webcast summary

Customer Insight in Banking

Using Analytics for Growth and Retention
Insights from an InformationWeek Financial Services Webcast
sponsored by SAS
Originally broadcast in March 2010
Featuring:

Penny Crosman, Executive Editor, Bank Systems & Technology

(moderator)
Edward Garry, Vice President of Global CRM Strategy and Training,
BNY Mellon
David Wallace, Global Financial Services Marketing Manager, SAS
 Loyalty, Rewards and Value: What Do We Want from Our Customers?

Every bank would like to have a rich well of descriptive and predictive insight about
customers. With such a resource, the bank could know, for instance, that savings
account customer Mark Smith just bought a new house and is thinking about a
home equity line; that credit card holder Sally Johnson has a college-age daughter
and seeks a student loan from a local institution; and that John Jones has had two
unsatisfactory phone conversations regarding his IRA and is thinking of switching to
an online investment site.

The bank that could gain a 360-degree view of the customer’s circumstances and
relations with the bank could better meet the customer’s needs and save or expand
the relationship.

However, big obstacles stand in the way of this ideal. In most banks, customer
information is scattered across disparate databases owned by different lines of
business. The insights hidden in those databases should be revealed, shared and
published across the institution, but at the same time, data must be kept strictly
private and protected. Resolving these challenges requires IT investment at a time
when bank IT budgets remain flat overall.

Amid these realities, how do you get customer data under control? How do you
transform it from information into insight? What do financial institutions gain from
customer analytics, and how should it be implemented? These were the topics
addressed by experts representing three different perspectives. In the one-hour,
interactive Webcast:

• Penny Crosman, Executive Editor of Bank Systems & Technology, outlined

10 key ways financial institutions are using customer analytics to reduce risk
and grow customer relationships.

• Edward Garry, Vice President of Global CRM Strategy and Training at BNY
Mellon, described the governance model and strategy his institution adopted for
its successful customer analytics program.

• David Wallace, Global Financial Services Marketing Manager at SAS, shared

results of a BS&T survey representing a broad spectrum of the industry, from
community banks to large national institutions.

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Top 10 Benefits of Customer Analytics in Banking

Crosman opened the Webcast by presenting a compelling case for customer analytics
– in fact, 10 compelling cases for customer analytics, with real-world examples
showing how institutions are using analytics for each purpose.

1. React quickly to changes in customer behavior.

“As customers bank online, through ATMs or through mobile payments, they are
sending subtle signals about their preferences and frustrations with their banking
relationships,” Crosman said. “Unless they are monitoring these activities closely,
banks often don’t know what customers want or are unhappy with until it’s too late.
So some banks use analytics software to watch customer behavior and to detect
service problems and sales opportunities.”

Minneapolis-based US Bank was highlighted by Crosman for its use of analytics

to immediately spot changes in customer behavior, generate alerts and use that
knowledge to make a sale or save a relationship.

2. Reduce customer and counterparty risk.

Analytics can help banks monitor the creditworthiness of borrowers and the reliability
of counterparties. London-based HSBC, for example, is renovating its customer data
infrastructure, in part to better analyze risk. Integrated customer databases will set the
foundation for customer analytics, to enable HSBC to assess at a glance its exposures
to ailing counterparties and troubled clients. It will also be able to create 360-degree
views of clients, for instance, gaining consolidated views of a customer’s accounts in
multiple cities around the world, to decide whether or not to extend more credit to that
customer.

3. Reduce operational risk.

“Basel II rules are making banks look more closely at their operational risk, and here
too, analytics have been playing a role,” said Crosman.

For example, UniCredit Bank Austria implemented a unified data warehouse with
an overlay of analytics to reduce the operational risk associated with inconsistent
reporting or silo views. Previously, the bank’s various business units had their own
systems that stored and calculated disparate versions of the same market data.

“The bank implemented a unified market data warehouse and ran analytics and
mathematical models on top of that,” Crosman said. “Redundant systems were
eliminated, and data quality and traceability were improved. The time spent each day
on manual data management tasks was reduced from several hours to less than 30
minutes, enabling employees to focus on more important tasks.”

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4. Fine-tune marketing campaigns.

Analytics hasw long been used in retail environments to improve marketing
campaigns. Banks were not the first to adopt analytics for marketing, but within
banks, marketing departments have been among the first to recognize the value.

