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CRM and Financial Services

This article discusses CRM and financial services. Even if your company is not in the financial services sector, some of these observations may still apply.

The financial services industry has long been concerned with CRM and includes some of the first organizations to apply the principles. But customers of financial institutions have not always seen the benefits of CRM in action. Why not? Here are some areas of challenge:

1. Vision and senior commitment

A major Canadian bank's quarterly financial statement comments on issues such as financial targets, cost-to-revenue ratios, acquisitions and share valuation. E-commerce and the Internet receive scant comments. Employees receive the perfunctory last mention. And CRM (by whatever name, such as relationship banking) merits no coverage at all. This omission is not uncommon, whether in annual reports or inside financial institutions. Within the company's walls, there is not always a shared understanding of CRM strategy and the role of each employee. The benefits of CRM can be more readily achieved with a stated vision of CRM's potential and a visible commitment to CRM by senior executives.

2. CRM Plan

Some financial institutions lack a CRM plan. In addition to a plan, a well-designed planning process can provide considerable benefit, too, if the plan is co-developed by representative customers and employees within strategic business units.

3. Scale rather than scope

Financial institutions want to be bigger by competing on scale in multiple lines of business. This can create shareholder value. Competing on scope by creating value for the customers who matter most and providing the products and services they want (not necessarily what the company makes), can create even more shareholder value.

4. Cost management

Costs are being taken out of financial institutions at a rapid rate, often including the people who must put CRM into action (although not often those who lead CRM initiatives). As it is, people at the customer interface can barely cope with expectations in terms of the metrics, paperwork and process conformance for account and risk management. Taking out more staff without making other choices may limit the potential for CRM.

5. Choosing customers

Transactions from customers with money to invest or a desire to borrow are still coveted by most financial institutions. Customers are channelled according to the type of customer they are (small business, corporate, high net worth individual, etc.) By analyzing customer data and allocating costs, a European bank found that the top 20% of its customers made all the profit, while the remainder lost money. The bank then invested nearly all new capital in improvements for profitable customers. Although it lost some customers, high-profit customers increased profitability by making more use of the bank. Giving all customers equal value penalizes the best and rewards the worst customers, exactly the opposite of what is wanted.

6. Attention to new value

While the benefits of selling the products and services the company has historically provided are obviously important, opportunity lies in those areas that are uncontested. Most typically, this requires some innovation in products/services or the processes used to develop of manage them.

7. Legacy investments

Much of the value of CRM is lurking in the data companies already have but the existing legacy systems and architecture can be a CRM barrier. Although many financial institutions have achieved a single view of the customer, this view can be incomplete, insufficiently predictive of the customer's next action or insufficiently intelligent. One company found that 75% of all defectors held only one product for a full year before leaving. They now contact customers when the product count drops, in an effort to keep those they can.