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Print-friendly version Posted 2/12/99
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Epsilon
Fair, Isaac
First Manhattan Consulting Group
"You charge them higher fees because you don't want them -- make them know they're not welcome." -- Seamus McMahon, First Manhattan Consulting Group
Bank Rate Monitor Unless you're rich, banks of future may not want you In the brave new world, we'll bank by phone and Internet and the financial institutions will have software up their sleeves to weed out unprofitable customers. By Lynda Edwards, bankrate.com
In the banking battlefield of the future, it's the affluent who will survive while the less well-to-do are left behind to cope with huge fees levied by the few financial institutions that will even offer them any business.
"You're in a war," John Groman, chief creative officer of Epsilon, a marketing software designer, recently told a roomful of banking executives in Las Vegas. "The battlefield is the Internet. Banks, retailers, news organizations are moving online fast. Executives that have 100 meetings before innovation -- they'll be destroyed."
Meeting of the minds Epsilon makes a product that Groman claims levels the playing field and that every bank in America wants: customer relationship management software (CRM). It will change how you interact with your bank -- or whether you interact at all.
Major players -- AT&T, IBM, Unisys, Diebold, Microsoft and Fair, Isaac (which authors half of the 4.5 billion annual credit reports in the United States) -- demonstrated CRM products at the Banking Administration Institute summit in December.
In their vision of a CRM-ruled future, consumers will bank almost entirely via phone and the Internet. What branches remain will operate as car dealerships do, staffed by "sales reps," not tellers. This new breed of bank employee will get a commission for each mortgage, loan or investment portfolio landed with a profitable customer.
Sales representatives will spot these profitable customers using CRM software to analyze an array of factors, including the customer's salary, age, marital status, debt, number of job and residence changes, education and property owned. Customers will be required to supply the data to open an account.
No more welcome mats Customers identified as losers by CRM might get checking accounts -- at a price. "You charge them higher fees because you don't want them -- make them know they're not welcome," says Executive Vice President Seamus McMahon of First Manhattan Consulting Group, speaking at another Vegas seminar.
Unprofitable customers will pay an additional price in terms of service. Each time a customer calls or e-mails a bank, the sales representative need only type his name to view his CRM profile. "You answer the cash cows first," said McMahon. "The losers can wait 20 minutes if they call in a question. The losers will just make you drown."
The inspiration behind CRM is fear. What safety net do banks have if they're invested in a wild stock market and a chaotic Asian economy, or, if the Senate passes a financial reform bill, they must conquer a new banking frontier like insurance? The answer was obvious to CRM designers: fat-cat customers.
Even then, there are risks. "An upper-middle-class customer can be a financial drain on a bank if he wants the wrong products or is in a field about to be hit with downsizing," McMahon warns. Banks will require customers to update personal data so CRM can track their changing luck.
Follow the potential The scrutiny actually begins on Day One: the financial formative years. Using CRM, financial institutions can identify which college students are likely to become the most profitable customers, based on their majors and extracurricular activities.
Ten years ago, bankers made such judgment calls based on their intuition and observation. But in mega-banks, a customer is literally one of millions. And the software serves another purpose for bankers pioneering on the Net.
"CRM data is what you show at shareholder meetings, what you show CEOs who can fire you, so they blame the numbers, and not you, for decisions," Groman said.
"CRM data is what you show at shareholder meetings, what you show CEOs who can fire you, so they blame the numbers, and not you, for decisions." -- John Groman, Epsilon
CRM isn't flagging the rich customers so banks can gouge them with fees. Banks want to make a profit off them through cross-selling a slew of bank products, ranging from car loans to personal investment managers. For example, CRM alerts bank sales representatives when a profitable customer buys a new business, so they can pitch employee insurance, pension plans or corporate credit cards.
Bundle of joy -- for banks Fair, Isaac, known for its credit bureau rating system, has developed software that notifies the bank representatives when a profitable customer has a baby. It e-mails a balloon-festooned "Congratulations!" while the bank mails out home improvement loan applications with photos of nurseries attached.
Oracle, a leading Internet consultant for bankers, suggests collecting more than demographic and geographic data about customers. It recommends a CRM that warehouses "psychographic" data: hobbies, political opinions, magazine subscriptions and "actions," including clubs joined, recent purchases, restaurants and designer boutiques frequented. This allows banks that own unrelated businesses like casinos or hotels to market those ancillary services as well.
No-frills customers get bum's rush The result: CRM software will give banks in this ultra-competitive business an easy way to shed unprofitable customers, according to executives who attended the conference. Banks don't want a no-frills checking account customer whose average balance is less than $1,000 and who pays his low-interest credit-card debt in full each month. Unless he's paying off a loan on a Lamborghini or a mortgage on a mansion, he'll be treated like an unwelcome relative.
"Raise his ATM, credit card and account fees till he leaves," is McMahon's advice.
Many large banks prevent such troublemakers from opening accounts at all with computer systems such as Debit Bureau, according to a recent Economist article. The Debit Bureau database tracks consumers' check-writing histories.
A serial check-bouncer often will be rejected by a bank. But according to its own press release, Debit Bureau also downgrades a customer for reports of lost or stolen checks. Debit Bureau also produces what it calls "household-specific demographic data." Consumer advocates worry that's a device for identification of low-income neighborhoods.
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The human factor factored out Bank tellers who ignore Debit Bureau's bad grade and open an account for such a customer anyway now may pay with their jobs. On Dec 1, Debit Bureau added Audit Report to its repertoire. Audit Report notifies a bank teller's boss when an account is opened despite Debit Bureau's identification of the customer as a high risk.
Where are no-frills customers to go? Well, biometric ATMs may be an option. They identify users by fingerprints, facial dimensions or distinctive marks in the iris of the eye. Once a person is in the database, he can cash his paycheck at a biometric ATM for a fee of 1% to 3% of the check total. Biometric ATMs are being upgraded to issue travelers' checks if a customer doesn't want to lug a month's cash earnings home on the subway.
"Hey, I had friends at American Express who lost their jobs because they couldn't identify the profitable customers," Groman said. "I liked them. They were good people who cared about people. But in the global economy no one cares if you're a nice, good institution. Well, maybe they would if you knew how to market goodness."
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