Sizing Up the Customer

Once someone has paid a visit to Amazon.com, an Internet shopping center, he is greeted cheerfully in subsequent visits and addressed by his screen name. If the user has bought a book, Amazon lists other books with similar tones or themes. If he is interested in a compact disc, he’s invited to sample music from it right on his computer. It’s not like a real customer service relationship. No one at Amazon.com knows the user’s given name or cares a lick if he’s having a bad day. But it is enough like a real relationship that the speed, and convenience, and low prices obscure the fact that it’s essentially counterfeit.

The nation’s largest financial institutions are counting on that same principle for the future of banking.

These days, the term “customer service” no more describes how big banks want to treat customers than “ciphering” describes how banks calculate their loan rates. The largest banks are somewhere along a spectrum aiming for a day in which customers are electronically tagged for their profitability to the bank; cross-sold to the hilt; target-marketed by demographics, delivery channels, and financial behavior; and issued a single toll-free number or Web address that gives them instant access to every financial product they could ever want. Once such customers have been sliced and diced, those whose financial patterns make money for the bank will ascend to a level justifying genuine human contact, waived fees, and free financial adviceu00e2u20ac”just like old-time customer serviceu00e2u20ac”while the remaining others will be routed to one of several automated systems.

However one feels about such a future, the prevailing winds are blowing the industry in that direction. And with gusto.

“More banks are working with tiered-level service,” says Kai Monihan, manager of financial services industry consulting at Arthur Andersen in Chicago. “Some banks are more than willing to let [less-profitable] customers fall by the wayside. They encourage them to use self-serve options. For profitable customers, they route them to a highly qualified person. There are going to be a majority of banks that employ that.”

“Pleasantness in the transaction was a 10-year-ago issue,” adds Thomas Johnson, chief executive officer of the Bank Administration Institute in Chicago. “Of the people who really focused on that, a lot of them found out how expensive it was to treat everyone so well. A third of retail customers are unprofitable.”

Service, but stratified

Most experts quote the same statistics: A third of bank customers are profitable. Another third are marginal. And the final third are unprofitable. But first-rate customer service is expensive. Making sure the bank offers all the high-tech or highly interactive delivery options with the speed and accuracy customers want costs a lot of money. Too much money, bankers say, to squander on customers whose financial habits net little or nothing for the bank. So the big banks are aiming to stratify their customersu00e2u20ac”and serviceu00e2u20ac”by profitability.

Profitabilityu00e2u20ac”bankers are quick to explainu00e2u20ac”is not necessarily tied to a customer’s net worth. A very wealthy person who holds only a deposit account in a bank could be considered unprofitable, whereas a person with a moderate income in good standing who has a mortgage, a car loan, a credit card, and a retirement account would be considered profitable.

The trick, Johnson explains, is to determine which customers are which and then “figure out how to triage customers without them knowing about it.”

But that is only the first cut. After ascertaining who’s profitable, banks will aim to segment profitable customers according to demographics and delivery systems. They want, for example, to know whether a profitable customer prefers banking via PC or via ATM; whether the customer might be a good target for a home equity line or an auto loan; whether the customer values the information or the relationship. And then they want to act on that informationu00e2u20ac”to provide one telephone number or one website where customers can access all their accounts and learn about other products and services to enhance their financial picture. They want to eliminate silos, information breakdowns, and multiple telephone transfers and give customers an incentive to place all their accounts in the capable hands of one bank.

“Banks with $10 billion or above are all talking about it,” says Johnson. “But who’s executing it? It’s so difficult to do. Banks traditionally operate in silos or separate departments, and there’s something to be said for that. After all, bankers ask, ‘How can our credit card be successful if we don’t operate it just like a business?’ How do you staff a huge bank so that wherever you touch it you can have a discussion” about home mortgages, auto loans, mutual funds, and the like?

For community banks, the answer is easy: They have a small core of well-known customers and a small core of bankers with knowledge of all the bank’s products. That’s what they do best. For big banks to simulate that requires very sophisticated, very expensive, widely proliferated data technology. The kind that $157 billion First Union Corp. is endeavoring to build, beginning with its two-million-square-foot customer service center. Its data brain is known as Einstein.

