Is this any way to treat a customer? It’s about to be. After years of bidding blindly for your business, banks are finally asking an elementary question: is your business worth having? More often than not, the answer is no. Thanks to computers, bankers are learning precisely whom to pamper – and whom to put the screws to. If you’re a profitable customer, the type with two certificates of deposit and a car loan, you’ll have the clout to bargain for a few breaks and you might even get a personal banker. But if you’re the kind of client who keeps only an el cheapo checking account, it’s likely to cost you big just to check your balance. “What we’re beginning to see is banks saying, “If you want our services, you pay for them’,” says Rutgers University banking professor Paul Nadler.
Your corner drugstore wouldn’t find that such a revolutionary idea. The druggist wouldn’t dream of selling you aspirin at a loss today in hopes you’ll buy a vaporizer tomorrow. Bankers, though, aren’t used to thinking that way. Your bank probably can’t measure whether its relationship with your family is a profitable one. It may not even know how many accounts you have. More likely than not, the mortgage department doesn’t talk with the credit-card division, much less your local branch. Until recently record-keeping was so chaotic that “if you’d asked some large retail banks how many customers they had, they couldn’t tell you,” says William Gregor of Gemini Consulting.
Enter the technologists. Leading-edge banks are laboriously pulling all of their account information together into so-called data warehouses. By mining that data with high-powered computers, they can sort out which families truly pay the freight. Exactly what they’re doing is so hush-hush that some of the leaders in data mining, such as New York’s Chase and San Francisco’s Wells Fargo, refuse to talk about it. The revelations can be startling. At the average bank, says Durham, N.C., consultant James Moore, 20 percent of households account for almost all of consumer-banking profits, while three out of five customers are money losers.
Run the numbers on the fictitious Betsy Smith and you’ll see why. She keeps an average of $1,500 in an interest-bearing checking account. After paying Betsy interest, First National clears about 6 percent of her average balance from investing the money. That’s about $90 a year. But look at the other side of the ledger. Just maintaining Betsy’s records and mailing her statements runs $7.42 a month (that comes to $89.04 a year). Last year First National processed 186 of her checks at a cost of 14 cents each ($26.04), 45 teller transactions at 50 cents ($22.50) and 18 withdrawals from the cash machine at 25 cents ($4.50). Add it all up and First National is spending $142.08 to collect $90. Until very recently, no bank has been able to calculate a single number like that for all of a family’s accounts. But henceforth, says James McCormick of First Manhattan Consulting Group, banks will be trying to pin a profit or loss figure on each individual customer.
And what will your bank do with the knowledge that your business caused it a loss of $63.87? At one of America’s largest banking companies – it doesn’t want to be named – that knowledge is already available on the screens of each of its thousands of tellers. The tellers haven’t yet been trained how to check the profitability of the depositor waiting at the window. But within months, says a senior executive, they’ll be told to use that profit number in routine decisions. If the number’s big, the teller will be encouraged to waive nuisance fees like the $20 charge for depositing a bad check. Soon, predicts Steve Reich of Treasury Services Corp., a software house, banks will simplify matters by labeling you as a two-star or a five-star customer, according to how much income you bring the bank. If you’re a five-star customer and you think your bank’s mortgage rates are too expensive, say so. The bank will know who you are, and it just might give you a break.
The atmosphere will be a bit chillier for the one-star folks. Don’t like those fees? “Sorry, Mr. Jones, but that’s our policy.” Your bank won’t exactly chase you out the door. It spent a lot on advertising to bring you in, and those branches and teller machines still need to be tended even if you leave. Far better to turn you from a loser into a moneymaker. So you’ll be getting marketing pitches shaped to your family’s specific profile: the same technology that tracks your profitability lets banks customize their come-ons for annuities and mutual funds rather than bombarding you with junk mail. If you don’t take the bait and do more business with the bank, it will punish you for having lots of transactions or for using bank personnel rather than low-cost teller machines. “Helping customers either use us more efficiently or not use us at all is what the drill’s going to be,” says Douglas Hile, president of Marquette Bank in Minneapolis.
To conspiracy freaks, this all may sound like a plot to drive low-income customers away. One of the surprises from studying individual customers, though, is that profitability isn’t necessarily related to income. Sure, every banker salivates over retirees with fat CDs. But the truly rich are likely to sock most of their money away with stockbrokers and mutual funds rather than putting it in the bank, while upper-middle-class families who pay their credit-card balances in full and never bounce checks don’t bring much to a bank’s bottom line. A waiter with a car loan, a credit card and an IRA, by contrast, is the kind of customer banks fight for – especially if he runs up late fees every now and then.
Measuring your personal profitability isn’t quite as scientific as the pros pretend. “Customer by customer, it may be misleading,” says Elliot Rosen of Fiserv, which writes bank-management software. If your bank says you’re costing it money, that could be its fault as much as it is yours. “A lot of our challenge in banking is that our costs are just too high,” says Robin Foote, a senior vice president at First Chicago NBD. So shop around. You may rate only one star at old First National – but around the corner, Third State Bank may have figured out a way to make a buck from your business.