First Tennessee Bank is a prime example. “The bank brought in customer analytics
to test its assumptions and to create product propensity models,” said Crosman.
“For instance, the bank’s marketers might have an assumption that 45 percent of
customers who open checking accounts also open savings accounts. The marketing
team inputs the numbers around each campaign, analyzes the results and adjusts its
models accordingly. More recently, the bank has been using its customer analytics
platform for predictive analysis, for instance, to forecast revenue and make sure a
campaign has acceptable return on investment before it is launched.”

5. Predict the right communications channel to use for each customer.

Ideally, banks would like to determine the best combination of price and response
rate for different customers and segments, by product. First Tennessee is developing
a system to provide those answers – a predictive model that helps determine which
channels are important to each customer, according to customer preference, while
factoring in the cost of that contact channel to the bank.

“This will be a combination of calculating the likelihood of response and likelihood of

spend,” Crosman said. “If a model predicts that a customer will bring in $100 worth of
profit, and there’s a 60 percent chance that person will respond to a phone call, then
it might make sense to add that person to a telemarketing campaign, even though a
phone call costs two dollars versus two cents for an e-mail.”

6. Efficiently provide branches with lists of solid sales prospects.

BB&T, a Winston-Salem, NC-based financial holding company, analyzes a
combination of household data and product ownership data every month, and then
supplies each of its 1,400 branches with a list of customers most likely to show
interest in additional bank products.

For example, customers who have a direct deposit account and credit card through
the bank might be good candidates for a debit card promotion. Customers with a
BB&T checking account and mortgage are good prospects for a home equity line of
credit. These reports to the branches formerly took two weeks a month to produce.
Now they are generated in less than a day.

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 Loyalty, Rewards and Value: What Do We Want from Our Customers?

7. Manage debt collection.

Capitec Bank, a retail bank in Capetown, South Africa, recently began using customer
analytics to help with debt management and collection. The software identifies Capitec
customers who have fallen behind in their payments and flags those who might be
having financial difficulties. The bank also uses analytics to segment the customer
portfolio into customer types so it can assign the right type of collections effort to
each case.

8. Catch criminals right away, before they leave the branch.

In an unusual application of customer analytics, Union Savings Bank in Danbury,
CT, has reduced fraud by 80 percent in its 18 branches using facial recognition
technology, video analytics and customer data analytics. The bank connects teller
operations data to its video surveillance platform to locate video footage of individual
transactions. It can then do cross-searches and search video by account and
transaction type, so when a fraudulent transaction takes place, the system finds
the face of the perpetrator, which speeds up the identification and prosecution
of criminals.

9. Detect credit card and online banking fraud.

Banks have long used analytics to detect card fraud, but recently they have begun
using similar techniques for analyzing customer activity, looking for unusual behavior
that might indicate online banking fraud. Wells Fargo, for instance, profiles every
online banking user and monitors behavior to watch for unusual events. “For instance,
if a customer suddenly logs in from a different address, that could indicate foul play,”
Crosman said. “If they’ve never used online bill pay before, and they suddenly use
it, or if the frequency of their payments goes up dramatically, those could also be
red flags.”

10. Provide better research and reports to salespeople.

Some banks use customer analytics and customer relationship management
(CRM) systems to improve the sales tools they give their salespeople. BNY Mellon
standardized on one common CRM platform and applied analytics to it to reveal
new insights about sales opportunities with its financial institution and enterprise
customers. Armed with this analytically derived information, salespeople can give more
timely, targeted and relevant presentations to customers.

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 Loyalty, Rewards and Value: What Do We Want from Our Customers?

The State of Customer Marketing in Financial

Institutions Today

According to an informal poll of the Webcast audience, there is considerable room

for improvement. When asked to rate their organization’s current situation, only about
14 percent said their customer strategy “was very effective”; 58 percent described
it as “somewhat effective”; which leaves the remaining 28 percent apparently none
too impressed.

What gives? Why are some institutions able to mine customer data to optimize
customer relationships and value, while other institutions struggle to simply understand
the totality of the customer’s relationship with the bank? Why are some capturing the
most profitable accounts while others are unwittingly alienating them?

The answers can be found in the results of a Bank Systems & Technology online
survey conducted in November 2009, which showed that few institutions take full
advantage of technology solutions that can make the difference.

