initiative to ultimately better understand all aspects of existing customers (including behavior and profitability) and use that as input into what services were offered and when, as well as to deliver leads daily to the front line to increase cross-sell rates and lower customer defection.

3. Cross-channel integration. Retail banks operate through many channels (the ATM, the teller, online banking, pay-by-phone), and more often than not the customer experience is radically different in each channel. Exacerbating this problem is the fact that retail banks are often part of a larger integrated financial services institution (consider Washington Mutual and Citi), where not only are channels not integrated but also divisions aren't integrated. This lack of integration is aggravating an already frustrating problem when interacting with multi-line, multi-channel banks, leading customers to wonder, "Why don't they know me here when the folks there already know about me?"

   Cross-channel integration insulates the customer from internal machinations and presents the customer with a 360-degree view of the organization (now there's a switch). In addition, it provides complete visibility of customer activity, rather than partial visibility of individual channels, enabling comprehensive influence of purchase decisions. Scotiabank based in Canada, has done this particularly well by, interestingly enough, limiting customer contact across all channels (in line with customers' requests) while managing programs across mail, call center and branch channels. Results included increased response rates, reduced mailing costs, managed call center volumes and tracked response results. Most importantly, it helped the bank move toward increased profitability.

There are other important CRM trends in retail banking, including:

• Advertising fading into history. With event-based marketing and CRM innovation, retention advertising is a thing of the past, as advertising campaigns become much more individualized and segment-specific. Widespread traditional advertising now can focus on brand support and mindshare capture.



• The demise of product marketing. Product marketing gives way to customer segment marketing.



• Analytics becoming the dominant technology. The underlying technology to all these trends is analytical CRM as expressed in campaign management, marketing resource management and sales effectiveness.

Retail banks that really excel in the marketplace will heed these trends and pay particular attention to analytical CRM and creating competitive advantage through CRM.