Bank of the West story
Just over a year ago, Bank of the West went on a hunt for customer relationship pricing software. It wanted to reward customer customers according to the number and value of accounts they held at the bank.
In pre-technology days, this might have come under the heading of common sense. A bank president, vice presidents, and local branch managers would treat their best customers well, and the customers, in pre-internet days, would keep their deposits, mortgages, credit lines, car loans and investments with the bank.
Things were so much simpler then.
In devising a strategy for the future, Bank of the West wanted to view customers’ relationships with the bank and price and reward those customers for being loyal and profitable. Everyone wants to do that, said Alexandra Roddy, who is in charge of retail strategy and delivery at the bank, because banks are moving to the end of free checking. Banks would like to attract and hold customers who have higher value and more complex relationships.
“Relationship pricing is a way to create value for both banks and customers,” she said.
From the bank’s point of view, a checking account is not much of a money-earner. The banks want to use checking as an opening to get more business — small business commercial accounts, credit cards, mortgages, retirement savings and leases. Aided by the internet, many individuals today hold those accounts across a range of institutions, often far from their local bank — specialized mortgage banks, mutual funds, credit card specialists like America Express. And adding to the challenge for local banks, many of those outside firms, like Charles Schwab, have moved into traditional banking accounts like checking and credit and debit cards.
Reorganizing the banking practice at Bank of the West looked easy. Customer centricity is all the rage, so bank planners decided to start with the customer and arrange the banking products around the customer’s needs. The bank wrote up the program and then realized it didn’t have the infrastructure to do out the customer at the center and arrange products around the individual. Although the bank’s system provider, FIS, offered to write the requirements into its core banking platform, Bank of the West looked around for an existing solution, eventually focusing on SunTec and Zafin.
The bank chose Zafin, which uses the customer data stored in the bank’s Oracle data warehouse, applies business rules to it and funnels the results back to apply appropriate pricing to the customer’s account.
“It is middleware that rides on top of core systems and can use business rules for product pricing and benefit decision,” explained Roddy. “It is a small innovation that delivers a big punch.”
By pulling together data from multiple formerly siloed sources, the Oracle data warehouse and Zafin accomplish much of what core replacement projects offer — a comprehensive view of customers rather than products. The older product-centric views, still prevalent at many financial institutions, were partly the result of the limited power of technology and partly the result of bank organizations where products were in separate departments which often had no incentive to cooperate.
Bank of the West is pursuing customer knowledge to sell more products and build deeper, stickier, more profitable relationships.
Its initial focus is on mass affluent and the small and medium enterprise business owners, Roddy said. “I told the team, believe it or not this is going to happen,” and as a result, the project was named Ripley.
A much larger issue beyond the end of free checking is the problem an aging population faces in retirement with the end of defined benefit pensions.
“It is going to be a challenge for us as the financial services industry to provide compelling advice for a population that is living longer and longer without defined benefit retirement programs outside Social Security. It is a complicated emotional and mathematical problem. The entire industry has significant challenges to provide people with the advice, guidance, products and advisors that they need. It is incumbent on us to do that to make a difference.”