The Business Case for Employing MCIF Technology

Do you need an MCIF? Maybe you’re not sure if you need it, or what exactly your institution would get out of having one? Generally speaking, an MCIF can be used a number of ways to help you more efficiently retain your existing clients and target new ones. An MCIF can easily pay for itself in a number of simple ways. The following document outlines a number of specific projects that will translate into real bottom-line benefits MCIF at your institution.

Retention

Are you losing over $400,000 in profit annually through attrition? An MCIF can help you keep it!

Banks typically lose over 14% of their clients each year. In most cases they are replaced with new ones. Yet, what is the cost of this “customer churn”? Think about it…you invest heavily to bring in new clients, but keep losing old customers out the back door. Who cares, right…as long as your bank is growing? In a community bank the average profit contribution of the top 2% of customers is about $15,000 each. The bigger your bank, the bigger this number gets… Regardless of size however, in most cases that Top 2% represents 100% of your bank’s profit.

Let’s examine this a little further. In a 250 million dollar bank there are on average 10,000 business and retail client households. Just 200 client households comprise your Top 2%. If you lose the national average of 14% (according to a 2003 Celent Communications Study, and our own research) of your top 2%, that means you will lose 28 client households. The value of these 28 clients at $15,000 each in profit is $420,000! That means every year you will start in the hole over $400,000! An MCIF will help you identify your best clients and then help you build retention strategy to keep them. It will even help you measure your success with this retention effort, month to month, quarter over quarter, year over year.

A thoughtful retention Strategy may also be the ideal starting point for an officer call program focused on meeting and working with your most valuable customers. In addition to reducing your churn, you may also discover other ways you can serve these clients. Remember, it is these very customers who are the focus and envy of your competitors - the brokerage houses, insurance companies, Internet banks, and your traditional bank competitors.

How many customers do you have to save or develop to pay for the tool that lets you identify them? The numbers are easy to justify, and are frankly undeniable. An MCIF is the tool of choice for each one of your competitors, as they eye your client base. You need to use an MCIF to make things more difficult for the bad guys…as you keep your own good guys. An MCIF makes it easy and can even help you measure your results for proof!

Direct Marketing

Is your marketing department churning out direct mail offers without regard for results? An MCIF measures everything, including the ROI of mailing Campaigns.

Classically, most MCIF purchases have revolved around marketing’s interest in more efficiently managing and measuring direct marketing campaigns. In this way, MCIF systems paid for themselves in two ways: 1) By reducing mailing expenses (by not targeting everyone with the same offer) and 2) as a means to segment the client base into likely target groups who have a need and will more likely to be receptive to the offer. It has been said many times that the success of a direct mail offer is 70% dependent on the accuracy of the list. Today’s MCIF systems let you explore direct marketing opportunities before you send them, as they provide Campaign Worksheets that reflect likely ROI. In this way you can choose between the different direct marketing events available and then prioritize on the ones that will likely deliver you the greatest return.

Typically banks also desire to market to high value/targeted prospect lists. These lists can be augmented by purchasing demographics and life stage codes that further your accuracy in creating an offer that is meaningful to these prospects (and/or even your own clients.)

More sophisticated institutions have used an MCIF direct mail management tool called “matrix mailing” to start and manage an “on boarding” process. These institutions take advantage of communicating a series of letters and phone calls to new customers in those first 90 days. Why do this? Because it is in the first 90 days when the majority of all cross-selling is likely to happen. So, on-boarding can be regarded as critical to solidifying and cross-selling new relationships.

Campaigns that target overdraft protection, skip a pay plans or specific products are just some of the ways you can use the MCIF to produce profits that benefit the institution. There are numerous examples of small community institutions that have generated hundreds of thousands of dollars each year in measurable results with their MCIF. Evidence of Direct Marketing success is so proven on a broad scale that some vendors will even guarantee that the MCIF will generate profits in excess of the first year purchase price, if a few basic campaigns are run. If nothing else, an MCIF will add discipline to your direct marketing and an ROI component that it has been missing.

Re-Pricing your Products:

Imagine evaluating rate and fee changes to your products without using the back of an envelope. MCIFs can even measure account attrition and the ROI of any changes.

