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Bringing it all together

For years financial institutions collected information about customer banking behavior. Databases included everything from customers' ages and socioeconomic backgrounds to their shopping habits. But over the years, FIs have done very little with that information - information that is now stored in hard-to-reach databases that don't communicate with tellers or ATMs. 

April 14, 2005 by Tracy Kitten — Editor, AMC

In the 1990s, many financial institutions invested in costly systems for collecting and storing customer data.

What benefits have they reaped from these systems? Not many, said Sean Jevens, head of product management for Europe/Middle East/Africa for software developer CR2 Group. While they have gained a better understanding of their customers' habits, they haven't used the knowledge to hone their sales tools or improve customer service - two of the original impetuses for the CRM investment.

Integrationhighlights More FIs consider channel integration a priority. Celent Communications found that FIs will spend between $5 million and more than $70 million on integration projects that take 1 to 5 years. North America lags behind Europe, where ATMs communicate with hosts via the ISO 85/83 standard.

"The data needs to be closer to the customer," Jevens said. "The systems are static and in the wrong place. The customer and the teller need to be able to see it."

"You need to be able to offer the right product to the right customer at the right time," said Imad Mouline, chief technology officer for software developer S1 Corp. "You want to make sure you're giving the customer a consistent experience, regardless of the channel. You want them to be able to see all of their accounts, regardless of the channel. You want them to see one bank. And you want your employees to see one customer."

Ideally, Evens and Mouline agreed, the data would be updated in real time or near real time, with the same data available across channels. So, for instance, a customer withdrawing funds from an ATM or making a deposit at a branch would see those transactions when he logged into his online banking account later the same day.

The desire to better align their channels has grown in recent years as banks seek to differentiate themselves by building better distribution networks and offering the products and services their customers want. To do this, they must develop a single platform to manage customer data, one that can interact with all of their delivery channels. Such a system would help fine-tune CRM efforts. Customers wouldn't get an offer at the ATM if they had already accepted it via the Internet.

Jevens said FIs are becoming more open to the idea of channel integration now that the concept is being pitched as one with specific business objectives in mind.

"It's not just technology for technology's sake anymore," he said. "They want to be able to launch more products and services and to improve customer service, and channel integration can help them do that. It also gives you a better view of risk, which is important with the Patriot Act and other compliance requirements."

"IT architectures have become very complex and expensive to maintain. Outdated core systems are creating cost and process inefficiencies, as well as slower time-to-market for new products," said Isabella Fonseca, a Celent Communications analyst and author of a report entitled "A Road Map to Multi-Channel Integration."

Yet FIs face a number of roadblocks on the journey toward channel integration, Fonseca said. Banks have built and implemented many systems over the years, resulting in a highly heterogeneous environment with multiple different applications running on separate host systems. Most banks are just now beginning to replace outdated technologies such as OS/2 in branches and at ATMs and AS/400s for call centers, she said.

Channels are often managed separately from each other, with no exchange of information. FIs often refer - somewhat ruefully - to the "silos" of information within their overall organization. Breaking down the silos is seen as an increasingly important objective - but it won't be easy.

"(Integration) has always been and will continue to be a fairly daunting task," Mouline said.

In addition to technology challenges, FIs must overcome a culture in which their different departments fight for dollars - sometimes to the detriment of others.

"They need to go from only caring about what happens in their separate lines of business to considering what the overall IT strategy should be," Mouline said. "They need to look at the entire front office. If you're undertaking a branch renewal project, you want to do it with the aim of integrating the branch with all of the other channels further down the line. Without that kind of strategy, it will be harder to connect the dots later on."

It won't be an inexpensive fix. According to the Celent report, FIs will spend between $5 million to more than $70 million on integration projects that may take one to five years to complete, depending on the scope of the project and existing infrastructure.

The good news, according to Celent: FIs will be able to achieve 10 percent to 25 percent reduction in their annual IT and operations costs.

Channel integration is getting easier

Integration is becoming more feasible. Many banks are in the midst of a technology refresh, moving their branches and ATMs from OS/2 to Microsoft Windows and other newer and more flexible technologies. They are also updating their telecommunications networks with TCP/IP, a feature that is "critical," said Bill Waugh, Wincor Nixdorf's vice president of engineering. "Without it, you can't access the back end."

