It’s pretty safe to say that as far as the big banks’ database marketing efforts are concerned, they’ve only just begun.

Thanks to a relatively slow rate of population growth and the economic impact of a deep and long-lasting recession, the banks have come to the somewhat painful realization that there’s a pretty small market out there – and everyone wants a bite of it.

To retain customers – and increase their share of their customers’ business through non-traditional products like insurance and mutual funds – the banks are taking the information they already have on hand, and intensifying their database marketing efforts.

‘We’re all starting to fight for the same customer and the same piece of the customer,’ says Barb Cromb, vice-president of TD Access, the electronic banking arm of TD Bank.

Cromb says that it wasn’t that long ago when the cost of data warehousing made it just about impossible to cross-reference customer files. ‘We knew our mortgage customers, we knew our credit card customers,’ she says. ‘But we didn’t know who had both.’

Now, banks are starting to see their data mining efforts paying off, with smarter targeting strategies that can pinpoint specific life-stage and behavioral patterns.

However, Cromb says that it’s still early days in the evolution of data mining and there’s still lots of work to be done. One of the biggest challenges, she says, is making sure the data is clean to begin with.

‘Garbage in and garbage out,’ she says, explaining that it’s next-to-impossible to link addresses and names that are out of date or misspelled.

‘Look at your magazine subscriptions – your name can be spelled in eight different ways,’ she says. ‘We have a hard time matching people up in every case.’

There’s also the challenge of knowing what to do with the information once it is cross-referenced. ‘It’s a process,’ she says. ‘The more you do, the better you’ll get at it.’

Right now, most banks still tend to do pretty broad-based direct marketing campaigns for particular products, such as life insurance or credit cards, says Cromb. But, as technology improves and the turnaround time for campaigns gets shorter, the broad-based approach will be fine-tuned, allowing banks to target smaller and smaller numbers, she says. ‘The holy grail of direct marketing is getting to the market segment of one.’

Cromb says as pc banking grows in popularity, it will inevitably help drive this process along. She says the phrase ‘when the Web meets the warehouse’ – something a colleague of hers coined – accurately describes the ultimate goal of targeted marketing.

‘We can take information we know about your firm from the warehouse and apply it to the way we treat you on the Web,’ she says, adding that Web technology will improve simultaneously, making the very idea of a passive Web site archaic.

‘We’ll be able to customize the way our Web site looks to [each individual],’ she says. The bank will do this by combining its Web information with the information gleaned from the data warehouse, she says. ‘Those two things will start to talk.’

Marie-Josee Vinet, senior manager of direct marketing for the Royal Bank of Canada, agrees that the whole industry is redefining itself against new technology.

She says that banks are preparing for the time when home banking becomes the norm – and customers can receive targeted information at their convenience.

In a way, by investing in these sophisticated database systems, banks are trying to replicate the bank manager-client relationship of old – with a technological twist.

‘A human relationship has warmth and productivity,’ says Vinet. ‘The electronic relationship must offer the same benefits.’

Vinet says any – and all – contact between the bank and the customer should be looked at as a relationship-marketing opportunity. Direct mail is just the beginning, she says.

But because the financial industry is one that, by its nature, captures a huge amount of personal data, the privacy issue cannot be neglected, she says. It’s important to have regulations in place so that each customer receives the same treatment across the board, she says.

Vinet also sees the role of automated teller machines (atms) changing dramatically over the next several years. ‘It will evolve,’ she says, adding that the somewhat passive services of the atms will be replaced by customer-specific services.

td’s Cromb agrees that atms will play a more active role in the future but cautions that replacing the current atms – which probably don’t have the processing power to handle the information-heavy services proposed for the future – might prove too costly.

Or the idea itself might be just plain ridiculous. As Rick White, vice-president of advertising and direct marketing at The Bank of Nova Scotia, points out, just because something’s possible, doesn’t mean it makes sense.

‘The whole idea for atms is that they were fast and efficient and you didn’t have to line up behind someone at a branch,’ says White. Individualized screens – that popped up your stocks, for example – would defeat the whole purpose of the machines because they would force customers to line up again.

With or without atms, the banks’ efforts to communicate with their customers in smaller and smaller increments is growing.

White estimates between 40% and 50% of Scotiabank’s marketing budget is spent on database marketing, which is at least double that spent five years ago.

But while the customer information is a lot more comprehensive than it was at that time, White concedes it’s still not perfect.

‘Whether it’s contacting our customers through direct mail or call centres, we’re telling them how much we don’t know as much as we’re telling them how much we do know,’ he says. ‘That’s the line we’re walking at this point.’

He says that Scotiabank is well on its way to developing a full data repository and the management tools that go with it and adds that, each year, it becomes a faster and more efficient process. Not to mention a more cost-effective advertising medium.

‘The cost of being able to do it is so much better,’ he says. ‘We were spending so much on traditional methods.’

Unlike some of his colleagues, White does not believe direct response marketing has to be fine tuned to a one-on-one relationship.

‘To a certain extent that’s true, but we have to remember that we are a mass marketer and, at the end of the day, how we make our money is

leveraging our huge network,’ he says. ‘We can’t go out there with 5,000 different offers.’

The challenge, as he sees it, is to remain innovative in an industry where everyone seems to be following the same path.

‘I think, to a very great extent, that we have a tendency to bore our customers to death,’ he says, adding that most direct mail communication from banks looks the same.

‘That’s our biggest challenge,’ he says. ‘How do we be innovative? How do we create things that are proprietary and how do we get those to the right customers at the right time?’

White points to the company’s successful RRSP Catch-Up Loan that was introduced last year and encouraged Canadians – through direct marketing efforts and traditional advertising – to borrow enough to satisfy their rrsp carry-forward provisions (wherein the $13,500 limit is rolled-over indefinitely.)

White says that the big banks are all starting to map out their own territories. For example, Royal has a clear focus on wealth management, whereas Scotiabank has more of a mass-oriented focus. White says that each bank’s personality and target market will become more and more clear to customers as direct marketing grows.

‘I think we’re all pushing hard to do that,’ he says.

Also in this report:

– Virtual banks latest stop on electronic continuum: ING Direct, mbanx and Citizens Bank of Canada the logical successors to ATMs and telephone banking p.DR14

– Mutual fund marketers walk DM tightrope: Must maintain delicate balance when providing information directly to investors so as not to upset the brokers and planners who represent their products p.DR18

– Canada Post uses direct mail to sell mutual fund marketers on the benefits of direct mail p.DR18