Greg's ideal -- the 'free' market

[Margaret Tarbet <tarbet@swaa.com>]

(reposted from another list.  Original source, the banking section
on msn.com)


"You charge them higher fees because you don't want them -- make
them know
they're not welcome."
-- Seamus McMahon,
First Manhattan Consulting Group


  
 Bank Rate Monitor 
Unless you're rich, banks of future may not want you 
In the brave new world, we'll bank by phone and Internet and the
financial
institutions will have software up their sleeves to weed out
unprofitable
customers. 
By Lynda Edwards, bankrate.com

In the banking battlefield of the future, it's the affluent who will
survive while the less well-to-do are left behind to cope with huge
fees
levied by the few financial institutions that will even offer them
any
business.

"You're in a war," John Groman, chief creative officer of Epsilon, a
marketing software designer, recently told a roomful of banking
executives
in Las Vegas. "The battlefield is the Internet. Banks, retailers,
news
organizations are moving online fast. Executives that have 100
meetings
before innovation -- they'll be destroyed."

Meeting of the minds
Epsilon makes a product that Groman claims levels the playing field
and
that every bank in America wants: customer relationship management
software
(CRM). It will change how you interact with your bank -- or whether
you
interact at all.

Major players -- AT&T, IBM, Unisys, Diebold, Microsoft and Fair,
Isaac
(which authors half of the 4.5 billion annual credit reports in the
United
States) -- demonstrated CRM products at the Banking Administration
Institute summit in December.

In their vision of a CRM-ruled future, consumers will bank almost
entirely
via phone and the Internet. What branches remain will operate as car
dealerships do, staffed by "sales reps," not tellers. This new breed
of
bank employee will get a commission for each mortgage, loan or
investment
portfolio landed with a profitable customer.

Sales representatives will spot these profitable customers using CRM
software to analyze an array of factors, including the customer's
salary,
age, marital status, debt, number of job and residence changes,
education
and property owned. Customers will be required to supply the data to
open
an account.

No more welcome mats
Customers identified as losers by CRM might get checking accounts --
at a
price. "You charge them higher fees because you don't want them --
make
them know they're not welcome," says Executive Vice President Seamus
McMahon of First Manhattan Consulting Group, speaking at another
Vegas
seminar.

Unprofitable customers will pay an additional price in terms of
service.
Each time a customer calls or e-mails a bank, the sales
representative need
only type his name to view his CRM profile. "You answer the cash
cows
first," said McMahon. "The losers can wait 20 minutes if they call
in a
question. The losers will just make you drown."

The inspiration behind CRM is fear. What safety net do banks have if
they're invested in a wild stock market and a chaotic Asian economy,
or, if
the Senate passes a financial reform bill, they must conquer a new
banking
frontier like insurance? The answer was obvious to CRM designers:
fat-cat
customers.

Even then, there are risks. "An upper-middle-class customer can be a
financial drain on a bank if he wants the wrong products or is in a
field
about to be hit with downsizing," McMahon warns. Banks will require
customers to update personal data so CRM can track their changing
luck.

Follow the potential
The scrutiny actually begins on Day One: the financial formative
years.
Using CRM, financial institutions can identify which college
students are
likely to become the most profitable customers, based on their
majors and
extracurricular activities.

Ten years ago, bankers made such judgment calls based on their
intuition
and observation. But in mega-banks, a customer is literally one of
millions. And the software serves another purpose for bankers
pioneering on
the Net.

"CRM data is what you show at shareholder meetings, what you show
CEOs who
can fire you, so they blame the numbers, and not you, for
decisions,"
Groman said.
 
"CRM data is what you show at shareholder meetings, what you show
CEOs who
can fire you, so they blame the numbers, and not you, for
decisions."
-- John Groman, Epsilon
 CRM isn't flagging the rich customers so banks can gouge them with
fees.
Banks want to make a profit off them through cross-selling a slew of
bank
products, ranging from car loans to personal investment managers.
For
example, CRM alerts bank sales representatives when a profitable
customer
buys a new business, so they can pitch employee insurance, pension
plans or
corporate credit cards.

Bundle of joy -- for banks
Fair, Isaac, known for its credit bureau rating system, has
developed
software that notifies the bank representatives when a profitable
customer
has a baby. It e-mails a balloon-festooned "Congratulations!" while
the
bank mails out home improvement loan applications with photos of
nurseries
attached.

Oracle, a leading Internet consultant for bankers, suggests
collecting more
than demographic and geographic data about customers. It recommends
a CRM
that warehouses "psychographic" data: hobbies, political opinions,
magazine
subscriptions and "actions," including clubs joined, recent
purchases,
restaurants and designer boutiques frequented. This allows banks
that own
unrelated businesses like casinos or hotels to market those
ancillary
services as well.

No-frills customers get bum's rush
The result: CRM software will give banks in this ultra-competitive
business
an easy way to shed unprofitable customers, according to executives
who
attended the conference. Banks don't want a no-frills checking
account
customer whose average balance is less than $1,000 and who pays his
low-interest credit-card debt in full each month. Unless he's paying
off a
loan on a Lamborghini or a mortgage on a mansion, he'll be treated
like an
unwelcome relative.

"Raise his ATM, credit card and account fees till he leaves," is
McMahon's
advice.

Many large banks prevent such troublemakers from opening accounts at
all
with computer systems such as Debit Bureau, according to a recent
Economist
article. The Debit Bureau database tracks consumers' check-writing
histories.

A serial check-bouncer often will be rejected by a bank. But
according to
its own press release, Debit Bureau also downgrades a customer for
reports
of lost or stolen checks. Debit Bureau also produces what it calls
"household-specific demographic data." Consumer advocates worry
that's a
device for identification of low-income neighborhoods.
 



R E C E N T
A R T I C L E S
----------------------------------------------------------------------------
----
 • New home equity credit lines offer fixed rates 2/5/99

• Debit cards can help small businesses manage money 1/29/99

• Lock-and-float plans offer some mortgage stability 1/22/99

more...
 The human factor factored out
Bank tellers who ignore Debit Bureau's bad grade and open an account
for
such a customer anyway now may pay with their jobs. On Dec 1, Debit
Bureau
added Audit Report to its repertoire. Audit Report notifies a bank
teller's
boss when an account is opened despite Debit Bureau's identification
of the
customer as a high risk.

Where are no-frills customers to go? Well, biometric ATMs may be an
option.
They identify users by fingerprints, facial dimensions or
distinctive marks
in the iris of the eye. Once a person is in the database, he can
cash his
paycheck at a biometric ATM for a fee of 1% to 3% of the check
total.
Biometric ATMs are being upgraded to issue travelers' checks if a
customer
doesn't want to lug a month's cash earnings home on the subway.

"Hey, I had friends at American Express who lost their jobs because
they
couldn't identify the profitable customers," Groman said. "I liked
them.
They were good people who cared about people. But in the global
economy no
one cares if you're a nice, good institution. Well, maybe they would
if you
knew how to market goodness."