CRM in Banking

Introduction

This short paper analyzes CRM in banking industry based on the literatures available on customer relationship management. The short paper is structured in a way to understand what is CRM? How CRM is important in Banking? What are the benefits, disadvantages, strategy, costs, and impacts of customer relationship management in banking industry? What are the challenges faced by CRM in banking?

What is CRM?

Customer relationship management (CRM) is a co-ordinate approach in business to maintain the relationship between the firm and its customers to satisfy and retain the firm’s customer, in turn helps the firm to exist in business and to attract more customers by giving promotions and more comfort in doing business with the firm (This Little Piggy, 2012).

Some of the common objectives of implementing CRM are to increase the customer service in order to retain them, increasing efficiency of the organization which helps the employees to maximize their skills in understanding their customers, to reduce the cost for running business which in turn increases the profit, and supporting the marketing department to understand the customer needs and make promotions based on the customers’ needs (Das 2012).

CRM in Banking

What is the need for CRM in banking and what is CRM in banking context is discussed in this section. The increased competition in the banking market, reduced customer loyalty, easiness in switching between banks for customers, and changing customer trends lead the banks to find a solution to attract and retain customers to increase their profit. In order to understand, manage, and serve the customer requirements, the role of CRM comes into existence. The CRM helps in delivering the consistent and cost-effective service to their customers, develop products and services aligned to customers, and increase customer loyalty and long term value of the customer (Russ 2006). According to Saravanakumar (2009), CRM is all about maintaining a sustainable competitive advantage by serving existing customers and attracting new customers.

In banking context, CRM is a system which has to deal with a large number of individual retail customers and has the analytical capability to manage the customer retention rates of the bank and to enable them to cross-sell their product effectively (Buttle 2009). The CRM supports bank in executing data mining techniques to understand the customers, and also to identify the prospects for cross-selling their products. The CRM also reveals the best way to communicate and market their cross-selling products to the prospect customers. The banks also want operational CRM to reduce costs by transferring service into contact centers and online (Buttle 2009).  

According to Das (2012), CRM architecture is of three categories, collaborative, operational, and analytical. The collaborative CRM deals with the communication between bank and its clients, the operational CRM automates certain processes in banking, and the analytical CRM analyze the customer information and generates the business intelligence to operate in the competitive banking industry (Das, 2012).

Benefits of CRM

The implementation of CRM in banking sector generates benefits not only to banks but also to the customers.

According to Nelson (2012), the following are the prime benefits of CRM systems for the banks: improvement in customer service, value enabled cross-selling which in turn increase revenue, automation of banking processes, improved communication, better control on quality of customer details and product details, collection of customer data, effective surveys and marketing strategies. The CRM makes bank to focus on its customers to satisfy customer and make profits for the banks with the help of information and analysis tools of CRM. It increases the overall profitability of the bank like better infrastructure, easy training of employees, customer acquisition, retention, and profitability. The CRM increases the customer satisfaction which leads to the customer retentions. CRM helps the bank to achieve the centralization of information which helps the firm to manage and integrate process, people and technology. It helps the banks to understand the customers. CRM enables the bank to segregate the customers into various segments and helps them to customize the service based on various segments.  It helps bank in creating demands through multi-channel and multi-wave campaigns which in turn resulted in aggressive customer acquisition. It provides the bank employees with 360 degree view about their customers, which means the transparent transactions through a single window. This 360 degree view acts as a framework to accelerate the cross-selling of different products to the customers (Bligh 2004, MBA Knowledge Base 2012).  

The CRM increases the operational efficiencies and collaboration by automating the process and business activities which in turn reduces the process time and manual tasks. The multi lingual ability of CRM helps the bank to deal with the customers very easily. It also helped the bank in running campaign management and integrating the information about customers from various channel (Bligh 2004).

The implementation of CRM leads to the building of central repository for all products offered by the bank, pricing of its products, competitive information, internal training material, presentations for sales, templates for proposals and marketing collateral. This repository helps the bank to improve its efficiency. This also improves consistency and transparency in the organization by giving 360 degree view of the organization to all employees. The CRM helps in fast and consistent decision making based on the data in repository and customer understanding aspects of CRM. It helps the organization to manage the leads and opportunities into business through proper follow ups and interactions. The operational inefficiencies can be reduced with the help of CRM. It integrates customer interactions through phone, fax, e-mail, online portals, wireless devices, ATMs, and face to face contacts with bank employees at the operational centers and also connects to relevant internal and external partners. All the above information can be used with business intelligence systems to do predictive analysis (Bligh 2004).

The CRM in banking benefits customers by convenience banking like online banking, ATMs, mobile banking, etc. It helps the customer to give feedback and also helps them to know about more products which are beneficial to them (Bligh 2004).

