An analyst at Financial Insights came up with the following flaws in banks' privacy policies. Gramm-Leach-Bliley compliance is very expensive, but it's mandatory and banks' can use its requirements to their advantage in solidifying relationships with customerss.


• Assuming customers want to opt in or opt out. Many customers would prefer a choice in between giving the company carte blanche to share personal data and a blanket no. They'd prefer something more like a menu of privacy policies, just as they get a menu of services.

• Using convoluted and complicated language for privacy policies. Boilerplate statements meet legal standards. But they create customer confusion and suspicion.

• Looking at privacy as a database problem, instead of exploring the use of rules-based middleware engines and governance systems.

• Missing the chance to use privacy regulations as an opportunity to clean up customer data to deliver a broader business benefit. Behrman estimates 50%--and perhaps as much as 80%--of data captured on customers at a typical financial-services firm is never used.

InformationWeek > Privacy > Quick Take: Mistakes Banks Make About Privacy > July 14, 2003

Technology deployment doesn't magically increase productivity. McKinsey just completed an in-depth analysis of the retail banking sector to see how technology enhancements can pay off in productivity gains.

The McKinsey team found that successful IT deployment in retail banking typically had three characteristics:

Applications were tailored to sector-specific business processes and linked to performance levers. Retail banking applications, for example, broke bottlenecks in the lending process by automating once-manual steps in credit verification and authorization.

Applications were deployed in sequence to draw on learning and capabilities built up over time. For instance, a bank might first automate customer data capture and storage, then used the data to develop enhanced decision-support capabilities in a CRM program.


Managerial and technical innovation evolved together in tandem with IT applications. One bank used imaging technology to automate loan processing and innovated by diffusing the new platform to build scale.

Over time, competitive advantage through IT alone is difficult to sustain. However, IT investments can be effective when coupled with advantages of scale, proven business processes, and the ability to apply learning from one IT project to the next.

Retail banking saw a high baseline of productivity growth in the 1990s but despite increased spending on IT, it did not experience any acceleration. IT investments related to increased automation, creation of and support for alternate channels, and scale enablement had greater impact on productivity (although not always profitability) than those related to decision support and core back-end and front-end infrastructure.

McKinsey Global Institute
How IT Enables Productivity Growth
October 2002

Profit margins at banks are shrinking. Falling yields are crushing spreads; but, banks have little room to move on reducing rates on deposit products. Experts cited by The Wall Street Journal note that those who can diversify into fee-based lines from securities underwriting to transaction processing to cash management to merger advising will have the softest landing.

Larger banks hint that the struggles of small and mid-sized banks will stimulate their further push into new regional areas--by acquiring community and regional institutions.

Community banks can put in place the tools necessary to increase fee-based income--ensure that all products and services can be accessed from the Web; Use technology to further reduce costs in customer service, improve customer database and CRM capabilities to reduce runoff and increase products per customer.

The Wall Street Journal
Banks Face a New Problem: Sagging Margins
June 17, 2003

E*Trade Portable Mortgages Stir Calls
E*Trade's portable mortgage product is a grand public relations and marketing strategy, but the product's role as a consumer breakthrough is doubtful. In a rising rate enviornment, consumers won't want the product. Furthermore, it can't be used for refinances. Lastly, there's no secondary market for it and it's unlikely Freddie or Fannie has the stomach for aggressive new analysis given the recent scandals. The campaign reminds us of E-Loans's "consumer rights" stance on FICO credit scores a few years ago. E-Loan very publically declared it would stand on the side of the consumer against the "giants" of the mortgage industry, by publically disclosing the credit scores of consumers. Nevermind that FICO scores are the intellectual property of Fair Isaac and E-Loan almost immediately had to radically mitigate the process. The press had taken the bait.

E*Trade originated $6.2 billion in mortgages in 2002, way less than 1% U.S. market share. But, as Robert Bernabe, head of E*Trade's retail mortgage lending group noted to The Wall Street Journal, "One thing's for sure; everybody now knows E*Trade offers mortgages."

The Wall Street Journal
E*Trade Portable Mortgages Stir Calls
June 18, 2003

Online Bill Payments to Double This Year

In addition to the usual growth statistics, the article reinforces the belief that the most meaningful metric to use in assessing the ROI of online bill payment is customer retention.

Online bill paying is proving to be a good customer-retention strategy, says Jim Van Dyke, principal analyst at Javelin Strategy and Research. "When Web finance first took off, everyone thought it would be about a lower cost of transaction," he says. There have been savings in that area, but companies have benefited even more from improved customer relations. "Customers using these things stay with their financial institutions for a much longer period of time," he says. "Banks can dramatically increase profitability by lowering attrition rate."

