It is not only top-tier banks that can take a truly holistic approach to core banking. Mid-size US bank Bremer can teach something to the behemoths, says Joshua Weinberger.
There is a general assumption that only the top-tier banks – the multi-national, multipurpose, multidimensional financial behemoths – have the resources and vision to take a truly holistic approach to core banking, to make the most of their technology and to integrate a customer management system fully.
Do not tell that to Tom Ryan, though. As chief information officer at Bremer Bank in St Paul, in the US state of Minnesota, Mr Ryan is convinced that his bank can tackle the big picture with as much success as any globalised giant.
Bremer is by no means a tiny thrift: its parent firm, Bremer Financial Corp, is a privately held $6.6bn regional financial services company that is jointly owned by its employees and the Otto Bremer Foundation. Founded in 1943, the company provides a range of services, including banking, investment, trust and insurance, at more than 100 branches in the US mid-west. In 2003, the bank decided to upgrade its sales automation management system (SAM) and to integrate it fully with its core banking platform. The goal, according to a memo at the time from the bank’s chief executive officer, was “to become more effective at client intimacy”.
Doubling growth
Since then, Bremer has been trying to get intimate with a lot more clients. It is currently the fourth largest bank in Minnesota and its executives have said publicly that they intend to increase annual revenue and profits by double digits by 2010. Mr Ryan and his team are a critical part of that effort and they are clearly doing something right. In the fiscal year that ended December 31, 2005, net income increased more than 9%, from $64.2m to $72.0m – almost double the previous year-on-year growth rate.
One part of the company’s can-do attitude seems to derive from the institutional ethos instilled by its late founder, Otto Bremer, who is said to have single-handedly kept several St Paul community banks afloat when the Great Depression hammered US thrifts in the 1930s. That kind of ‘people skill’ has informed the bank’s modern approach to customer service, which goes far beyond what technology can enable. The bank recently distributed a comic book to its 1850 employees, for example, exhorting them to be “superheroes”, taking action in the constant battle to win over customers. One superheroic aspect of the bank’s new customer service code is that employees will be expected to return customer phone calls and e-mails the same day.
More than deals
That helps to explain Mr Ryan’s contention that the SAM initiative was all about contacting customers, not merely “closing the deal”. “Rather than pushing hard for the sales numbers, [we were] pushing hard for the activity increases, believing that the financial benefits of that will come,” he says. At the origination end of the pipeline, where calls are being made, the SAM system has led to a boom in activity, without any significant increase in headcount, says Mr Ryan. “We have grown drastically, almost to the doubling point, to where we have 35,000 or 40,000 calls going out on a monthly basis, versus about half of that or 60% of that prior to pushing the activity efforts.”
According to Luis Hermoza, a Bremer vice-president, SAM allows the bank to plumb “the depth and breadth of the relationship with each customer”, and in a short period of time, the system has infiltrated most daily operations. “Our personal bankers and business bankers, our insurance people, all our sales force, use SAM to keep track of all the prospecting activities, profiling and relationship management activities,” says Mr Hermoza. “We use the application so they can send leads, or referrals, across business units – and not only across business units, but also across our geographical distribution in Wisconsin, Minnesota and North Dakota.”
Mr Ryan goes one step further: “It has become the key enabler for creating a holistic view of the client, and taking that and wrapping it into a view of the household.”
Regulation’s role
Mr Hermoza acknowledges that regulation has played a major role in the underlying approach to the core banking applications and, in particular, to customer data. “When we were building SAM, we had a lot of thought especially with the [Gramm-Leach-Bliley] Act about information privacy and having a ‘need-to-know’ basis. The security model of SAM adheres completely to that, in the sense that what you can see is dependent on who you are and where you are in the organisation. For example, a teller in Wisconsin, although they can see some basic information related to a customer, cannot see their balances and account numbers and that kind of information, and social security numbers are kind of masked. But the relationship manager for that account can see all the accounts, balances, everything that the customer has.”
Mr Ryan, too, sees the firm hand of regulation guiding the company’s initiatives, but that is not necessarily a negative, he says. The trick is finding the proper middle ground. “As you look beyond SAM to some of the other integration points that we have, clearly some of the bigger initiatives are around some of the regulatory pieces,” he says. “Multifactor authentication is a great example: as we extend that out to our internet capabilities and our partners and our customers using that, we’ve got to find the right balance [between] ease of use and making sure that the clients are who they say they are as they’re signing on.”
