Provident Bank Fixes Variable Cost Drain

To compete effectively with other regional banks, attract new customers, and maintain customer loyalty, Provident Bank (Baltimore, Md.; $5 billion in assets) had offered free Internet banking to customers who wanted to access information about their accounts. Between 1997 and 1999, Internet banking had been growing at the rate of 1,000 to 1,500 new customers per month, according to the bank.

"The problem was that for every customer who received free Internet access, we had to pay a monthly stipend-per customer, per month-to a vendor," says Jay Fitzhugh, senior vice president strategic directions at Provident Bank. "The more successful we became getting our customers into the Internet banking world, the more financially disadvantaged we were."

Thus the challenge: "To offer free Internet banking without the incremental cost," says Jack Bliss, Provident's vice president of strategic directions.

At first, Provident Bank thought that charging for bill payment would offset the cost of balance inquiries. But it didn't work out that way.

In 1999, Fitzhugh and Bliss decided that they were paying too much for the ability to provide free Internet banking. To solve this dilemma, they decided to create a product for the Web that would have the functionality of a voice-response unit. The goal was to move the customers who were not paying for Internet services to a scalable, fixed-cost platform.

In 2000, three vendors came in with presentations. Gold Systems (Boulder, Colo.) had already done work on the bank's voice-response systems, and so the company was able to develop the Internet applications off of these same codes.

"If we hadn't selected a vendor that had the ability to understand the code associated with a voice-response system," says Bliss, "then we would have had to hire a second vendor who could interpret and understand the coordinates."

An agreement was reached in the first quarter of 2001, and an employee pilot was conducted in the third quarter of 2001. Soon after, 16,000 customers were moved to Gold Systems' V-Teller platform in December 2001. Provident Bank realized a six-month payback on its investment.

The bank application was installed onto dedicated Compaq servers within the bank's processing environment. Technology employees were trained by Gold Systems to handle hardware issues. The bank also has a maintenance contract with Gold Systems.

Now, approximately 53,000 customers conduct about 500,000 transactions per month using the new system, according to Fitzhugh. And there's no incremental cost.

The bank's customers benefit from this product by being able to view real-time balances for checking and savings accounts, money market accounts, loans and lines of credit - without any cost to them. In March 2004, additional customer value and convenience will be added by linking this product to the image delivery of checks.

"We have architected a delivery methodology that has allowed Internet banking to move from a loss leader to a profit," Fitzhugh says. "Now, we are only paying external vendors for those accounts where we have a higher level of relationship."

SNAPSHOT

INSTITUTION: Provident Bank (Baltimore, Md)

ASSETS: $5 billion

BUSINESS CHALLEGE: To lower variable cost of Internet banking services.

SOLUTION: In-house solution from Gold Systems (Boulder, Colo.)