The process of pricing your products is a fluid event. How do you track and measure the impact of the changes you propose or actually do make to your existing account types and products? Is the result what you expected? Are you even measuring the impact of your changes, after the fact? Candidly, many do not buy an MCIF with the intent of better managing product pricing. Yet for those who have used this real profit generating feature, it is fascinating to hear their amazing results. Banks benefit from re-pricing through greater fee generation and increased balances; the profit from which can be counted on year after year. This single tool, known as “what-if” has the potential to add significant profits to any institution.

While there are many success stories related to product re-pricing, for the purposes herein we will discuss just one. A small Illinois Bank of about $125 Million in assets found real bottom-line results after attending to their price and fee schedule. This bank had merged three smaller institutions. Each of them, as you might guess had different rate and fee structures. In addition, the combined new entity had much lower than usual non-interest fee income vs. their peers. With the help of their MCIF’s “what-if” feature, this bank found a way to unify the pricing throughout the new bank, protect top clients from feeling the effect of any increase fees, and even implemented a higher fee structure to what ended up being about half of their client households. They subsequently revisited their fee/tier formula each eighteen months. Across five years, this small institution added over $2,000,000 to their bottom-line. So, is there money in re-pricing your accounts types and products? Absolutely! Can an MCIF help? Yes.

A “what-if” tool offers an excellent way to gain objective insight to understanding the impact of matching the competitions offer or exceeding it. The beauty of this feature is you can easily run many different options and measure the potential outcome without having to guess. It is likely that someone at your institution is charged with managing your products and services, and the corresponding fee, rates, etc. that you charge in the market for them. How much more effective can this person be with a tool that will actually enable them to predict the outcome of proposed changes or even the impact of real changes that you do make? An MCIF will make you money with this concept alone. How much? What-if…

Mapping

Where are your best clients…and prospects?

Communicating your past and current performance, market opportunities and risks is dramatically easier with mapping. The mapping imbedded into MCIF software makes it easy to marry your performance against market opportunity..

The Federal Reserve Survey from 2004 lists that 46% of customers choose your bank because of location and 23% choose it because of service. Mapping where your customers are in relation to your facilities can be a powerful indicator of where you choose your next location. Mapping allows you to measure where your most profitable customers are located as well as high value prospects. The amount of statistical and demographic data that can be gleaned for purposes of site selection is a tool that few organizations can do without. As an additional source of information, mapping can make the difference in identifying sites that are successful.

The uses for mapping extend far beyond site selection. Understanding the demographics of an area can afford insights to CRA targets as well as penetration in each market. The uses are only limited to your imagination.

Reports:

“A common thread in great businesses is their ability to turn raw data, into client and market information they could not ignore”, Jim Collins, Good to Great!

It has been said many times that “knowledge is power”. In banking, the tool that delivers this client intelligence is an MCIF. Reports that easily highlight your key business information are uniquely provided by MCIF systems alone, because they have performed both profitability and householding of your raw account data. It is in these data enriching functions that your client knowledge comes to life, both strategically and tactically.

Candidly, banking has largely shunned market intelligence for gut instinct and market experiences. Why? Indeed. Especially as the information produced by MCIFs systems will set the table for strategic planning and then the execution strategy that follows. Most systems have pre-built reports that help unlock these opportunities. Many systems also have the ability to export that data to report writers that allow you to create specific reports that speak to your needs. In any case, without delving into specific report styles common in the MCIF industry, the benefit the reports themselves is they present you with information you cannot ignore.

Summary

An MCIF is not a Data Warehouse. It is however, a Data Mart. That means that the MCIF collects information valued for a more specific purpose – Strategic Sales and Marketing Intelligence. Unlike a Data Warehouse which tends to collect as much information as possible (to be all things to all people), an MCIF’s purpose is specifically to understand who your best clients are, what products are winners, which clients are at risk, and what opportunities are best for your bank. MCIF technology picks up where the data warehouse leaves off. It is this fundamental client information that becomes the backbone of a successful transition towards CRM. Once you have this basic client Intel, the MCIF tools will help you with Retention, Direct Marketing, Re-Pricing, Mapping and Reporting.

Financial institution’s who commit to use an MCIF (regardless of size) will generate many times the investment for the MCIF – in increased profits. The question is not can you – but will you? These tools are extremely affordable and dramatically easier for any level of user – as compared to even 5-7 years ago..

The days of margin squeeze are upon us. Competition for deposits is fierce. The easy money through fees from overdraft protection has peaked. Do you know your best client relationships? Can you afford not to know? After all, your toughest competitors are already chasing your top relationships.