“This is First Union’s version of L.L. Bean or Land’s End,” says Donna Smart, vice president and spokesperson. With Einstein, Smart says, First Union can benchmark each of its 16 million customers and serve them on “an individual, tailored level.”

When a call comes into the customer service center credit card area, the representative can tell within 15 seconds how to respond to the caller, thanks to a light that pops up next to the customer’s name. A green light means this customer is okayed for higher limits or lowered fees. A yellow light means the customer is marginal. A red light means the representative should veto any extra credit. (Smart says she cannot say at this time whether the red, yellow, green light method will be used in other areas of customer service in the future.) In other words, Einstein can tell the call center employee whether the caller is profitable or not andu00e2u20ac”based on that informationu00e2u20ac”the call can be transferred to the appropriate bank representative. It may be a generalist or a specialist depending on what the caller needs. The representative also receives prompts for other products to recommend. Bank watchers call First Union’s system a breakthrough. Donna Smart calls it “a starting place.”

Other banks have their own ways of skimming the cream from the rest of their customers. Some are issued an exclusive phone number. Others receive a plastic card that shows them to be one of the chosen and gains them access to a special teller. In all cases, the name of the game is to eliminate unecessary contact with unprofitable customers, while ensuring profitable customers stay satisfiedu00e2u20ac”and don’t migrate elsewhere.

Reach out and touch

But as First Union reaches to embrace the bank of the future, a few states north in Minneapolis, National City Bank is reaching in both directions. A few years ago, the $1 billion downtown bank moved from a convoluted physical structure stretching over 12 floors to a more retail-oriented space featuring open spaces, glass walls, and covering only five floors.

Donna DeMatteo, vice president and manager of client services, says all phones are answered first by a live personu00e2u20ac”a real blast from the past. It also has assigned a relationship manager and customer service representative to each account holder. But at the same time, the bank offers an optilink browser-based information systemu00e2u20ac”Internet banking that is “almost limitless on what it can be expanded to do.” Customers, DeMatteo explains, can get balance information, do wire transfers, and stop payments, among other things.

The bank also has experimented with other kinds of delivery systems. Its brand-new AVEO system, located in open lobbies in the downtown area, provides a commercial deposit site, an ATM, and video conferencing with the bank. In addition, National City has several different conference rooms so that when a customer comes into the downtown facility, officers from different departments come to the conference room, rather than shuffling the customer all over the bank. When it first moved into the new space, National City also installed several theaters where customers could watch minute-long videos about various products. DeMatteo acknowledges the theaters are used infrequently, so the bank is considering whether to try to promote them more or change the way the bank uses them.

Like any organization, the bank solicits information about what key customers want from the bank. From that information, it distills ideas for all customers. But as yet, the notion of stratification hasn’t taken hold at National City.

“We have limited resources,” she says. “We have to focus on the key things that can differentiate us, such as personalized service.”

Outside the box

From using innovative technologies to employing greeters at the bank’s doors, the operative word in customer service seems to be “experiment.” Says BAI’s Johnson: “Banks are experimenting like mad.” Ed Furash, chairman of Washington, D.C. consulting firm Furash & Co., agrees: “You can imagine every experiment known to man.” But as most bankers know, experiments have a much greater chance of succeeding if the institution has first done its homework on its customer base.

“A lot of it has to do with identifying each of your customer groups,” says Arthur Andersen’s Monihan. “If the bank hasn’t done a lot of that … its strategies don’t work. And traditionally they have not.”

First Union has raced ahead on this score, too, with its knowledge-based marketing area. Comprising product development experts, marketing gurus, and a host of analysts, this department is in charge of segmenting customers and creating products and marketing campaigns for each segment. With help from knowledge-based marketing, First Union won’t waste time, money, or the patience of its customers trying to sell mortgage insurance, for example, to renters. The bank reported that in its pilot run last year in Charlotte, it generated $800 million in new loans.

Establishing this kind of department, in which various experts focus on identifying and satisfying customer segments, is what Johnson says will “separate the winners from the losers.”

Part of what makes things so tricky is that what is called “customer service” now encompasses so much more than it used to. For example, research done by Rainmaker Thinking Inc., a New Haven, Connecticut-based company that studies the workforce and consumer population known as Generation X, shows that this group places much less value on being “known” by their bank than previous generations have.

