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Automation, CRM bring consumers back to the branch

Over the last decade, branch banking has seen incredible expansion in the United States, with the number of local branches increasing from 55,000 to 70,000. And FIs are learning that successful CRM most often starts and ends at the branch.

September 28, 2005

Michael Smaney is director of financial services solutions for FileNet Corp., a technology provider to the financial services industry. Smaney evaluates technology trends, problems and issues facing financial services organizations.

Over the last decade, branch banking has seen incredible expansion in the United States, with the number of local branches increasing from 55,000 to 70,000. This growth is a far cry from pundit predictions that the Internet would end branch banking as we know it.

But that doesn't mean there hasn't been a transformation in the way we approach operations in our local outlets. And certainly that is not to say that there are not opportunities to continue improving the way we serve our customers and run our businesses.

What's Important The number of FI branches in the U.S. has increased by 15,000 in the last 10 years. By integrating ATMs and other financial channels, FIs are better able to implement CRM. The branch plays a central role in enterprise-wide CRM.

Changes in branch banking during this period of growth foreshadow the wider potential for improvements that are now on the horizon. Market evolution has transformed what happens in today's branch environment.

While 80 percent to 90 percent of new accounts are still generated at the branch, the enhancement of branch capabilities to offer more products and services has improved customer affinity with this channel. But branch banking has definitely morphed.

According to research conducted by Boston-based Celent Communications, only 45 percent of branch activities are transaction related (i.e., deposits, withdrawals, transfers, etc.). With this shift to in-branch sales and service there is an imminent need to step up and better serve our customers.

The desire for cost efficiencies and improved operating margins drove many of the environment's early changes, such as self-service kiosks inside the branch and expanded functionality of ATMs.

Those and other operational changes have enabled banks to reduce the number of employees needed per branch by approximately 20 percent. But, even as administrative staff is being cut, financial institutions must now invest in sales and service staff to support this new mix of branch activities.

The key question is no longer how to be more efficient, but how to generate greater revenues and build market-share.

Are your customers doing the selling?

The cornerstone for transforming branch banking into bigger returns is process.

In the past 10 years, banks thought customer relationship management (CRM) systems were the primary way to expand relationships and deepen customer loyalty. But after heavy investments in those tools, many FIs have learned that information integration does not drive revenue generation.

While banks may have integrated information about the customer on a single screen, they have not integrated the processes necessary to fulfill that customer's request in a seamless and transparent manner.

Michael Smaney

To demonstrate their true potential, CRM systems must interface where client activity actually takes place - around transactions. Typical CRM systems deal only in customer interactions, instances where there is contact made with the client.

But the opportunities for generating greater cross-sell revenues exist where FIs can deliver relevant offers to customers related to life occurrences, or as a result of their own requests. We must initiate cross-sell processes in response to how customers engage us, not as a result of scheduled promotional or internal incentive programs. Doing so ensures that customers receive more appropriate offers that will resonate with their individual realities and result in greater income for the bank.

This can be easily accomplished by connecting data gathering with business process and information technologies such as those found in enterprise content management tools. ECM, for instance, makes systems more intelligent and effective.

Instead of relying on employees to identify opportunities and initiate actions based on a manual review of reports and client trends, we can now link transactions to CRM and then automatically launch cross-sell processes that empower branch and service employees with offers and information.

A tangible example of how banks can turn information-gathering into revenue presents itself in a customer's simple request for a mortgage payoff amount.

The first process launched would be fulfillment of the request. But if branches are to improve their performance as sales outlets, this simple service need must trigger additional actions. The most important consideration is whether this request signals a potential loss of business for the bank.

While the customer may just be paying off his mortgage, he is most likely planning to refinance with another lender or purchase a different property. The most critical consideration for the FI is how to best assist the customer. The customer may be interested in loan rates for a refinance or advice on investment alternatives, capital gains issues or financial planning.

By launching a separate business process that leads to a branch manager engaging a customer, your systems can open the door to a stronger relationships.

In this scenario, a system that included CRM, a business rules engine and process management would immediately launch two work items as a result of the customer request.

First, the payoff amount would be communicated to the customer. Simultaneously, the branch manager or service representative responsible for this client's account would be notified to contact the mortgage holder.

This kind of real-time business analysis and response to customer realities enables more appropriate cross-sell offers and creates the possibility of stronger customer retention. This process-driven approach focuses both human and financial resources on maximizing existing customer relationships.

Have you lost a customer today?

Service is another critical consideration. At the most basic level, banks lose customers because of poor service.

As marketing and new customer acquisition costs increase, finding ways to improve existing customer relationships has become increasingly important in the search for better bottom-line returns. Because customer profitability increases as their relationship with the institution matures, FIs must expand their focus on improving service and ensuring loyalty.

According to Harvard Business Review, "A 5 percent reduction in customer defection rate can increase profits by 25 percent." One global FI found that retention rates were 96 percent for clients that had three or more products with their bank. For customers with only one product, that retention rate dropped by almost 20 percent.

Regardless of the industry, most companies lose up to 10 percent of their customers each year.

In the financial services industry, we have focused efforts over the past few years on improving efficiencies. At this point, it is important to recognize that cutting costs by 10 percent has the same profit impact as increasing retention by 2 percent. Customer retention must be our primary focus.

By enabling immediate access to customer information and facilitating real-time issue resolution, FIs are striving to eliminate the delays and frustrations that drive customers to make changes. Instead of needing a product expert to handle complex or specific requests, today's leading-edge systems leverage enterprise visibility and business-process functionality to provide branch employees with the tools and information.

Linking CRM and business processes in the area of customer life events also is important.

When a client reaches retirement age, establishes an account for a child, or adds a spouse or significant other to his account, we know he has experienced an important life change. By turning this knowledge into action, we have an opportunity for local branch managers or service representatives to engage the customer in a dialogue about financial needs and plans. In coming years, this will be the key to building a stronger banking business.

Did you leave money on the table?

Banks can take these enhancements even further with effective sales integration. FIs must improve enterprise-wide visibility to ensure they have a clear view of their customers and the products and services that are relevant to those customers. With Gramm-Leach-Bliley (Read ABA says security requirements should be uniform, risk-based.), the scope of services today's FIs can offer has dramatically expanded. To capitalize on that opportunity FIs need to integrated siloed enterprise systems, information and business processes at the branch.

If customers' financial needs are being met, most of them remain satisfied. By leveraging business-process and information technologies, FIs have an opportunity to transform the branch environment into a sales and service channel that deepens customer relationships and builds long-term loyalty.