September 23, 2003

We're not quite there yet, but the tank is full, we have a decent map, and we are well on our way. Now it's just a question of navigating around obstacles in our path.

Though the concept of multichannel integration has been much discussed ever since the introduction of the call center in the mid-1980s, it remains an aspiration that has never been realized. There are many practical reasons for this lack of progress, the chief one being that the various delivery channels came into being at different periods using different kinds of technology, which makes integration difficult.

However, multichannel integration and, more important, its business goal of customer interaction management (CIM), may finally come to fruition thanks, ironically, to the introduction of yet another delivery channel, Internet banking.

The Internet will do more to advance the progress of customer-centric technology than any other single development of the last 30 years. The technologies associated with Web messaging and application development are driving the evolution of delivery channel technologies, even those not directly associated with online banking, like the ATM.

Take a look around the branch automation market, the hottest topic in budget discussions at banks today, and you'll see solutions that use technologies that originated in online banking and are aligned with the Microsoft .Net or J2EE standards that define the movement to Web services. In turn, Web services may be the key to creating a technology infrastructure at the bank that brings the various delivery channel systems together, finally creating the CIM hub.

Achieving the goals of customer interaction management is not easy, however. In order to achieve significantly higher levels of customer service, enhance the effectiveness of sales, and increase customer retention and profitability, banks must undergo two revolutionary changes: They must completely overhaul an organizational paradigm that continues to reward performance based on everything but overall value to the customer, and most banks must transform their present overly complex technology, which fosters inconsistent treatment of the customer across all points of interaction.

At first glance, these challenges don't bode well for the customer.

The organizational issues are the toughest to overcome, although some institutions, like the National Australia Bank and the Royal Bank of Canada, are making headway in that regard. Organizing around customer segments, those institutions measure performance and reward their managers based on the overall value provided to the customers. In the rest of the banking world, these changes are difficult for the established executive management to accept, even when the benefits seem clear. After all, there is no indisputable link between customer satisfaction and shareholder value.

But where there is little hope of organizational change, there is promise that the technology will overcome its historic barriers to customer-centricity.

Witness the interesting phenomenon that strikes banks as their assets approach the $10 billion mark: The close and personal contact they once had with their customers as smaller community banks is slowly replaced by a creeping reliance on high tech. Add to that the organizational characteristics previously described, and you get the isolated factions of technology that actually serve to decrease the levels of customer service and the effectiveness of sales and thus revenue.

By the time the organization is large enough to have an IT leader who can bring the disparate technologies under one strategy, the damage is already done, and the resulting architecture looks more like the New York City mass transit system map than a banking infrastructure. Even the strongest IT executive faces a daunting challenge trying to develop a strategy and architecture for customer interaction management, or CIM. Once again, the siloed management structure makes consensus difficult to achieve, especially when allocating scarce financial resources to infrastructure projects like the CIM hub.

Moving against this kind of inertia is difficult, even when armed with the latest Web-based technologies, so an implementation strategy is as important as the technology tools themselves. Implementing a CIM hub architecture requires a breadth of knowledge of data, process, and technology management that needs to come together in one place.

It all starts with customer knowledge, coming from a wide variety of sources and either integrated into a single "virtual" data store or physically stored in a central repository accessible by every channel, consistently and in real time. New data models must be developed that extend the traditional definition of "customer" to include households, business relationships, and specific treatments based on previous interactions and marketing information. This exercise may sound like the data warehousing efforts of years past, but it is fundamentally different in that the information is about interactions and treatments, not about demographics and propensities.

Experience has shown that even the smallest improvements in customer information, for example the provision of consistent customer balances across all delivery channels, has a significant impact on customer service and servicing costs.

Business process is also an important part of the CIM hub revolution. Consolidating business process across delivery networks reduces the development cycle and associated costs for new products significantly. Changes to bank policies are instantly available to all delivery mechanisms through a much simpler change process than is needed today. Authentication can be centralized to simplify life for customer and bank staff alike. Fraud detection is improved by the real-time centralization and analysis of transaction information coming from all delivery channels during the day.

The final key to successful implementation of the CIM hub is a clear assessment of the management of such an architecture. Simplicity and elegance of design of the CIM hub do not come without risk. The consolidation inherent in a CIM architecture will require robust availability strategies to ensure business continuity in the face of failure of hardware or software. Performance and scalability of the new infrastructure will push the envelope for many technology solution providers. Integration, although made easier with technologies like Web services, will still be an issue outside of the CIM hub, where information must be shared with external service partners.

In order to overcome the barriers to infrastructure change, deployment of the CIM hub must be as much art as science. This is an evolution that will require years to accomplish, one project at a time. Evolution may start with the implementation of consistent customer information (balances, address information, etc.). It may then move on to using marketing analysis at the branch, call center, and online bank to offer customers more personalized products and to keep track of when the customer declines the offer. The next phase may be to build repositories of business process that can be tied together to quickly form new products and distribute them easily, responding to the market in a way that cannot be done today. Each project in turn must be justified by its own business benefit, be it cost reduction or revenue enhancement, and must deliver that benefit to keep the momentum going.

Are we there yet? No. But if we follow the map before us, it won't be long.

Mr. Jerry Silva is a senior analyst in the Delivery Channels practice at TowerGroup, a leading research and consulting firm focused exclusively on the global financial services industry. He can be reached at jsilva@towergroup.com.

His insights on retail banking will also be featured in the November 2003 issue of Bank Systems & Technology. Look for it!