Guard Your Customers' Financial DataThe direct marketing of financial products and membership service programs to bank customers took a beating this year after a lawsuit against one of the nation's largest banks, US Bancorp.
In June, US Bancorp, Minneapolis, was sued by the Minnesota attorney general for sharing too much customer information with a third-party marketing firm. By early July, US Bancorp agreed to a $3 million settlement.
The direct marketing of financial products or membership services programs to affinity groups like bank customers is one way an organization can generate fee income outside of its core business. Many financial institutions, including banks, credit card companies, mortgage companies and credit unions, participate in programs with nonaffiliated companies to offer their own customers value-added products and services that ultimately generate fee income.
These programs often afford bank customers with broader access to valuable products and services that meet a growing segment of the population. Examples of fee income products include accidental death and dismemberment insurance, membership programs such as discount health services, and travel and shopper clubs.
Direct mail and telemarketing are the typical channels used to reach affinity groups. Direct mail response rates for accidental death and dismemberment insurance, for example, generally average between 0.5 percent and 1 percent; telemarketing response rates can be as high as 12 percent for membership service programs as well as for selected health insurance products. These campaigns performed two or three times a year for several years can generate fee income for an organization in excess of $2 million.
What about billing and collection methods? Well, here is where it gets a little complicated. Billing and collection normally handled by the third party is critical to ensure persistency and provide customer convenience. Pending legislation would prohibit the ability of a financial institution to share billion - or checking or credit card - numbers directly with a nonaffiliated third party marketing firm. There are, however, some exceptions.
In the past, these firms would obtain a customer's checking or credit card number along with their name, address, etc., from your organization upfront, before they perform the direct mail or telemarketing campaign. They would then maintain these account numbers to match up with those customers who positively responded, process the billing and collect the appropriate funds. However, taking the billing and collection inhouse requires the following:
1. Generate a customer list for distribution to the third party from your company's database - limit the information provided to only that of customer name, address and phone number, and any match keys necessary to track customers through the remaining campaign.
2. Have the third party perform the mailing or telemarketing to your customers. Once completed, they should gather all responders (anyone who agreed to the product offer).
3. The third party then prepares a responder file for return to your organization, including all necessary product information (i.e., cost) and match keys assigned on the outgoing file.
4. Match back the responder file to your database to identify the right customer and append the appropriate information to perform the billing process.
5. Create associated billing file - perform billing through normal automated clearing house procedures for checking account debits, or initiate an electronic file transfer to your credit card processor who will initiate the credit card transaction.
By performing the billing and collection procedures inhouse, you can more closely guard your customers' data and limit customer complaints. Most importantly, you'll be in a better legal position when any state attorney general decides to inquire about your data sharing policies.