With an eye to the December 31, 2006, deadline set by the US Federal Financial Institutions Examination Council (FFIEC), Mr Ryan suggests that the entire US banking industry will have to have a handle on these matters by year-end. Bremer, he says, is in a solid position for the future. “We’re in a good position to understand where our risks are, and we’re working closely with all our partners. I think we’re on pace [with the industry], if not just a little bit ahead.
“The approach we’re taking, which is very much what the FFIEC recommends, is a top-down, capabilities, risk-based approach, which is to say ‘these capabilities exist, these are the highest risk – whether [measured by] dollar amounts or potential for fraud – and therefore we will match our solutions’. We will have a much more sophisticated and tighter solution for the higher-risk types of capabilities, all the way down to the lower-risk capabilities, for which you could choose to use a lower-complexity technical solution or, in some cases, you could just have manual controls on the back side of it as well,” he says.
Partnership resources
From the beginning of the initiative, Bremer has managed to make the most of its available resources, says Mr Ryan, including a 47-person technology staff, with outside help, particularly systems provider Information Technology in Lincoln, Nebraska, which supplies Bremer with its core banking application as well as its business and retail internet banking solutions. In general, when it comes to dealing with compliance issues and regulatory changes, “our preference would be to partner with our application providers and the solutions they are integrating into their tools as opposed to building a tool of our own”, he says.
And yet Bremer is fully capable of handling some development itself, including SAM. As a result, it was able to ensure an optimal fit with the firm’s existing core banking platform, says Mr Hermoza. “Because SAM was an in-house developed project, we tweaked and developed and customised it the way we wanted it, so it would work nicely with our core systems.”
Five employees were tasked to the project for nine months and Mr Ryan and Mr Hermoza are convinced it was time well spent. “One of the biggest items when we completely rearchitected the old application was to move it into a very much more robust architecture,” says Mr Hermoza. “We did take advantage of Microsoft.Net and that tool made it easy for us, not having very experienced developers to develop that application. It’s very easy for us to maintain it, along with our SQL server database platform.”
The choice to go in-house was made easier by the price tag that outside vendors were pitching. “Before we made the final decision that we were going to take the old sales force automation and evolve it into this .Net, big-client CRM [customer relationship management], we went through the exercise of analysing what was out there, reviewing some vendors. We looked at Siebel, Onyx, Clarify and the prices were staggering,” says Mr Hermoza. “For 1800 employees, it was [going to be] almost $4m.” That was enough to convince himself and Mr Ryan to customise the application on their own. “We built it completely with internal resources,” says Mr Hermoza, with justifiable pride. “And we were under schedule and almost with no budget.”
Today, SAM and the customer relationship mantra it embodies are mission-critical for Bremer, according to Mr Ryan. “It has become one of our core applications,” he says. “The demand for enhancements and to keep it up and available – it clearly is one of our top five key applications in the organisation,” right on par with the core banking platform itself.
Improvements continue
Even now, years into the SAM roll-out, Bremer continues to make further improvements, automating one function after another and eliminating redundancies. Last year, it focused on integrating the insurance unit, which was not then connected to SAM, and eliminating the division’s redundant data entry. “A key integration was to automate all of that, so they only do it on one system and it will flow to the CRM system,” says Mr Hermoza.
A portion of the massive growth in activity attributed to SAM is a direct result of the addition of the insurance unit, says Mr Ryan.
Scalability is only one of SAM’s positive aspects, says Mr Hermoza; another is its flexibility in incorporating additional software functionality. “We put a business intelligence layer on top of the tool, so our key executives all the way down to the branch managers and relationship managers can see the number of activities they have, and what type of activities,” he says. “We’re using measurements from the referrals piece because after we had deployed this application, we built the performance management system on top of it, so we can pay incentives to our sales force based on their level of activity, their referrals that they produce and their closed deals.”
Changes to come
Further changes are in the offing, including the integration in Q4 2006 of what Mr Hermoza calls “a kind of shopping-cart concept”, which will enable the bank to unite the points in the pipeline from the moment a customer becomes interested in a banking product or service straight through to the execution phase.
Mr Ryan agrees that that kind of customer-centric approach is critical for banks, both big and small. “I think the challenge for an individual bank – for Bremer or anybody – is to balance the ease of use with the cost and with the security,” he says. “Finding the right balance of risk protection in relation to cost and ease of use is the challenge.”
