Barclays Bank PLC (BCS) was long the dominant credit-card player in the British market, until American rivals showed up a few years ago with cutthroat pricing and direct-mail sales tactics. Barclays had been getting more than 80% of its new customers the old-fashioned way -- from application forms stacked in piles at its local branches. It needed to raise its game, but how? The storied lender fired up its database of 10 million bank account customers, augmented it with demographic and behavioral data and credit bureau information, and came up with a list of customers who were inclined to sign up for more services. Then it started selling them stuff.
The strategy worked. Barclays went from attracting around 500,000 to 700,000 credit-card accounts a year to more than 1.7 million by 2005. It also began tracking credit-card purchases and capturing what customers are looking for on its Web site to fine-tune promotions and spur sales in other parts of the bank. "The future will be driven by customers who are signaling [what they want] through the Internet and other areas," says Keith Coulter, managing director at Barclays U.K.
Ah, the Internet. That's where savvy shoppers call up the latest and best rates on any number of financial products and services and sign up for them in a matter of minutes. Add to that the emergence of peer-to-peer banking in the form of PayPal Inc. (EBAY) and Prosper.com -- which cut out banks entirely -- and the possibility of Wal-Mart Stores Inc. (WMT) entering the business, and you have the perfect conditions for what industry people call churn, and what the rest of us call defections.
That's why banks are in full-scale makeover mode. Washington Mutual Inc. (WM), a pioneer in adopting sales strategies perfected by retailers, routinely hires people from Starbucks and other places to drive sales. But it's doing far more than just calling branches "stores" and recasting tellers as sales associates. WaMu Chief Operating Officer Stephen J. Rotella calls it a "cultural awakening."
The most forward-thinking banks, among them Wachovia Corp. (WB) and Bank of America Corp. (BAC), are enlisting architects to redesign their sleepy storefronts, behaviorists to profile customers, and high-tech consultants to rev up their 21st century marketing machines with high-tech gadgetry and systems. Susan Duchesneau, client relationship manager in the financial services unit at SAS, a business intelligence and analytics firm in Cary, N.C., says banks "will know how to predict the future and change their customers' behavior."
In the past year, Bank of America has invested heavily in creating a single repository of consumer data to get a view of what customers are likely to do and when they are likely to do it. "We are increasingly capable of predicting both," says Cathy Kenworthy, who heads consumer marketing at Bank of America. "But compared with the retailers, we've got a long way to go."
A long way indeed. Banks attract less than a third of the $3,500 that the average American household spends each year on financial services. To capture more market share, they must sell products across the entire financial spectrum, from brokerage services to home-equity lines, certificates of deposit to credit cards. And once they succeed in scoring new business, they must hold onto it.
Increasingly, they're betting that technology will get them there. They're turning a massive volume of transactions, from credit-card purchases to online inquiries and call-center complaints, into bits of intelligence used to piece together holistic pictures of customers's wants and needs. "Business intelligence [helps] pinpoint who might be interested in particular products," says Mark N. Greene, vice-president for strategy at IBM's (IBM) Financial Services group.
Mostly, banks mine for behavioral clues, such as when a customer is about to switch banks or may be in the market for more services. If, say, a couple has recently paid for flowers, an expensive cake, and a tropical vacation, chances are they are newlyweds -- and might soon want a mortgage. What's more, Barclays isn't the only one zeroing in on its best prospects. Last year, Wachovia created profiles of 1.2 million of its most profitable customers, and assigned "financial specialists" to call them to see if there's anything they need. The effort contributed to a 9% increase in the average customer balance last year.
Banks are also trying to make their customers "stickier" -- more likely to hang around a branch. It's no easy task. Industry studies show that pedestrians walk faster past a bank than past other establishments. Some banks are redesigning branch offices to be more engaging, with play areas for kids and digital music kiosks for their parents. Tiny Wainwright Bank & Trust Co. (WAIN) in Boston has turned bank design on its head. It invites people -- customers or not -- to surf the Web at its cybercafe, cozy up on the couch and watch TV, or sit by the fireplace and enjoy free goodies from Dunkin' Donuts.
Following the credit-card industry's lead, some banks are offering membership rewards for the first time. Citibank's (C) ThankYou Network, launched in April, 2005, offers loyalty points redeemable for goods and services. The program has attracted 9.3 million accounts so far. "The objective is to create an experience that is very unbank-like," says Paul Kadin, marketing director at Citibank North America, whose promotion budget now includes "appreciation stations" with simulated surfing, golf, basketball, and other leisure experiences.
Banks are also monitoring spending patterns and targeting people accordingly. For instance, "if they figure out people shop at Starbucks (SBUX) seven times a week, they could offer free lattes," says Trevor Rubel, vice-president for products at Intelligent Results Inc., a predictive modeling outfit in Bellevue, Wash. "Or if someone is shopping at Home Depot (HD) several times a month, a bank can offer a home-equity product. It all comes to getting back to a banking relationship that you know and [that] knows you."
Technology is allowing banks to pitch products far outside the confines of branches. BlackBerry and cell-phone alerts tell customers about current promotions. And call centers are turning into marketing centers. Cleveland's KeyCorp (KEY) identified life-stage markets, such as Young Transactor, Family Asset Builder, and Mature Thriver based on surveys about attitudes, aspirations, and demographics. Incoming calls from electronically tagged customers are routed to trained operators, who are prompted with cues on how to steer the conversation. "Call centers were an operational utility, a necessary evil," says Trina Evans, director of KeyCorp's centers, which have seen a 150% increase in sales since 2003 without an increase in staff. "Now we are a channel to drive business and a strategic weapon for the company."
In the near future, banks will embed chips in ATM cards that alert managers when preferred customers have walked in the branch door. Voice recognition and semantic engines on voice call systems will be rewired to indicate that a caller may be a promising sales prospect. Microsoft Corp. (MSFT) says it hopes to position its Xbox 360 video-game console as an engaging financial tool. "If a bank produced a game that allowed you to simulate what impact your current decisions will have on the future, you and your family could have some serious fun," says Bill Hartnett, general manager of strategy for Microsoft's Financial Services Group.
Human contact is still the marketing vehicle of choice, however. "We have all the traffic we need and then some," says Bank of America's Kenworthy. "Our marketing challenge is to make our associates more effective. That's the whole enchilada."
By Mara Der Hovanesian