Banking On CRM

Research indicates continued growth in financial services CRM spending despite poor economy

The current economic woes require companies to closely scrutinize IT spending on existing and new initiatives. The popularity of CRM over the past few years has meant that spending on these initiatives has increased significantly. But while spending levels will continue to grow, companies will closely scrutinize which areas they will fund.

A November 2001 Tower Group Research Note, "CRM IT Spending: What Are Retail Financial Services Institutions in North America Spending on Customer Knowledge Technologies?" predicts that spending on customer knowledge technologies for CRM will grow from slightly less than $2.2 billion in 2001 to $2.7 billion in 2005 within North American, retail-oriented financial service institutions (FSIs). These CRM technologies include data warehousing, analytics, and knowledge distribution.

Although in 2001 FSIs spent $1 billion, the largest percentage of customer knowledge technology spending on data warehousing, Tower Group predicts that the highest compound annual growth rate will be in knowledge distribution technologies at 7.8 percent, compared to data warehousing's 4.9 percent. (Knowledge distribution technologies include marketing customer information files, campaign management and database marketing software, and customer interaction and personalization technologies.)

Kathleen Khirallah, a Tower Group analyst, cites the relative maturity of data warehousing as the reason why it will grow more slowly. Furthermore, many FSIs will choose a hosted or ASP model for new data warehousing or data mart initiatives to curb costs.

The report also notes that while the United States "dominates North American customer knowledge IT spending because of the diffused structure of the U.S. banking market," comprising $2 billion of the $2.2 billion North American total, the big five Canadian banks have been "especially innovative in deploying knowledge technologies throughout their organizations."

Khirallah points to the fact that because of the limited playing field, the five banks already control 90 percent of Canada's retail banking assets, concluding that "growth through acquisition is not a viable option." In order to grow, they must take business away from their competitors, which means focusing on customer needs and improving interactions.

According to Khirallah, many of the larger U.S. institutions have taken note of the successes of their counterparts across the border and are quickly imitating their strategies.

— Michelle M. Young

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