Information Week
Online Bill Payments to Double This Year
June 2, 2003

Contextual Marketing

Seth Godin talks about the death of interruption marketing to be replaced by the "ideavirus" that spreads from product advocates to new prospects.

Pop ups, banners, TV, and radio commercials disrupt our interactions with a product or service.

A marketing message is most effect when it's in the appropriate context. When the message is relevant to the situation, background, or environment in which it lies, it has a much greater likelihood of successful reception by the customer.

It seems obvious, but most of today's websites are full of "carnival barkers"--named after the guy who sat in front of the sideshow loudly and excitedly trying to lure us in to see the Amazing Dog Boy or the Incredible Pretzel Girl. Except, these want us to apply for a CD while we're checking mortgage rates.

A healthy number of retail banking customers have adopted online banking activities, such as checking a balance or transferring funds between accounts. Most credit unions and small banks, without giving much marketing support to the channel, report about 10% of customers are active online banking users. Institutions that have been aggressive in gathering signups, on the other hand, typically see numbers in the 25% to 30% range.

Online bill payment, however, seems to lag behind. According to Gomez, only 28% of consumers banking online were online bill payers.

Yet, a recent Gartner study suggests that online bill paying is growing rapidly—but outside of financial institutions and at the biller sites themselves. Consider the following statistics from the Gartner study:

• 40 million persons in the United States will click through their utility bills online, up 38% from last year.
  
• 79% of online bill pay users view bills at the biller site; only 10% use a bank consolidation service.
  

"Perhaps the most important diagnostic question is whether the executives who originally decided to implement the CRM system hoped to use it to effect more change than the organization could really support."


Implementing a broad-scope CRM effort with all the bells and whistles can create such radical changes in work processes at a financial services organization, that the whole change process itself comes to a grinding halt. When you start an exercise program to lose weight after years of inactivity, you don't immediately do sprints at high altitude. The shock to the system could injure you, sidelining your efforts to ever reach your goals. Likewise, organizations should scale back aspirations for their CRM efforts, focusing first on the one or two projects that can lead to great returns consistent with organizational strategy--and that give employees the time to adjust to the change.


The McKinsey Quarterly - 2002 Number 4 Technology

How to Rescue CRM

Small banking institutions hold roughly half the assets in the United States. The banking war hasn't been won by the Wells Fargos, BofAs, and WAMUs. Why do people and businesses keep their money in places that most of the time have fewer resources and products to help them? In the hopes of better service. And what is better service to these customers? Individual attention, understanding of product needs, courtesy, shorter lines, competitive products, listening.

But, how are small banks delivering on better service? Results are mixed. Account turnover ranges from 15% to 30% at most banks, regardless of their size.

What has been the response by small banks? Mass media advertising talking about how they're a "relationship bank." How you're "not a number." Folksy messages with smiling tellers and loan officers helping grateful customers. These messages fail to break through the clutter. Undifferentiated, interruption messaging isn't cutting through. Companies pour money into ad campaigns to replace the accounts they lost in the last year from customers who feel they failed to deliver on their promise. Banks say "the difference is our people," yet so many people I know in the banking industry have often worked at two or three competiting institutions. Were they poor employees when they worked for First Local Community Bank, but now that they're at Woodland Local Bank they've had a customer service turnaround?

"Siebel Systems, Inc., [is] still recovering from its worst financial quarter ever. . . . Most of its revenue comes from consulting and maintenance fees on existing contracts; the lag in the economy means many customers aren't buying software."



Reality check: Most of those customers won't be coming back to those huge CRM systems. Fewer folks wants to hold all their customer-facing software and processes hostage to Siebel consultants. Look at the percentage of Siebel revenue at any quarter--the percentage of revenue from consulting and maintenance is the real modus operati. The failure rates continue to be so high because the software presumes a functional level that most companies only read about in business books and magazines; it doesn't exist in their reality.



Most companies are better off taking on their CRM initiatives one project at a time, then demonstrating the value to the organization after a test period. They don't have that luxury with a giant CRM implementation--it's all or nothing.



Information Week September 9, 2002

Siebel's CRM Upgrade Goes Beyond Customer Tracking

While extremely expensive CRM bloatware is often an easy target, many of the good reasons companies experience problems with their CRM initiatives reside inside their own organizations.


Some reasons given from companies mentioned in this thorough article from CNET News.com:

• Departments that have never had access to customer data have to be trained in how to work with it.


• Internal bickering is common; some departments don't want to share data with others.


• Companies don't spend a lot of time or energy on the data. Without the data the apps may be great, but they don't work.


• Customer data is scattered across multiple divisions and is stored in incompatible formats. Information in spreadsheets, databases, and in the brains of salespeople.


• Companies try to do everything at once.


• Project participants think the software can do things it can't, then they find out the truth halfway through the project.

