Financial Firms Will Continue To Invest in CRM Despite Economic Slowdown

A TowerGroup study shows banks will continue to drive CRM growth through 2005.

Investment in customer relationship management technologies by retail financial institutions will drive healthy growth of these tools through 2005, at a rate considerably higher than the anticipated growth for the total economy over the same period, according to TowerGroup.

North American financial institutions will take a front seat in spending on CRM-related information technology, driving an expected compound annual growth rate (CAGR) of 6% for the category between 2001 and 2005.

CRM strategies seek to identify customers individually and then craft sales and service approaches that are unique and appropriate for each channel of customer interaction. CRM has two major components: customer knowledge technologies (including data warehousing, analytics and knowledge distribution) and customer interaction technologies (including such front-office technologies as call center or branch automation and Web site personalization).

This year, financial institutions will spend $4.3 billion on technologies supporting the customer knowledge side of CRM, according to TowerGroup. Of that, just over half, or $2.2 billion, will be spent in North America.

Knowledge distribution technologies--currently the smallest slice of the CRM technology pie, accounting for 19% of the total customer knowledge area--will experience the most rapid growth at a 7.8% CAGR through 2005. Knowledge distribution tools include marketing customer information files (MCIFs); campaign management and database marketing software; and customer interaction management/personalization software.

While investments in CRM have typically been concentrated among large retail financial institutions, small and mid-sized institutions are expected to dive in over the next few years, especially on policies, processes and employee training.

"Until recently, CRM has been the province of very large banks. In the minds of many retail executives, CRM was equated with a major technology expenditure," said Kathleen Khirallah, senior analyst in TowerGroup's retail banking practice. "Retail financial services executives are realizing that CRM is far more than technology--it also encompasses business processes and people."

While technology will continue to play a key role in driving CRM, it will be increasingly coupled with business policy reviews and training programs that support total CRM initiatives. This will enable smaller retail institutions to pursue CRM business strategies without making large outlays on technology. Banks will explore ways to make their CRM investments more efficient while they simultaneously develop different types of training.