The future of CRM in Retail Financial Services
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I spent a most interesting day last week at IPQC's Next Generation Financial Services Exchange 2002 in London. This was one of those new-format events, moving on from a conventional conference format, with a set of inter-active brainstorming sessions on various topics, inter-mingled with one-one meetings for participants with selected suppliers. I had been asked to facilitate two brainstorming sessions – one on the future of CRM, and one on the benefits of Financial Aggregation, providing a 'provocative' 10-minute introduction to the topic to stimulate debate – in a sense a much harder task than the standard 40-minute presentation.

Rather than re-run those presentations, I'd like to try and give you a feel for the participants' views of where CRM is in Retail Financial Services, and where it may go.
Currently, CRM appears to definitely not be flavour of the month. To quote one participant: "If you want to do something in CRM, first make sure that it's not called CRM and secondly, make sure you've already got budget, because you're not going to get any more". Both Insurance and banking, are, of course, in difficult economic situations at the moment, particularly given the uncertainties in the global economy, and hence reluctant to invest. This is not helped by current perceptions that CRM is not delivering the required ROI. You only have to look at the survey of Siebel's customers which we reported on last week (see Survey says: 61 percent of interviewed Siebel reference customers have not achieved ROI) to get a general picture of the scepticism surrounding those projects, which probably applies far wider than just Siebel.

Despite the generally pessimistic tone, I am not convinced that there is no interest in new activities around CRM-related issues, though they probably don't have the label of CRM on them. The strategic issues facing RFS companies (see CRM: The strategic challenge for Retail Financial Services) won't go away, though perhaps the focus has moved away from the IT department and towards marketing. There, in at least some organisations, there seems to be significant interest in the more strategic issues around CRM, such as how to turn the marketing strategy into concrete actions at customer-level; understanding how the relationships between customers and suppliers continue to change (see Emerging trends in customer – supplier relationships), moving more towards a buyer-centric view; and how to deal with the threats of financial aggregation, offering 'best-of-breed' products, and de-polarisation (at least in the UK). We will come back to these topics later in this editorial.

Participants' views on what has gone wrong with CRM projects reflects many of the issues that came up in our survey last year (see Lessons from CRM implementations around the world), with a major focus on: the problems of IT-led projects; making the necessary organisational and cultural changes; and, of course, delivering ROI on the way through. With all the pessimism running around, one has to ask the awkward question? Should we junk it? Has CRM turned out to be a bad idea and is there no benefit in it, if only for financial services companies? We don't believe (and neither did nearly all participants) this is a viable option. As Cap Gemini Ernst & Young (CGEY) pointed out in Paths to differentiation - 2001 special report on the Financial Services Industry, the key strategic issue facing RFS companies is how they respond to the increasing commoditisation of their products, and really there are only two viable options: becoming a commodity product producer, or specialising in delivering a 'superior customer experience' for specific market sectors, or both – if you're one of the larger companies. For most companies providing a 'superior customer experience' is going to be a core part of their strategy, and CRM technology has to be a part of that, though it may not be called CRM. This strategic imperative, combined with the changes in customer behaviour and the move to a more buyer-centric view of the world, will drive most companies to continue to focus on how they interact better with their customers.

So if that is the current state of CRM in Retail Financial Services, what are the issues that are really engaging the attention of RFS managers? The major topic of interest amongst the participants I worked with definitely seemed to be on Financial Aggregation. Around two years ago Citibank launched (see Citibank's – Aggregation a strategic option for Retail Banks?), which provides the end-consumer with the ability to see his current financial situation by consolidating all his financial accounts (current, savings, loans, credit-cards, as well as stocks and share-holdings) regardless of supplier. You don't even have to be a customer of Citibank to sign up for the service. Other banks including Wells Fargo and Chase have launched similar services.

The great fear amongst participants was that if this service takes off, it reduces significantly the brand-awareness of the supplier of the products that have 'been aggregated' whilst significantly increasing the awareness of the aggregator. What would really put the cat amongst the pigeons if such financial aggregations services were expanded to include transactional capabilities (at the moment they seem to be limited to retrieval of information). If this should happen, the provider of an aggregated service really has been pushed into a commoditised position where the consumer may well be unaware of the supplier. Concern was also expressed that non-financial services companies, could well provide these aggregated services, eroding further the barriers to entry into the financial services market.