The 272 survey respondents represented a diverse cross-section of the financial

services industry, evenly split between institutions with greater than $5 billion in
total assets and those with less than $5 billion in total assets. About one-third of
respondents were from regional or national institutions with assets of $50 billion or
more. About 30 percent were from community banks and credit unions. There was
also an almost even split between respondents from business groups and technology
groups within those institutions.

When asked about the challenges their organizations face in trying to optimize
customer relationships and revenue, the most prominent issue that came up was also
the most fundamental: simply managing customer data. That’s bad news, because
even the most sophisticated analytical tools will be ineffective if they draw on bad data.
The good news is that data quality and data integration challenges are readily resolved ■ The challenge is not just with the
with available technologies. size and growth of customer data,
but also with those interactions and
behaviors getting organized, cat-
egorized, analyzed and distributed
in a way that provides the lift that
executive management is expecting.

David M. Wallace
Global Financial Services
Marketing Manager, SAS

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 Loyalty, Rewards and Value: What Do We Want from Our Customers?

To what degree have banks adopted technologies for turning data into usable
customer insight? According to the BS&T survey, they have started on the right
path. About two-thirds of respondents said their institutions are using some type of
customer analytics technology; more than half are using technologies to assess risk ■ At SAS, we believe that the use
and customer profitability. of customer analytics solutions
is key to turning the mountains of
“The results raise two interesting points though,” said Wallace. “First, customer customer data into actionable infor-
marketing projects often succeed or fail based on the degree of focus on data mation that can be used to expand
integration, yet less than one-half of the respondents are using data integration and grow the relationships with
solutions. The second interesting point is that fewer than 40 percent of respondents each customer, client and member.
are using analytic tools for online customer and Web insight. This is very fertile ground
David M. Wallace
for growing relationships with customers at the point of their digital interactions with
Global Financial Services
the institution.” Marketing Manager, SAS

What tools and technologies are being used to manage customer interactions across
■ We must make sure that we have
channels? It is no surprise that a majority of institutions use campaign management
a responsive and fulfilling relation-
and e-mail marketing tools. Slightly more than one-third are doing real-time decision
ship with customers that we may
making, contact optimization and managing contacts with event triggers.
never see.

“This is interesting because, with more and more of our customers, clients and David M. Wallace
members doing business with the institution through digital means, the customer Global Financial Services
Marketing Manager, SAS
relationship can be much less ‘sticky,’” said Wallace. “As institutions, we need to make
sure we have a responsive and fulfilling relationship with those customers on a digital
basis, since we may never actually see them in person. Real-time decision making and
event triggers are some of the technologies that optimize those digital interactions at
the point in time when the interaction actually occurs.”

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 Loyalty, Rewards and Value: What Do We Want from Our Customers?

■ Real-time decision making and

event triggers are some of the tech-
nologies needed to optimize each
digital interaction at the time of the
interaction occurring.

David M. Wallace
Global Financial Services
Marketing Manager, SAS

The BS&T survey indicated that the use of marketing performance reporting tools
is widespread (61 percent), but the use of marketing optimization solutions is not
(31.3 percent). “This is an area where increased focus could yield big results for
institutions,” said Wallace. Institutions that can track campaign results at a granular
level can feed that information back into the system to further optimize the next
campaign, and the next.

■ Being able to track each customer

interaction, and the success of
every campaign, and then feeding
that information back in a closed-
loop way to determine the best
method to execute future cam-
paigns is a key to success.

David M. Wallace
Global Financial Services
Marketing Manager, SAS

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 Loyalty, Rewards and Value: What Do We Want from Our Customers?

Constraints to Adopting Customer Analytic Technologies

If tools for data integration, real-time decision making, contact optimization, event
triggers and marketing optimization are out there – available as packaged, custom or
even hosted solutions – why would any institution not take advantage?

The answer banking professionals give is not surprising in this economic climate:
cost. Even though analytical solutions pay for themselves, they do require up-
front investment in dollars and people. In the Webcast poll, about 40 percent of
respondents acknowledged that their institutions had technology shortcomings, but
63 percent said tight budgets were an ever-present constraint.

A good percentage of them do see a brighter future for deeper customer insight.
They report that in the next 12-24 months, their institutions will likely invest in customer
analytics (46.7 percent), data integration (39.3 percent), customer profitability
(35.7 percent), and risk analysis and assessment (31.6 percent).