Rainmaker’s managing principal Bruce Tulgan says he’s found that older people think of customer service in a much different way. “They care about whether people know they’re a good customer … ‘I own such and such …’ To a lot of folks, that’s what customer service is, knowing who you are.”

With Generation X, Tulgan’s generation, the 54 million Americans born between 1963 and 1977, the transaction’s the thing.

“We’re still human,” Tulgan says, “in absence of any other factor, it does bring a smile to my face to have someone know me. But if a person knows me but takes foreveru00e2u20ac”thanks very much, but I’ll go with someone faster who doesn’t know me. It’s not an issue of loyalty. It’s an issue of the best information and resources available to you.”

Tulgan’s generation is a force to be reckoned with. Many are in their 30s. His research shows that about 60% of them are saving moneyu00e2u20ac”not for a nest egg but for what Tulgan calls a “cookie jar.” They may want to retire early, or take a break from work for a while. And they want to have the money to do it. They also don’t believe that Social Security will be around for their later years, he points out, so they are trying to prepare themselves.

By and large, Tulgan’s generation grew up with banking technology. They may never have visited with a teller, they don’t want sales pitches, and they’re not looking for relationships. They want information.

Banks who want customers from this generation have to customize delivery systems for this generation.

“Ask management what their customer mix is,” offers Furash. “Most of them wrongly think of their particular generation. You’re building the bank today that you’re going to have 30 years from now.” He maintains that, despite the cost, banks must invest in technology that is appropriate for their level and size.

People are people, too

Even Bryn Mawr Trust, a hundred-year-old, $380 million institution that caters to the wealthy residents of Bryn Mawr, Pennsylvania, has PC banking for its business customers. The bank’s specialty is kid-glove treatment for commercial customers, such as offering a cream-of-the-crop Family Office Operation that pays customers’ bills, hires help, tackles their taxes, and generally handles run-of-the-mill financial chores.

For Bryn Mawr, the cardinal rule of customer service is that employees only offer customers products that would actually benefit them, a rule that, says chairman and CEO Robert L. Stevens, is hammered home constantly. Another aspect of Bryn Mawr’s customer friendlinessu00e2u20ac”like National City’su00e2u20ac”is that Stevens sits right out in the open in the middle of the bank, not behind closed doors.

After all, many members of the G.I. generation as well as a whole lot of baby boomers still equate customer service with being wooed by bank personnel. Thus, the increased use of fees, and the push toward cost reduction, stratification, and technological banking has “created a significant problem among customers who believe nobody cares about them any more,” comments Furash. This brings to mind what a Boone County Missouri Sheriff once sagely commented: “People are human.”

An American Customer Satisfaction Index study, compiled with the help of Arthur Andersen and completed in 1997, showed that customers’ satisfaction with commercial banks has dropped several points in recent years. The study, which uses data from about 50,000 customer surveys and some 200 companies in 34 industries, revealed customer satisfaction with banks has declined three points in score, from 74 points in 1994 to 71 in 1998 (on a scale of 100). And in the insurance sales arena, customer expectations, perceived quality, and perceived value, commercial banks rank as much as 10 points below other insurance providers. The customer loyalty scoring of banks has dropped from 63 points in 1994 to 59 points in 1998 and also lags significantly behind insurers.

The ACSI study also found that even some who claim on studies that they don’t care about personal attention tend to take their business to places where the sales and service representatives give them personal treatment.

Here, says Furash, is one place in which directors can take action outside the board meetings: They can walk the shop.

“Who should get what level of service should never translate into a measurement of employee attitude,” he cautions. “Directors should independently shop the branches. If a director goes into the main bank, he automatically gets VIP treatment.” Furash says he should visit a branch where he isn’t known and see what kind of treatment he gets there.

Directors and managers will have to summon all their powers of prescience to figure out where these customer service trends are leading. Some banks could be headed on a one-way trip to virtuality, while others will circle backu00e2u20ac”like the fast-food joints that relied on talking menu boards to generate speed and efficiency and that now are touting the revolutionary concept of face-to-face ordering.

In either case, the whole industryu00e2u20ac”and its customersu00e2u20ac”are in for quite a ride.