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The evolution of CRM

Financial institutions started customer relationship management databases in the '80s, but FIs never quite figured out how to use the information. In fact, they spent millions of dollars on processes that didn't produce much value. But times change and so have the FIs - they're visiting CRM with renewed excitement … and they're taking what they've learned to the ATM.

April 26, 2005

It all falls under the umbrella of customer relationship management - channel integration, personalization and customization - and financial institutions throughout the United States and Europe are trying to figure out how to take CRM data and apply it at the ATM.

CRM isn't new … it's just being used differently

CRM has been around since the mid to late 1980s, said Sam Gragg, marketing vice president of customer management solutions for Dayton, Ohio-based NCR Corp.'s Teradata division. But the use of CRM didn't pay off, he said. "Two years ago, CRM had a really bad name. Banks spent millions of dollars on this data, but it didn't deliver much value."

The use of CRM failed, Gragg said, because FIs didn't understand or know how to use the information. But that's changing.

Jerry Silva, senior analyst of delivery channels for Needham, Mass-based TowerGroup Inc., published a case study in January 2005 about OCBC Bank of Singapore, where the use of CRM data at the ATM has been successful.

OCBC is a leading FI in Asia with $73 billion in assets, 110 branches and a network of 410 ATMs. In 1999, the bank began using "relationship banking" at its ATMs.

Even though 90 percent of OCBC's ATM transactions were cash withdrawals, after implementing CRM at the ATM, time spent at the ATM decreased from 30 seconds per person to 10. And response to targeted offers, previously offered by mail, increased from approximately 2 percent to 40 percent.

"It positively impacted the bank's ability to touch the customer," said Silva.

Asian FIs have led the way, where the use of CRM is concerned, Gragg said. FIs in the States and Europe are just beginning to catch on. Silva said once CRM catches on the States and Europe, its usage at the ATM will separate banks that survive from banks that don't.

The ATM is "arguably the bank customer's favorite delivery channel," Silva said, evidenced by the 40 billion transactions that take place annually at ATMs across the globe. "The question now will be, 'How much more effective is your ATM over someone else's?'" Silva asked. "Alerts (for targeted services) at the ATM are a great example of that. The bank that does that first will have an advantage over the competition. … If you're shopping for a new bank, that's where you'll want to go."

Understanding how to use the data

The problem for most American FIs, Gragg said, is that they haven't quite figured out how to use the CRM information they've collected.

FIs need to dissect CRM data, he explained. "You need to understand those (banking) patterns with respect to everything else," he said.

Some banks, for example, look at how much a customer deposits or withdrawals relative to a year ago. "If there's a big change, the bank says, 'I can meet your needs and respond to you faster than anyone else,'" Gragg said.

But how does an FI determine what a change in deposits or withdraws means? And once the bank figures out what the change means, how does it take that information and approach the customer without scaring her off?

That's one of the FI's greatest challenges, said Matt Burns, vice president of electronic banking for Cleveland-based National City Corp.

"You want your financial institution to know you within reason," Burns said. "You just don't want your bank to know you too well."

It's a balancing act, he added. "You don't want (the bank) to seem Big Brother-ish, like 'Hey Tracy, we noticed you used a lot of ATMs over the weekend at the track. … Maybe you would be interested in a debit card program.'"

Gragg said FIs will learn to "balance" those "acts" through in-house sales training and remembering to respect customers.

Burns said National City is looking for balance now and expects to roll out a more detailed ATM CRM effort within the next 18 months to 24 months. "We already have fast cash preferences and language preferences," he said. "But we're going to do more, and frankly, there's a lot of excitement out there about it. … I don't feel that banks are unclear about what CRM is. All of the pieces are there. We just have to put the last few in place."

"All of the heavy lifting and ugly, scary parts are over," he added.

You don't have to whisper CRM anymore

And that's a good thing. Back in the good ole days, quite a few FIs got burned on CRM projects. Bankers had high hopes for a strategy that didn't have a solid foundation, Burns and Gragg agreed.

"A lot of us made numerous investments but the business expectations got way out in front of what could be done from a practical standpoint," Burns said. "Now we're figuring out how to bring all of those pieces and parts together to use them."

So maybe all that work wasn't a waste of time.

"Banks have always have had customer information files," said Rob Straub, director of solutions for Wincor Nixdorf Inc. (USA). "And those files were the genesis of CRM."

Customers were categorized by household income, number of children, etc., Straub said. "Basically, they would come up with a profile of typical services they should and would want to have, and then the banks would market those services to them."

But in order to use CRM across all channels, banks are going to have to fork out some big bucks. "The biggest cost is going to be in the back-end," Silva said. "'What kind of system do you have that can handle this CRM information?' is a question banks need to ask themselves." (Read Bringing it all together.)