"Rather than reject CRM methods as too complex or deconstruct CRM into its component parts, community bankers should realize that a CRM philosophy of doing business can be adopted incrementally throughout an organization."


This article by a Sheshunoff consultant is an excellent overview of implementing a CRM program in a community bank setting. One often overlooked component of a CRM strategy is product. Are you really focused on customers if you serve the same stuff they don't want, but with better service? The author includes a product audit for price and features as part of a CRM strategy. Better product offerings can increase fee income, lead to better retention, and improve the bank's ability to measure the true cost of providing its services.



Hoosier Banker - August 2002

Are CRM Strategies Within a Community Bank’s Reach?

". . . probably one of the more interesting ramifications of Web services . . . . A company could take certain functions from, say, a Siebel application and a Microsoft application and roll them up into a portal for use by certain employees. Siebel and Microsoft are providing the functionality, but they have lost the identity because of the way they are now delivered."



What does the above quote mean for financial services companies? It means that one of the barriers to CRM implementation--getting users such as call center reps, wealth management advisors, and field loan officers off their pet platforms may no longer be a necessary step in successful CRM integration. It also means that individual companies can customize their own interfaces without expensive consulting integrating. IT departments can still deploy a Siebel system that the salesforce hates because they can make the front end unique to each department.



Interestingly, this could remake the CRM industry. All Siebel's vertical integration could slowly be rendered obsolete and the additional, critical revenue CRM vendors gain from customization and consulting wouldn't bring in as much revenue.



CRM Daily - August 21, 2002

Can Web Services Make CRM Lovable?

We're all in favor of privacy. Some articles, however, seem to suggest there's a wave of privacy violations taking place among financial services companies and that consumers should care enough to stop it.



Why do companies buy consumer information? Companies buy third-party lists in an attempt to focus advertising campaigns on the individuals most likely to buy their products. This, hopefully, lowers their acquisition costs, creating downward pressure on prices. Good marketers look at campaigns after they've run, find out what didn't work, then refine their offering.



Gramm-Leach-Bliley was a nightmare for institutions to comply with. And in a small survey of friends and acquaintances outside the financial services industry, I asked about the slew of mailings they received over the last year on privacy policies. Only a handful of people had any awareness of the mailings, and not one person acted on them.



The cost of complying with a giant privacy bureaucracy will be passed on to consumers in the form of higher prices. Furthermore, companies will return to mass media advertising, targeting broad sections of the population with irrelevant messages. I'm not in the target market for denture cream or even prescription allergy medication, but I'll sure be hit with those messages if broad targeting is the only way for companies to find the right consumers.



Information about individuals has been widely available for years through public sources. Identity theft was easy to achieve 10 years ago, too, via court records, DMV, stealing mail, and picking through trash. How many of you handed your credit card to a stranger in the last month? Probably everyone, if you ate in a restaurant, shopped in a store, or bought from a catalog.



On every website I've ever worked on, the privacy policy had the lowest number of page views each month. Consumers readily fill out personal and financial information on websites when they expect a payoff for relinquishing that information--better targeted products, loan approval, or even a correctly addressed package.



The Street.com August 30, 2002


California Privacy Bill Goes Quietly Into the Night

"Losses at some banks run as high as 35% a year, and even the best ones post 15%-a-year losses. The difference between 15% and 20% attrition for a bank with two million customers can amount to $15 million a year in profit loss and $65 million a year after five years.


It's remarkable to us that many banks spend so much on customer acquisition - for example, on training, promotion, and advertising - and then leave the back door wide open."


This study by Dove Consulting attributed 35% of attrition to dissatisfaction with service and 15% with features available at competitors. Banks could have resolved many of these issues through better communication with customers and the sharing of customer information (including dissatisfaction and requests for new products). Complaints could have been made to a call center rep one evening after a customer noticed an odd fee while paying bills in the evening. A common customer information system across channels could have flagged the record so the branch manager could follow up with this customer to ensure the problem was resolved.


Unfortunately, customers cycle in and out of banking relationships silently and companies press branch managers and loan officers to sign up new accounts so the bank remains net positive each month in its account holders.


American Banker August 22, 2002


Mind That Back Door While You Greet New Customers (subscription required)

" . . . some companies are realizing that customer support can be a gold mine of market intelligence. Analysis of incoming phone calls, E-mails, and other communications can help managers spot market trends, better understand customer likes and dislikes, identify problems with products, even capture ideas for new opportunities." The article then goes on to talk about companies using $100,000 call-center monitoring systems.

Great lead, wrong conclusion. David Espenschied and I sat in on a few hours of customer service calls at a time to design e-business applications at United California Bank. We quickly realized that 90% of customer service calls at that time dealt with rudimentary requests such as balance inquiries and branch locations. We devised a script whereby CSRs could smoothly transition to offering a brief tutorial on telephone banking and online banking. Usage of both channels shot up immediately and CSRs felt much more comfortable asking for email addresses (so they could send instructions on how to use telephone banking and online banking).

