Meeting tomorrow’s CRM challenges in retail banking

The global banking industry is entering a period of unprecedented change. As difficulties in the U.S. mortgage market spawn a worldwide credit crunch, banks in all sectors are scrambling to maximise profits and mitigate risk. Retail banks – at “ground zero” in the credit crunch – must also meet new expectations for social responsibility.

Some banks are withdrawing offers for 100% mortgages, charging larger fees for high loan-to value contracts, or instituting fees for the privilege of locking in a loan. Other banks are temporarily deemphasising mortgages to build capital through innovative savings, wealth management or private banking programs. In addition to courting customers with higher credit ratings and incomes, they may identify those with mortgage contracts that are relatively mature or have lower loan-to-value ratios.

“In dealing with a lower growth environment, banks must be able to bring new products to market rapidly and move beyond mass market products to provide true customer-focused product bundling and pricing,” says Datamonitor. “This requires banks to be far more nimble in changing [their] products, channel focus, and processes to capture opportunities from shifting customer trends.”

Looking Ahead

The same could be said for the higher-growth environment that is appearing in selected spots around the globe. Although economies in both the United States and Europe may be in turmoil, many emerging markets are enjoying sustained growth, according to the World Bank’s latest Global Economic Prospects. Growth should also remain strong in the developing world.

Changes in the global economic landscape offer huge potential for financial institutions to recoup the losses they’ve experienced in the developed regions. But as retail banks around the world compete for a share of these rapidly growing markets, they must find better ways to identify, attract and service customers that are the best fit for their business.

This involves developing product and service innovations that strengthen relationships with this group, offering the precise products and services each customer needs at the most appropriate time and ensuring consistent interactions across multiple customer touch points. Retail banks must also meet increased demands for automated, self-service transactions through the Internet, mobile phones and other non-traditional channels.

In addition to enterprise-wide strategies and processes for effectively managing customer relationships, these goals require robust information technology that can integrate and automate key customer-facing processes and supply the analytics for tasks such as database marketing, target profiling, segmentation, personalisation and lead tracking. Advanced technologies for real-time offer management and business communication management can provide further competitive advantage.

New Opportunities. New Competition.

Even before the current economic downturn, retail banks were hard pressed to find and keep profitable customers. Today’s consumers have more product choices than ever before and easier access to information about those offerings via the Internet. This has increased demand for products that are flexible and innovative, real-time customer service and distribution channels that suit a wide range of banking styles.

As intense competition from Internet providers, traditional retailers and other new market players shortens the life cycles of product and service innovation, many banks find themselves offering lower-margin products just to attract customers to their brands. To differentiate themselves, traditional banks must develop innovative offers that uniquely address changing customer tastes. They must then find the most effective ways to market and distribute those offerings and provide best-of-breed service.

To achieve these goals, the employees in each department must be able to integrate, analyse and track large amounts of customer data. While most retail banks have highly customer-focused strategies for their marketing campaigns or call centres – and some have had used such strategies for wealth management and corporate banking – few institutions have expanded this approach enterprise wide.

A Second Wave of CRM

In the 1990s, a “first wave” of customer relationship management focused on initiatives and technology investments that could reduce retail banking costs. During this time, many banks replaced their local branches with call centres that handled customer transactions via telephone and the Internet.

Unfortunately, many sales representatives in these call centres lacked the information to address specific customer needs and maximise customer satisfaction and loyalty. Rather than facilitating a single customer view that spanned the entire bank enterprise, the call centres generated yet another source of customer data that was segregated from the core banking system.

Failure to integrate the call centre with a bank’s other communication hubs meant that calls could not be routed to staff who best understood customer service issues or to sales specialists who could make the most of cross-sell and up-sell opportunities. Without the data-based insights to sell products or service customer needs effectively, many call centres did more to damage to the relationship between banks and their customers than improve it.

Today, due largely to their potential as revenue centres, bank branches are experiencing a revival, according to research from Mintel Group. However, most remain dominated by legacy IT solutions that prevent an integrated customer view, limit centralised marketing campaigns, and thus fail to empower a bank’s sales force.

According to a 2008 study of leading banks in Europe and the Middle East by the European Financial Management Association, Datamonitor and SAP, most CRM initiatives are driven by individual departments. Fewer than 10% of banks in Western Europe and fewer than 20% of banks in the Middle East say they can currently execute effective sales across a customer’s entire product portfolio.