There was considerable discussion as to how to respond to this initiative, with two viable options widely seen. Firstly, one could be 'first to market' with such services in one's own marketplace, or alternatively, one could resist them by changing / increasing security and contractual terms. This second option does not look feasible to me in the long term. Having experienced financial aggregation at first-hand, I know it is a value-added service that I want and find valuable, and I suspect there is a significant segment of customers with similar interests. If a financial services company I used as a supplier tried to resist such services, I for one would be very inclined to move supplier.

There was much less interest in the subject of de-polarisation which seems to me to be at least as significant as financial aggregation, at least in the U.K. If I have understood it correctly, the UK government is planning to legislate, probably in 2nd half 2003, to change significantly the relationships of the tied channel and the 'IFA' channel.

Currently, no legislation yet exists, but the government has undertaken significant research, and the conclusions look like increasing competitives in UK RFS significantly. To quote a recent FSA report (Reforming Polarisation: Making the market work for consumers, available at: ) on the topic:

"The overall conclusion is that there are significant market failings in the life assurance and collective investment scheme market and that these failures cannot be dealt with simply by changes to the way in which the industry is permitted to distribute its products. There is a strong case for wider changes in regulating this market. Our primary aim is to design measures that will help to improve consumer outcomes. The industry too should benefit from increased growth in the market for its products and the more efficient companies have the opportunity to develop their business. There may well be significant winners and losers – as is to be expected in a market where competition is working effectively."

It seems clear that eventual legislation is likely to have a significant impact on how RFS companies deal with their customers, and sell their products, as well as increasing consumer power, and so needs to be taken into account, at least at the strategic level, when considering CRM-related developments. Related to this, of course is the move to offering 'best-of-breed' products, even if they don't come from your own company, as already provided by Bradford & Bingley, and American Express).

So, CRM is no longer the flavour of the month amongst European RFS organisations. Nevertheless, the strategic issues facing such companies, and the continuing changes in the marketplace such as Financial Aggregation, the move to a more buyer-centric view, and De-Polarisation means that work on providing 'superior customer experience' is likely to continue for the long-term.

In the short-term, global economic uncertainties are going to make it difficult for new projects to get budget, and there may well be curtailing of existing budgets. CRM suppliers to that marketplace need to continue to tighten their belts, unless they can contribute significantly to delivering ROI from existing investments.

What do you make of this? If you have comments to make, we'd love to hear them. Make them below by clicking on the 'add your own comments to this story' or email me at [email protected]


Richard Forsyth

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14th Nov 2002 15:51

German banks need to invest more in a bank-specific CRM Solution in the future.
Untill recently, IT-projects have mainly focused on E-Business but albeit the concept of CRM. German banks have introduced mostly the Multi-Channel Strategy providing new sales channels - call centers, the Internet, but regardless of analysis the customer-driven processes and implementing truly supportive applications. Many banks have invested money in CRM initiatives but without doing the most basic tests of customer service. The large German commercial banks have concentrated on Investment Banking, neglecting traditional business and disregard the needs of their customers. In the time of New Economy and Stock Booming markets, strong demand for investment advice. They have focused on run a race in terms of high balance sheets and pursuit of "fast-money" avoiding closing branches and cutting staff numbers. Consequently, German banks' profitability level is the lowest in Europe. Moreover, growing air of crisis hanging over Germany's notoriously unprofitable banking is connected with incapability of determine customer profitability.
Using the concept of CRM, they will be able to identify their most profitable customers. Consequently, it enables to enhance customer behavior and performance and profitability in different delivery channels by finding out how to make profitable models at the effective branch level. Furthermore, CRM will help to find ways to reduce the costs of customer retention and new customer acquisition, market penetration strategies by measuring the results of marketing departments. The next issue will be Private Banking. German banks will need to focus on private customers if needed also on small businesses like craftsmen, freelancers and the self-employed. It will result in a rising demand on qualified personnel and also demand an implementation of Analytical CRM in order to provide advisors with integrated, granular information about customer. Analytical CRM Solution should be able to analyze customer relationship data (i.e. accounts and transactional data) as well as product and channel data in order to develop the optimal investment strategy. In addition, this solution need to analyze the market of offers in Private Banking by providing data relating to competitive products.

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