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 Loyalty, Rewards and Value: What Do We Want from Our Customers?

“It is interesting that less than 30 percent of respondents foresee their institutions
investing in technologies for online and Web customer insight,” said Wallace. “I would
mark this as an area of concern.” Nearly half of respondents (45.6 percent) report
plans to increase investment in e-mail and mobile marketing; will the tools to analyze
and optimize those interactions keep pace?

Not in the short term, according to Webcast audience members. When asked
where their institutions plan to make technology investments in the next 12 months,
the biggest focus remains simply managing the growing volume of customer data
(37 percent).

The ability to extract deeper insights from that data is perhaps still a future priority
for some. Fewer institutions are planning investments in those areas: predicting
customer behavior (18 percent), detecting and redressing customer service issues
(14.8 percent), profiling and segmenting customers (11.1 percent), improving direct
and indirect marketing campaigns (11.1 percent), and measuring and reporting on
marketing performance (7.4 percent).

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 Loyalty, Rewards and Value: What Do We Want from Our Customers?

Global Customer Relationship Management at BNY Mellon

BNY Mellon is a global financial services company whose customers are financial
institutions, corporations and high-net-worth individuals. The company provides
services in asset management and wealth management, asset servicing, issuer
services, clearing services and treasury services through a worldwide, client-
focused team.

BNY Mellon once faced the same customer relationship management challenges as
any large organization, said Ed Garry, Vice President of Global CRM Strategy and
Training. “We had multiple reporting platforms for sales data, multiple touch points
to manage for each customer, multiple databases that yielded multiple sources of
the truth.

“I spent 13 years in the retail banking business, and the questions and challenges are
very similar. Whether you are managing B2B or B2C relationships, you want to know,
‘Who is my customer; how do I service my customer; and what does the business
look like?’”

To answer those questions, BNY Mellon developed a global CRM solution that
2,500 active users rely on to manage more than 60,000 customer relationships,
representing some 200,000 contacts and 90,000 call reports to date. The
system provides a detailed analysis of the sales process, including new business
opportunities, active and closed opportunities, even competitor activities.

Executive management now has a “single source of the truth” for sales reporting,
employee performance management, cross-selling and customer relationship
management. Sales executives have a 360-degree view of the client relationship and
the sales process associated with that relationship for the entire relationship cycle.
Sales representatives get a richer and more productive set of contact referrals and
sales propositions.

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Consistency and 360-Degree Visibility Across the Global Organization

“Everyone is using the same platform across all lines of business,” said Garry. “We find ■ “We have standardized, stream-
that to be a unique value proposition that we have, [and] that other financial institutions lined and formalized our sales
are looking to develop. It is definitely a competitive advantage for BNY Mellon.” process and the tools we use.
If it isn’t in the CRM system, it
The companywide sales tracking and coordination system enables the institution to didn’t happen.”
perform as a single, integrated solutions provider, rather than an assortment of silo
Ed Garry
lines of business. “We want to be sure that when sales executives sit down to talk with Vice President of Global CRM
clients, they understand the totality of the relationship with the customer and can talk Strategy and Training, BNY Mellon
intelligently about other relationships the customer has with the institution,” Garry said.

“With a consolidated view of each client, we can focus more on solution selling,
where we can look across our product lines and across the customer’s needs and put
together not just a product sale but a more holistic value proposition for the customer.

“With a laser focus, we have also identified relationships where maybe we have
not had a complete product or we haven’t met the client’s needs when it comes to
service, and it has allowed us to take a step back, re-evaluate those relationships, and
see how we can change and restore the relationship.”

A Focus on Opportunities

Naturally, the CRM system at BNY Mellon has full-featured contact management
capabilities. “But unlike other CRM solutions that are focused around the contact,
we have taken a different approach,” Garry said. “We built our CRM solution
around opportunities. Our goal was to provide a single source of truth around sales
opportunities - across all B2B lines of business, all regions and all customers.

“We felt that if we understood our customers and the opportunities we have with
them, we can better service that customer, understand and anticipate future needs,
and help drive additional business and solutions for them.”

Cross-functional sales teams are formed to match each opportunity. There are
salespeople – product experts, essentially – in each line of business, such as issuer
services, asset servicing, wealth management and broker-dealer services. Larger
customers, whose relationships with the bank span multiple lines of business, are
served by a Global Client Management team that coordinates and manages the
total relationship.

