Banks’ change of focus from product orientation to customer orientation is bringing benefits, not least in being able to understand a customer’s value and market the right products. And that is where new technology can help, Dan Barnes reports.

The back office’s ability to determine what occurs in the front office is weakening. As the financial services providers move away from cost reduction to revenue growth, retail banks are finding it increasingly important to understand customer value.

Significant changes to technology, such as deployment of service-oriented architectures (SOA), is enabling change in the business model employed by retail banks by granting them enhanced flexibility in service provision. This, in turn, grants them the ability to understand a customer’s value and react accordingly, for example by packaging products at competitive prices. It can be a more complex task than simply implementing a specific customer relationship management (CRM) system, but it is proving to be one that a number of banks are finding rewarding as they change focus from product orientation to customer orientation.

Many companies from non-financial services areas, from telcos to retailers, have led customer orientation. Solutions providers, such as Suntec, are now providing transaction-based billing systems that originated from the telecommunications space to the banking world.

Suntec CEO Nanda Kumar explains that, although the technology has mainly been used in the corporate banking/cash management space, two retail banks are considering its use to ensure customer relations and profitability are better realised. “In the area of high-net-worth individuals, or at least significantly wealthy individual customers, we are seeing an increasing interest in providing higher quality service to improve retention – but balanced against profitability. Our system centralises billing and then provides the ability to see across customer transactions and realise obvious synergies. Our latest version allows a bank to carry this out globally so that they are able to react to the needs of customers who operate around the world.”

The drive behind this has been frustration at finding customer data in a bank but without a realistic way to apply that data in a commercially productive way. “A bank must have the right understanding of a customer’s value or it can find itself marketing products that are not creating the best relationship between the customer and itself.”

Technology developments

Developments in technology have enabled such concepts to come to the fore, according to Thomas Balgheim, senior vice-president, financial services at technology vendor SAP. “There was a limit to what IT could previously do. Product pricing was tied into what I call the business objects of a bank’s core system, meaning that it was, in effect, fixed in the system,” he says. “What has happened more recently is that, as core systems are re-engineered using flexible SOAs, the pricing is able to be held independently of the product within the system.

“For example, you could take a customer who has paid off a significant amount of a mortgage and offer them a retail loan at a reduced rate up to the value of the money they have cleared. Then, if they were to use that money to buy a mutual fund, you could adjust the price accordingly.”

One business area that has achieved great success in working out the correct balance between margin and volume is the retail industry, says Mr Balgheim. “The Wal-Marts of this world are practised at understanding the correlation between factors such as the weather and sales of soft drinks and can find the balance to compete on price while keeping a tight rein on their margins,” he notes.

Path to freedom

Tibco has been developing SOA for industry for a number of years and uses the term ‘the architecture of extortion’ to describe the fixed rules of applications that have previously determined how a business must behave. Dave Darby, chief technology officer at Tibco, says that it is not necessary to redesign legacy systems to achieve freedom from this position.

“We’ve been working with companies such as Royal Bank of Scotland to allow them increased flexibility when it comes to interacting with customers,” he says. “For example, in call centres, retail customers will often be faced with the same CRM system but a different customer services representative and that can prove frustrating because the system determines the effectiveness of the representative.”

From systems to services

To avoid this problem, the bank has applied an SOA ‘bus’ that turns the processes provided by the underlying legacy systems into services – effectively separating them into components that can be delivered according to needs. By using business process management (BPM) software, it is then able to structure its service provision around the way it would like to interact with customers rather than around the way the technology determines. The bank now has the freedom to enable true differentiation in the customer service area.

“The calls from a particular customer can now be routed to the same person in the call centre, allowing customers to have a genuine relationship with the bank, rather than with a system,” says Mr Darby.

Another example of the liberation that this may provide comes from the casino business. Tibco implemented its system at Harrah’s Casino, where it was quickly becoming clear from studies of customer data that customers were lost when they had crossed a personal threshold of loss in a certain time period. By implementing a ‘frequent flier’ card, Harrah’s was able to monitor customer behaviour and, having evaluated their profitability, supply them with gifts for associated businesses, such as restaurant meals or tickets for theatre shows, when they were approaching their threshold. Thus Harrah’s was able to prevent customers leaving, thereby increasing its profitability per customer.

Back to the customer

According to Jerry Norton, director of strategy, global financial services at LogicaCMG, his firm’s recent contract to work with the National Bank of Kuwait on its core banking system is driven by this same desire to take banking back to the customer. “Flexibility and low cost/income ratios are watchwords for competitive banks. If you’re not able to match other banks on product innovation, service and pricing, then your customer retention won’t be the best – or even in the top three.”

LogicaCMG has developed a SOA that is being implemented at the Kuwaiti bank along with improvements to the branch teller and core systems to support the bank’s ambitious growth plans.

The gains for a bank that makes such changes can be significant, says Mr Balgheim. But he says that it requires banks to take stock of their core systems. “If you have a flexible system that stretches from front to back office, you can develop some very novel processes,” he says.

He cites the example of South African banks that are “banking the unbanked using the systems provided by consumers – the mobile phone”. He says: “Mortgages, accounts – these are solutions that bankers produce to match customer needs. The customer is actually interested in spending money or storing money. As such, a high proportion of the population have these phones. The banks are simply enabling them to make micro payments without ever mentioning bank accounts. That’s only possible with the right level of investment in technology.”

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