To transform their branches into robust sales outlets, banks must give their front-line workers better access to information on customers, branch performance, product cross-sell rates and lead-conversion ratios. Whereas the first wave of CRM concentrated on single points of customer interaction, a second wave of CRM seeks to join a bank-wide view of the retail customer with processes and communications that run across the enterprise. The objective of this second wave is to give everyone in the customer service supply chain – from sales agents and risk assessors to loan officers and external appraisers, surveyors and lawyers – information that is fully centralised, highly accurate and available in real time.

Building a Unified IT Environment

There’s no question that all banks desire the complete harmonisation of their front and back offices – in which service-oriented architecture links every product, process and customer to a single, highly flexible, multi-channel CRM application. The current global credit crunch has simply accelerated the need for such improvements.

How do you achieve this landscape? You can start with the front-office and achieve end-to-end integration for your products and customer processes. Or you can start in the back office and enjoy immediate benefits from product consolidation and innovation.

Either approach has its benefits. Ultimately, however, everyone will move toward a fully integrated CRM system that brings together an increasingly sophisticated set of processes and software applications to facilitate real-time information and customer-specific offerings. This means replacing complex, disparate IT systems with a single, unified platform that offers robust capabilities for business process management, enterprise-wide workflow and customer analytics.

Analysing customer interactions and data across different distribution channels can provide greater insight into product uptake and other customer banking habits. Comparing this information with customer demographics and life stages can help banks refine their strategies for product development and distribution.

Analysing rich customer information in real time can also help banks distinguish themselves with respect to customer service. The ability to interpret a customer’s situation during a specific interaction or request for service helps banks both customise that service and introduce a new offer at a point when the customer is most willing to accept it. Seizing such opportunities can transform the traditional service cost centre into a bona fide profit centre.

A strong culture of information-based decision making also requires delivery of that information to users in an appropriate, easily digested format. Role-based dashboards can provide employees – such as a bank’s sales, service and marketing managers – with highly visual trend monitoring capabilities as well as functions for drilling down into data sources for greater insight into these trends.

A branch manager, for example, might have a dashboard that displays up-to-date information on regional and branch goals and performance in easy-to-read metrics that can make it easier to identify consumer trends and significantly improve employee activity. A regional manager might use such a dashboard to compare performance among different branches.

These and other dashboards can be configured with a highly personal, tailored view to help managers feel completely comfortable with the process accessing key business information. Access via familiar tools – from Web portals to Microsoft PowerPoint and Adobe Acrobat – further enhances their usability.

By providing analytical tools that are both innovative and readily accessible, a bank can help employees throughout the institution achieve the customer focus and differentiation that is so important today:

• Marketing executives can identify their most profitable markets and customers and design products and sales campaigns that suit their specific needs.
• Regional managers can identify resource bottlenecks and skill shortages to better organise staff and improve productivity.
• Sales executives can better understand customer trends, target profitable market segments and help their sales force engage target customers more effectively.
• Service executives can operate profitably while appropriately supporting each service channel.
• Loan origination officers can identify valuable customer relationships and increase product penetration with those customers.

Conclusion

With the proper vision, strategy and infrastructure, banks can target their most profitable customers and use real-time insight about those customers and effective communication systems to build long-term, profitable relationships. They can enhance those relationships by developing portfolios of financial products and services that are innovative and responsive to customer demands and by delivering a consistent and personalised experience across every interaction channel.

By helping business users at every level to make fact-based decisions, banks can effectively exploit future opportunities without exposure to unnecessary risk. Greater access to real-time information that is more visual and understandable ensures that the bank’s managers and other business users have constant access to the information they need on a daily basis – without draining valuable IT resources. The shift from report-based to metric-based intelligence, combined with alerts and management by exception, can make decision making proactive rather than reactive.

Many new market entrants have the advantage of installing such advanced support from the onset. Transforming legacy systems has become more feasible for traditional players, however, with the introduction of service-oriented architecture that allows step-by-step system improvements. Such architecture will also become more important in providing the critical agility that all players will need to keep pace with a fast-changing market.

If you would like to participate in the EFMA/ SAP Customer Centricity survey and benchmark your customer services with other banks, please go to: http://sapcrmsurvey.com.

For further information about SAP for Banking, please visit: http://www.sap.com/ banking.

References:

2007 Technology Trends to Watch, Datamonitor, February 2007
Current Accounts, Financial Intelligence, Mintel Group, June 2007
Achieving Customer Centricity Throughout the Enterprise, Datamonitor, April 2008