“Global Client Management is that premier customer’s face and contact into BNY
Mellon,” Garry said. “The Global Client Management executive will pull in the
appropriate line-of-business representatives to make up a sales team for each
identified opportunity. There could be different sales teams for each opportunity, but
everything is coordinated through that Global Client Management point of contact.
So we have a cohesive sales team that is driven together and organized through
technology to present one face to the customer.”

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 Loyalty, Rewards and Value: What Do We Want from Our Customers?

Enriching CRM with Business Intelligence

At BNY Mellon, business intelligence has been implemented as an overlay that sits on
top of the CRM solution. “It is a vital component to CRM that focuses on aggregated
sales reporting and the success associated with a consultative sales methodology
across multiple lines of business,” Garry said.

“Our first goal with respect to business intelligence is to deliver information that is
relevant to users and their roles, so it is not cluttered with information that does not
relate to their customers, their sales process or their activities, but only the information
that matters to them. The second piece is that we want something actionable
to come out of it, to tell them how to take action in a timely manner. So all of the
elements we’ve built into this CRM solution come up with some type of actionable
result. It helps the salesperson come up with a strategy and better manage [the]
sales process.”

Closing Thoughts

“We all have data, and it’s growing exponentially every year,” Wallace said. “The
question becomes, how can we manage and leverage our customer data in a way
that helps us grow relationships with each customer, each segment and in each
geography? And how do we do that effectively in the current economic climate, where
our executive management team is either saying, ‘Do more with the same,’ or more
probably, ‘Do more with less’”?

Wallace and Garry provided tips for financial institutions seeking to augment their
customer relationship management tools to generate deeper and more valuable
customer insight:

Collaborate. “Consider the governance model and support that will drive this
solution,” Garry said. At BNY Mellon, functional analysts, business analysts,
trainers and relationship managers collaborated to define system requirements – in
synchronization with technology and consulting partners. All of these groups overlap,
because there are synergies and dependencies among them. Bring them together in
designing the system and determining how it will be supported.

Leverage analytics. What passes for “analytics” in many banks is not much more
than slicing, dicing, sorting and drilling the information for hindsight reporting. Even
if you can gain consolidated and detailed views, it is not enough to know what
was. Descriptive and predictive analytics can uncover deeper value from existing
data resources, revealing hidden opportunities and pointing the way to the most
productive initiatives.

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 Loyalty, Rewards and Value: What Do We Want from Our Customers?

Track online behavior. “At a time when digital interactions are increasing with all
types of financial institutions, firms should really focus on tracking, examining and Advice from SAS: Five Key
understanding online behavior as well as offline,” said Wallace. Firms cannot afford Marketing Strategy Components
to ignore the rich new possibilities for gathering customer insight and better servicing
1. Track, examine and understand
online customers.
customers’ online and
Create a cycle of continuous improvement. Close the loop by measuring the offline behaviors.
impacts of interactions, and using that knowledge to refine models and improve future
marketing activities. “You can really maximize performance by tracking all customer 2. Leverage analytics to develop
interactions and the success of each marketing campaign, then constantly feeding this deep insight on your customers.
information back into the system to improve and refine results,” said Garry.
3. Get, increase and retain
Above all, don’t be afraid to embark on this path just because you’re not prepared to customers, while cross-selling
solve every problem with your available data. That would be unrealistic anyway. Even and up-selling to increase
global BNY Mellon focused its efforts on achievable realities, addressing the sales wallet share.
teams’ highest priority issues.
4. Optimize each customer contact
“Being a global solution across all lines of business, it is not going to meet every with a carefully planned campaign
challenge out there,” Garry noted. “It is not going to solve every issue that our sales that draws on intelligence derived
representatives have. But we took a very strategic approach in identifying the primary
from the analytics efforts.
pain points that are consistent across all lines of business and created a solution to
address them. 5. Maximize performance by
tracking all customer interactions
“We have achieved one single source of truth across the entire organization, across
all regions, to measure success and have a clear understanding of what is happening
and the success of each
with our customer relationships. And we have provided tools to answer the questions marketing campaign, then
that they told us keep them up at night.” constantly feeding this information
back into the system to improve
To view this Webcast on demand, visit: and refine results.
www.sas.com/bankinginsight

For more information, please visit:

www.customerinsight.banktech.com
www.sas.com/industry/banking

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