Disadvantages of CRM

According to wisegreek (2012), one of the disadvantages of CRM is the wrong entry or missing to enter the information of the system may lead to misleading behavior of customers. CRM may change the work culture of the organization. CRM also leads to the frequent switching of customers between different banks. Another disadvantage is the holistic integration of customer details is hard to achieve because of the complex magnanimity of banking industry.

CRM Strategy

The CRM strategy in banking is the direction and scope of the CRM initiatives of the bank over long-term to configure the CRM system in the challenging and competitive market to meet the needs of the market and stakeholders (Johnson 2006). In another way, the core of CRM strategy is the creation of mutual value to customers, employees, and banks itself (Chotani 2010). The aim of the bank in this challenging and competitive market is to attract and retain its customers through appropriate and personalized customer service. Based on the aforementioned aim, banks have the following three CRM strategies; acquiring, enhancing, and retaining the customers of the banks (Ramkelawon 2010).   In acquiring strategy, CRM is used to make differentiation, innovation, and convenience in banking experience which may lead the banks to attract new customers. In retaining strategy, the role of CRM is to retain the existing and new customers by listening to their needs and innovating new products that create a value to their customers. In enhancing strategy, the role of CRM is to bundle the offers accurately, reduce cost, and improve customer service (Ramkelawon 2010).

The basic strategy of CRM is the adoption of customer-centric organizational approach where the customers are separated into different segments, and each segment is tailored using certain behaviors and patterns, and with the coordination of banks various department improve the customer service and effectiveness (Bligh 2004). According to Ramkelawon (2010), the marketing environment is changing from mass marketing to target marketing and in the future it move towards individual or personalized marketing.

Impacts of CRM

Some of the visible impacts of the CRM on banking industries are discussed in this section. The impact of CRM on banks is positive and takes long time to value the impact. At the moment, the impact is very wide in the organization. The CRM has changed the view, process, and techniques of banking industry. But some studies say that the CRM has a negative impact on cost efficiency of banks. Based on the study done by Kumar (2009) on U.S, Commercial Bank Industry reveals that CRM implementation has a decline in cost efficiency, but at the same time it has a positive impact in profit efficiency. As an impact of CRM implementation, bank understands the dual value creation which is creating value for them by creating value for their customers. One of the greatest impact of CRM in banking is the realization of effectiveness impact rather that efficiency impact, which means effectiveness of banks service is increased with high cost (Kumar 2009).

The customer portfolio management (CPM) is an impact to banking business. As part of CPM, banks segmented markets, costing done based on activities, estimated the life time value of customers, and data mined to realize the strategically significant customers. Another main impact is on the customer relationship management and customer experience. The CRM creates a single window product details which enabled the employees to perform efficiently. It increases the speed of transaction and solving the customer queries. As an impact of operational CRM, the banks sales-force, marketing, and services are automated. Because of operational CRM, the cost of operation is reduced with extended service hours which means customers can perform transactions at home through online instead of going to bank without interacting with bank employees. It helps the sales-force to offer the appropriate products to appropriate customers without any complicated procedures.

Costs of CRM  

The cost of CRM plays an important role in the success of CRM implementation and its effective use. According to Lombardo (2012), improper funding is one of the reasons for the failure of CRM. Lombardo (2012) breakdowns cost into hardware, software, customization, training, and support. Gartner (2004) classifies the cost of CRM into the following categories: software licenses, software maintenances, hardware, telecommunications, system integrators, software vendor professional services, internal staff, and others.

Challenges

The banks are looking forward to maximizing profit and mitigating risk along with its social responsibility. At present the banking market is a wide open, highly competitive and low growth environment. One of the main challenges is to focus the products from segmented customer base to accurate customer –focused product bundling and pricing (Fst 2012). Another challenge is the shifting customer trends, where the banks are required to change products, process, and channels to attract customers (Fst 2012).

The next challenge faced by CRM is the banks demand for automated, self-service transactions through internet, smart phones, and other latest communication technologies together with customer interactions at all the customer touch points (Fst 2012). Advanced and robust technology is the other one for meeting all the real-time offer management and business communications to attain competitive advantage (Fst 2012). Another challenge is to integrate call centre with bank’s other communication hub to get the specialist’s advise who knows more about cross-sell and up-sell the bank’s products. The other challenge is to make the information centralized, accurate, and accessible real-time by all the employees of the bank (Fst 2012).

Conclusion

This short paper defines what CRM is and what its role in banking industry is. The paper provides lights into the benefits to customers and banks itself with the implementation of CRM. The paper mentions some of the challenges faced by CRM in banking to meet the demands of the competitive and changing world. It also glances through the disadvantages, strategy, costs, and impacts of customer relationship management in banking industry.

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