By Rob Keene
Director, Banking Practice

Note: In addition to 3rd Quarter, 2001 the Nolan Newsletter, this article appeared in the October 12, 2001 issue of American Banker, The Financial Services Daily, under the title "CRM's Value Can Be Found In Improved Customer Loyalty."

Regulation and technological improvements are responsible for the vast majority of innovations in banking over the past quarter century. The introduction of personal computers and the proliferation of ATMs in the 1970s captured bank management’s attention. The regulatory changes in the 1980s fueled much of the industry’s growth, then downsizing as bankers focused on amassing market presence which resulted in significant merger activity. Recent technological improvements are at the root of bankers’ focus as well as a target for their significant investment dollars today. In fact, according to recent projections, bankers and their financial service company brethren will spend almost $7 billion this year on CRM and increase that by 14 percent each year for the next several years.

Looking at this CRM phenomenon in light of the drivers of banking innovation since the 1970s, one might wonder if CRM itself is the innovation, or (conversely) the technology, once again.

Much is being written about CRM. Bankers at all points of the CRM spectrum are looking for a way to quantify their return on investment — either what it actually is or, if just starting out, what it should be and over what period of time should the value be realized. Ironically, the answer to this question may lie in a simple review of a few known quantities generated from historical innovation.

Look, for example, at ATMs. What drove many bankers to invest in ATMs was the promise of reduced branch cost, since customers would use them instead of a branch to transact business. But what was discovered is that the financial impact of ATMs is a marginal increase in fee income substantially offset by the cost of significant increases in the number of customer transactions. The value proposition, however, was a significant increase in that intangible called customer satisfaction. The increase in customer satisfaction has translated to loyalty that resulted in higher customer retention and growing franchise value.

Guess what? Internet banking, a product of the 1990s, shows similar characteristics. Again, bankers invested believing that the Internet was a lower-cost delivery channel and a way to increase sales. Studies have now shown, however, that the primary value of offering Internet banking services lies in the increased retention of highly valued customer segments. Again, the intangible called customer satisfaction drives the value proposition.

Now we explore CRM. CRM is not another ATM or Internet bank. It is not a checking account, a stock or a mortgage. In fact, CRM is not anything a customer should even know about! You will never sell your customer your CRM, will you? So, one can conclude that CRM is not tangible. If it’s intangible, can it be expected to produce a tangible return? Probably not, or at least not with any direct financial value exclusively linked back to the investment in CRM.

Is CRM another innovation, or the result of innovation? I think both. CRM is primarily driven by the innovation of technology, but unlike other technological innovations, CRM has power to help bankers quickly and directly improve customer satisfaction. CRM is an added dimension to ensure that what the customer expects is consistent with what the bank is prepared to deliver. One expert in bank CRM initiatives recently said that CRM is an approach that is less focused on providing the right services to the customer than attracting customers who are the right fit for what the bank has to offer. Further, the primary value of CRM is its potential as a customer retention tool. People are starting to measure CRM in terms of increased customer satisfaction rather than ROI.

So how much of a return can you expect from your CRM investment, and when can you expect it? Refer to your reasons for continuing to offer ATM and Internet banking services. The answer for CRM is the same.