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This Research Note is reprinted by Sybase with permission of The Tower Group.

The Tower Group Research Notes are available to subscribers on the Internet at www.towergroup.com.
1998 The Tower Group, Newton, MA USA
May not be reproduced by any means without express permission. All rights reserved.
Case Study: Building an Analytical Data Mart for Credit
Cards at the Bank of Montreal
016:40RC
September 1998
Kathleen Khirallah
+1.617.965.9090, ext. 226
kkhirall@towergroup.com
Highlights
Bank of Montreal embarked upon building a data mart for its credit card portfolio at a time when
many banks and solution providers were focusing upon enterprise-wide solutions. However, the
challenges facing the banks card portfolio were not inconsiderable, and the bank was forced to
choose between quickly saving the card portfolio and slowly building an enterprise-wide solution.
As 1995 approached, Bank of Montreal was anticipating a considerable increase in competition
from US-based card issuers. Card issuers in the United States enjoyed the twin benefits of scale
and skilllarger scale of marketing budgets and greater skill in information marketing. The bank
understood that it might never be able to match the budget capabilities of the US issuers, but it
could work to augment its marketing skill.
One of the insights Bank of Montreal gained early in its efforts to construct the data mart was that
the skills required for model building and sophisticated analytical work are not typically found
among bank employees. The bank was forced to recruit and hire people with highly specialized
skills. The bank also realized that motivating and retaining these analysts would require different
incentive plans. Bank of Montreal needed to address cultural as well as technology issues in
building their credit card data mart.
While the credit card division was building its data mart, Bank of Montreal was also building a
Bank Information Warehouse (BIW). While the data mart represented a bottom-up initiative, the
BIW is a top-down approach to customer relationship management (CRM), and the integration of
the two projects will be a challenge for the bank.
This Research Note is reprinted by Sybase with permission of The Tower Group.
Case Study: Building an Analytical Data Mart for Credit Cards at the Bank of Montreal
1998 The Tower Group
May not be reproduced by any means without express permission. All rights reserved.
1
Introduction
In 1995, the credit card division at Bank of Montreal surveyed the competitive landscape and quickly
realized that the card business was changing dramatically. As the bank reviewed its portfolio of credit
card products, it estimated that 20% of its customers were generating approximately 150% of the
portfolios profit. Moreover, the portfolio had achieved a stasis point. Instead of growing in response
to marketing efforts, it was slowly eroding. Perhaps most important, Bank of Montreal realized that
soon it would be facing significant competitive pressure from US issuers of cards, especially the US-
based monoline issuers. The bank was convinced of the need to take actionif only in self-defense.
Although the eventual solution would contain capabilities to expand the portfolio and battle for market
share, the primary driver was the need to defend and protect the portfolio.
This Tower Group Research Note explores the strategies and actions that Bank of Montreal took
within its credit card and electronic banking divisions to focus on customer relationship management
(CRM) and to stimulate growth within the banks portfolio of credit card products. Bank of Montreal
faced a dilemma not unlike that faced by many financial service institutions (FSIs). It had developed a
separate, silo structure for its business units, and yet the banks management understood the
burgeoning need to work at an enterprise level. Bank of Montreal realized that it could not simply wait
for the implementation of an enterprise data warehousethe business unit required action sooner.
Ultimately, Bank of Montreal decided to allow the credit card division to function like a monoline and
maintain its independence while the bank would simultaneously pursue enterprise-wide solutions for
CRM.
Background
Bank of Montreal had approximately US$150 billion in assets as of April 30, 1998, which places it
squarely among the top five FSIs within Canada. In January 1998, the bank announced its intention to
merge with Royal Bank of Canada. If approved, the new institution is expected to have approximately
US$333 billion in assets. Bank of Montreal has 1,200 branches and offices dispersed throughout
North America, Europe, Latin America, and East Asia. The organization was Canadas first chartered
bank in 1817 and served as Canadas Central Bank until 1935. Significant subsidiaries of Bank of
Montreal include Harris Bank, Chicago, Illinois, and Nesbitt Burns, a full-service securities firm
created from the merger of Nesbitt Thomson and Burns Fry in 1994.
