Lessons in ACH data. (Database Marketing).

In the next several columns, we will be showcasing the work of advanced MCIF users and industry leaders who have successfully utilized profitability data. This month we are featuring the work of Michael Uline, Farmington, Minn., an expert in the integration of automated clearing house (ACH) transactions, MCIF and bank marketing technologies.

With the rapid growth in electronic banking--including ATM, debit card, Internet and ACH transactions--banks more than ever have the opportunity to lock in customer loyalty (and profits) by increasing their customers' use of electronic banking.

One of the strongest loyalty indicators in banking today is the ACH relationship. In 2001, there were more than 6.9 billion ACH transactions, a 13 percent increase over the past year. Customers routinely use ACH service when they make electronic payments for utilities, cable, mortgages, etc. Customers either pre-authorizing these payments or use personal financial software to make them.

ACH data is an extremely rich source of transaction data. With the combination of ACH data, MCIF data and demographic data, you can produce a more complete picture of your banking customer, allowing for the opportunity to cross-sell services more effectively. For example, you can identify customers with mortgages and home equity loans at other institutions, allowing your bank to market its own lending products more effectively.

Using ACH data to increase your bank's profitability

The low-cost of ACH transactions allows you more flexibility in positioning your ACH customers in more profitable products, with less risk of losing the customer. For example, if a customer is a single-service DDA customer with no ACH relationships, the risk that the customer will leave the bank as a result of a fee increase is great. However, the DDA customer with an ACH relationship (and the perception that changing ACH transactions to another bank is difficult to accomplish) may be more willing to tolerate slight changes to pricing.

Case in point: After evaluating a major bank's customer profitability profile, the following was determined. Overall, retail customers with a DDA relationship had an average annual profit of $22.61. When you segment these retail customers into two categories, customers without an ACH relationship and customers with an ACH relationship, customers without an ACH relationship represented an annual loss of $45.07 each, while customers with an ACH relationship produced an average profit of $104.01! Further, the average deposit balances for the two groups were $3,663 and $4,695 respectfully. In addition, the average number of years that retail ACH customers were with the bank was 27 percent longer than non-ACH customers.

More amazing were the results of the commercial sector. Overall, businesses with a DDA relationship had an average annual profit of $403.13. When you segment the commercial customers into two categories, businesses without an ACH relationship and businesses with an ACH relationship, the non-ACH customers represented an average loss of $9.89, while ACH customers represented a profit of $1,230. Further, the average deposit balances for the two groups were $21,730 and $29,494 respectfully.

For you to utilize ACH transaction data and take advantage of the opportunities it affords, you first need to use your MCIF to evaluate which customers are utilizing your ACH service and how they are using it. For example, are your customers receiving only paychecks or are they making payments as well? Secondly, develop an "ACH/Profit Quadrant Matrix" evaluating the profitability of the DDA customers that utilize ACH transactions. Thirdly, analyze the opportunity for modifying the fee structures within the DDA products to enhance profitability while minimizing the impact to your ACH customer relationships.

By strategically utilizing your ACH data in this manner, you help increase the length of time that your customers stay with your bank and increase their profitability as well!

John J. Coffey, and Gene Palm are the principles of Profit Resources, a consulting company that specializes in MCIF technologies: [phone] or at www.profitres.com