CRM for Financial Services, Part 1: Unmet Potential

The chastening effect of the recession has many financial services firms taking a cautious view of future CRM investments. One reason is that these firms are husbanding their resources. Another is a growing awareness that investments in CRM by the financial sector have not been all that successful — or, at least, the results are a mixed bag.

Financial institutions have invested billions in CRM over the last decade, according to a study released in June byAite Group. In 2008, financial firms in the U.S. and Canada spent US$414.6 million on CRM.

CRM Quality Questioned

In financial services, the first wave of CRM programs had the positive effect of providing more efficient ways of implementing marketing programs through automation, the Aite Group study indicates. However, the report questions the true effectiveness of CRM programs.

“Sure, there are a lot of banks and financial firms who can point to successful individual marketing campaigns where they have used CRM tools,” Ron Shevlin, a senior market analyst at Aite Group, told CRM Buyer. “But overall, the CRM results have been very disappointing.”

Bank CRM progams have failed to engender customer loyalty, with only 23 percent of customers saying they “somewhat” trusted banks, and just 2 percent expressing a “high” degree of trust in banks, according to the Aite Group study. For investment firms, the results were even worse, with only 7 percent of customers saying they “somewhat” trusted the firms, and just 1 percent showing “high” trust.

Good customer relationships are about “small moments of attachment and intimacy,” the study observes. “CRM hasn’t helped to create these moments. Just 25 percent of consumers are highly engaged with their banks — that is, interact in ways that might create trust and purchase intention.”

Only 11 percent of customers intended to grow their bank relationship for more products over the next two years, based on the Aite findings.

“When you look at customer retention or cross marketing to expand services to existing customers, they just haven’t moved the needle all that much,” Shevlin said.

A somewhat more positive attitude toward CRM — at least in a conceptual way — is reflected in a study Ablebridge conducted in partnership with Microsoft, released in March. However, it also suggests some concerns about investing in CRM.

Eighty-two percent of respondents in the survey of banks, insurance companies and brokerages reported that a “properly administered” CRM system would add value to their operations. Yet financial firms have been cautious in adopting CRM, according to the survey. Just 50 percent of 600 respondents reported that they actually had a CRM system in place. Only 10 percent of 522 respondents said they planned to invest in either new or upgraded CRM systems within the next year.

Customer loyalty is a high priority for financial services firms.

“In managing people’s money, it’s crucial to make sure the customer is well served,” said Ryan Plourde, a principal with AbleBridge.

“The goal is keep those assets under management. It’s just too easy for the customer to go someplace else,” Plourde told CRM Buyer.

Conflicting Goals

CRM’s performance in the financial sector rates a 2 on a 1-5 scale — that is, “fair,” commented Dick Lee, a management and IT consultant and principal of High-Yield Methods, but that’s based more on the attitude of banks than on the capabilities of the software or IT systems.

“To accomplish the true goal of CRM — building stronger relationships with customers — financial institutions have to be willing to step up and add new value to customers,” Lee told CRM Buyer. “Instead, most of these firms are still trying to figure out more ways to stick both hands in customer pockets.”

To build effective customer relations, financial firms need to meet several goals, Lee said. All divisions and functions must collaborate to deliver customer value. That requires data sharing and presenting one face to customers instead of putting commissions first.

“Vendors have succeeded in selling lots of CRM software, but in terms of reaching the goals I consider important, CRM has been a miserable failure — to the point where the primary thrust towards customer- centricity is coming from the outside in [the] process movement, which is mutually exclusive from CRM,” Lee added.

Vendors have benefitted greatly from the investments financial firms have made in CRM programs, but any disappointment as to the result of those investments is not a result of the software or programs, observed Jeff Gilleland, global strategist for the SAS Institute’s customer intelligence unit.

“The technology is agnostic as to outcomes. It depends on how the software customer implements the programs,” he told CRM Buyer.

US Bank, Wachovia and BB&T are among the financial firms that have implemented successful CRM programs from SAS — both profitable and productive in terms of generating long-term customer loyalty, Gilleland pointed out.

“Some banks have learned to use CRM to develop loyalty, but many banks that have implemented CRM haven’t been able to do that — mainly because of their own internal goals and conflicts,” he said.

For example, a branch manger might get a bonus for generating multiple accounts. However, using CRM tools to split one checking account into two accounts by moving some of the checking funds into a CD account may actually reduce the bank’s overall profits. Instead of a single “high margin” account, the the bank would have two accounts, but the profit margin on the new one would be far less. The bonus-friendly move would compromise overall bank profitability.

“We see these kinds of conflicts all the time,” Gilleland said.

Taking a Broader View of CRM

As a result of observing various levels of success in CRM implementation, Gilleland, in conjunction with Pepper & Rogers Group and Jubelirer Research, initiated a major research project to explore why the outcomes were uneven. The research indicated that only 25 percent of respondents had implemented a “mature” program that resolved some of the internal conflicts of CRM users and took a broad, enterprise approach to customer relations.

“The firms that took this broader approach scored well in two important categories,” Gilleland pointed out. “They were more profitable and they developed a significant competitive advantage. They made better use of resources — and instead of treating customers as just sales targets, they cultivated long-term customer loyalty.”

This broader approach is known as “customer experience management,” since it involves the integration of broad corporate objectives with narrow product promotion goals.

The “failure” of CRM may simply be in the eye of the beholder. CRM software and IT products have helped many financial firms achieve efficiencies in marketing and, in many cases, provided more customer volume — at least in the short term. Based on those “metrics,” CRM has succeeded. The failure, it seems, may be more related to the inability of most financial institutions to appreciate and implement the full potential of CRM to develop lasting customer relationships that also produce profits.

Pursuing the full potential of CRM will provide the next challenge to financial firms as they consider IT investments. Financial institutions may have to change their attitude when it comes to developing better — and longer — customer relationships.

No doubt, ROI will be a bigger factor, as will the evolution of IT applied to the CRM function — and vendors will need to upgrade their offerings to address all of these issues.

CRM for Financial Services, Part 2: Keeping the ‘R’ in CRM

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