Lessons in ACH data.

• Author: Coffey, John J.
• Position: Database Marketing - Automated clearing house transactions - Column

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...