Waugh said North America is lagging somewhat behind other parts of the world in its adoption of these technologies because of its reliance on a legacy infrastructure. In contrast to the United States, where ATMs communicate with hosts via proprietary NDC and DDC protocols, Europe has relied on the more basic ISO 85/83 standard. Because ISO 85/83 only defines transaction data rather than specifying how ATM applications should run, it's been easier for European deployers to move to browser-based technologies, Waugh said.

According to Fonseca, FIs can choose to take an incremental approach to integration or adopt a broader, enterprise-level strategy. An incremental approach will yield immediate financial improvements, while the enterprise approach will result in larger cost reductions over time. The enterprise approach also yields a better balance between IT and operational savings.

Both approaches utilize middleware, to enable data flow between delivery channels or, in the more complex enterprise approach, as part of a central platform that connects all delivery channels with back-end systems. Such a platform provides transaction capabilities, business logic and customer data integration.

Jevens said middleware has gone from serving "just as a routing mechanism" to providing more intelligence and boosting CRM efforts.

Because many FIs are intimidated by the complexity of integration projects, Jevens said, it makes sense to tackle a single channel at a time.

"A phased delivery is vital as it enables the entire project to evolve in a cost effective manner, so at each stage of the process the business benefits can be recognized and realized. And from a budgeting perspective, it is much easier to get budget approval for each individual channel," he said.

Many of CR2's clients begin with the Internet, said Jevens, since its technology tends to be newer and more flexible than other channels. "The bank can use it internally as well, so that staff can pull up a single view of the customer."

FIs using CR2's BankWorld Internet application automatically also acquire CR2's Channel Management technology, which is implemented alongside the Internet application, Jevens said. "This means that, over time, new channels can be added quickly and easily to the channel manager, bringing new hosts on line at the same time while re-using existing integration efforts."

Waugh said ATMs tend to be "at the bottom of the list" for most FIs when it comes to channel integration. Because ATMs are part of a message-based system that has traditionally communicated with proprietary protocols, they are inherently more difficult to integrate with other channels. "It's a truly siloed channel," he said.

ATMs also have hardware limitations. "You have to make sure you have a powerful enough PC to get the job done," Waugh said.

While Wincor Nixdorf has a roadmap for driving ATMs via a J2EE-based application server in its ProClassic Enterprise architecture, Waugh said that approach is at least a year or two away for most FIs. In the meantime, he said, several Wincor clients are employing an "interim-type solution" by linking their ATMs to CRM databases via Wincor's XML-based ProSales tool. One client has created a unified CRM database for its Internet and ATM channels. It is also using ProSales to send general sales messages to LCD monitors in its branches.

Though it may lag somewhat behind other channels, Waugh believes FIs will ultimately make ATMs part of integration strategies. "If you move your other channels to a client server architecture, it only makes sense to bring the ATM into the same environment," he said.

S1 Corp.'s marquee client, Utah-based Zions Bank, is moving its Internet, branch and call center channels to S1 Corp.'s Enterprise platform. The bank expects to pilot the call center channel in the third quarter of this year. Plans to implement Internet and branch channel initiatives will begin once the call center phase is complete, said S1 Corp. spokesperson Peter Herbert.

No integration is planned for the ATM channel.

Jevens would like to see FIs move the ATM higher on the priority list because it is such a heavily used channel and one that shares natural synergies with other channels. For instance, he said, cardholders could register online to be notified when their card is used to withdraw more than a specified amount from an ATM, which would help allay fraud concerns. "(Customers) might even be willing to pay for that type of a service," he said.

"Traditionally banks have isolated the management of their ATM network through different business units," Jevens continued. "But now banks are starting to view this infrastructural network as part of their enterprise-wide solution. Banks are becoming aware that this powerful communication channel needs to be completely integrated into the channel mix, and that its self-service capabilities should and can be further exploited."

No matter which approach to integration is adopted, Mouline said, early planning efforts should include every channel. "You can do point-to-point integration with every channel and then tie in the back end. But if you don't embrace a strategy of ultimately incorporating every channel, you'll just end up running more and more proprietary code."