And phone inquiry isn't just limited to customer service; listen in on the loan group, cash management, your internal help desk, and whatever other phone systems you have in your company. The wealth of knowledge and ideas for integrated channel management is staggering.


Information Week August 12, 2002

Hidden Value in Customer Calls

"And the real trick to CRM is not treating everyone well; it's treating the right people well based on their profit profile to you." This quote is from the head of PwC Consulting's CRM practice. This is such a common belief, particularly in the financial services industry--that "most valuable customers" are the ones to lavish good service on; "unprofitable customers" should be shed like extra pounds.

Everywhere I've seen this strategy in practice, it's a recipe for disaster. A retail banking customer might be unprofitable to your bank because her primary banking relationships are with other institutions. Your bank has done nothing to earn a deeper financial relationship with that person. Someone I know has a couple hundred bucks sitting in a checking account at the bank she worked at out of college almost 15 years ago. Today, she's an executive earning six figures with investments, college savings, 401(k), the works at another institution. Yet, that bank sees her as an unprofitable account that their business analytics package will tell them to drop next time she calls into the customer service center to question a fee. Few companies have complete enough data on customers' outisde business relationships to not make serious mistakes.


Internet World June 2002
Going Global

How much data collection from customers is too much? Certainly asking for information from customers then never using it to service them better is bad practice (and, some could argue, an invasion of privacy). Yet, accumulating mass amounts of data for reporting systems affects salespeople, too. They're the ones that have to fill out profile after profile and call report after call report. But, it's for their own good, right? Maybe not. During the 1982 recession, sales consulting firm Huthwaite surveyed companies to see how the recession was changing the way they worked. As a result of the economic downturn, 75% of surveyed companies said they were spending more time filling out internal paperwork than they were before the recession. The same percentage said they were spending more time attending internal sales meetings. Time was taken away from customers to justify reporting on how much time salespeople were spending with customers . . .


Strategies for Hard Times (Registration required)
Huthwaite, 2001

The April 2002 issue of Technology Review contains an article by Michael Shrage that hits a point everyone learned in Microeconomics 101, but that many technology vendors seem to forget.

"Adopting and adapting an innovation is a cost of doing business. The price of procuring that innovation is just one variable in the total cost equation. Innovators that compete on price, features, and functionality are missing the trend. They need to understand the costs associated with how innovative features diffuse throughout the customers organizations."

The price they charge and the cost to the customer are NOT the same thing. Customer always demand feature-laden systems, but the organizational cost of feature-laden "bloatware" makes adoption by the organization more difficult.

This is my business, and I haven't touched Microsoft Visio or Project in a few years because I don't have time to understand them for the minimal amount of features I really want to use. Instead, I do my diagrams in a program called Inspiration, geared toward decidely low-tech teachers. I manage projects in Outlook, QuickBooks, and Excel.

CRM success rates are so low in part because software from companies such as Siebel Systems is so feature-laden that it's not worth the time and effort for the users to understand it. Yet, I don't anticipate a change in this trend as the decision-makers who purchase the product attempt to appease the data "needs" of disparate parties throughout the company. The RFP process in this case is fundementally flawed because it overemphasizes product features over the cost of implementing them effectively and deriving ROI from them.

Technology Review April 2002
The Price is Right

August 2002 issue of Internet World has an article on CRM in financial services. No ground-breaking information. One interesting point, however, is from an Australian mortgage broker who mentions CRM as a barrier to competition from a technical standpoint. In a consolidating financial services market, the company with a fully implemented CRM system might be poised to integrate acquired companies faster. The acquiring bank, for example, could integrate the new customers more quickly and see ROI faster and reduce the inevitable attrition the always occurs in bank mergers.


Internet World August 2002

Leveraging the Customer

Wells Fargo announced enhancements to its small business banking product on August 8th. Business Online Banking Plus service allows small business owners to assign different user access levels, manage access to accounts by user, and organize accounts for multiple businesses. If true, it's an admirable technical accomplishment, given how difficult it has been for many of the third-party providers to provide this when it's been requested by clients.

Still, EBG has been pretty underwhelmed by the Wells Fargo business banking offering. Rather, we're more impressed with the PR machine that has led everyone to point to them as the undisputed leader in the online banking space. We have an account with Wells. It took two weeks from the date we opened the account to the time we received our online banking passwords. The business bill pay interface is clunky and it takes forever to set up billers. Wouldn't it be great if you could import them from your accounting software?



The press release for the new small business banking product

http://biz.yahoo.com/bw/020808/80061_1.html