Bank of Montreals Structure
Within the Canadian market, Bank of Montreal provides a full range of consumer banking and
commercial/wholesale banking services. Exhibit 1 provides an overview of the consumer and business
banking services offered by the bank.
This Research Note is reprinted by Sybase with permission of The Tower Group.
Case Study: Building an Analytical Data Mart for Credit Cards at the Bank of Montreal
1998 The Tower Group
May not be reproduced by any means without express permission. All rights reserved.
2
Not unlike most other FSIs, Bank of Montreal experienced the growth and development of specialty
products (securities, credit cards, mortgages) in environments that were often separate from the retail
bank. These specialty products typically fall under different banking regulations than depository
products, run on specialized systems, and have operational requirements that are highly product-
specific. The knowledge and expertise required to manage these products often resulted in separate,
independent departments and/or operating divisions. Since sales and account servicing were highly
specialized functions interfacing with separate systems, the segregation of personnel made sense.
Essentially an independent, silo division, the credit card division at Bank of Montreal recruited and
hired specifically for its own purposes and maintained separate marketing and information technology
resources within the division.
The Credit Card Division
Bank of Montreal has one of the largest credit card portfolios in Canada. The Tower Group estimates
that of Canadas approximate total of 11 million households, Bank of Montreal has a credit card
relationship with more than 5 million. Additionally, the bank is one of the largest merchant acquirers
in Canada, currently serving approximately 60% of all Canadian merchants. Further, the bank also
processes the second highest volume of point-of-sale (POS) transactions. The practical import of this
is that the bank not only has access to a tremendous amount of consumer behavioral data but also has
invaluable insight into the behavior of merchants.
Exhibit 1
Corporate and Consumer Banking Services at Bank of Montreal
Consumer Banking Services Commercial/Wholesale Banking
Services
Deposit services and retirement accounts Deposit services
Consumer loans Business loans
Mortgages Cash management
Student services Treasury services
Personal MasterCard Corporate trust
Personal investing Foreign exchange
On-line trading Corporate MasterCard issuer
Mondex Electronic Cash On-line trading
Merchant acquiring services and POS
Source: The Tower Group
This Research Note is reprinted by Sybase with permission of The Tower Group.
Case Study: Building an Analytical Data Mart for Credit Cards at the Bank of Montreal
1998 The Tower Group
May not be reproduced by any means without express permission. All rights reserved.
3
Threats to the Credit Card Portfolio
In 1995 the managers of the credit card division undertook an extensive analysis of the card portfolio.
The results were not pleasing. The banks card portfolio had achieved a sense of stasisnot only was
it unresponsive to marketing efforts, but it appeared to be shrinking due to steady attrition of
customers. Similarly, when the bank examined the makeup of the portfolio, it was surprised to find
that 20% of the customers were generating 150% of the portfolios profit contribution. Not only was
growth of the portfolio stagnant, but there was also some question as to the appropriateness of the
customer base.
Besides examining the portfolio closely, Bank of Montreal also surveyed the competitive landscape and
found clouds on the horizon. Unlike the US market, banks in Canada do not have the option of issuing
both MasterCard and Visa credit cards. Bank of Montreal is an issuer of MasterCard and an
important member of MasterCards governing board. Over the course of the 1990s, as FSIs in Canada
underwent mergers, the resulting bank would choose whether to issue Visa or MasterCard.
MasterCards share of market was eroding very quickly as newly merged banks chose to issue cards
from Visa. The steep decline in the number of banks issuing MasterCard in Canada led Bank of
Montreal to sponsor regulations that would ease the rules of entry for FSIs wishing to issue
MasterCard in Canada. The result of this easing of entry rules was an opening of the Canadian market
for US-based FSIs that were not already eligible to issue cards in Canada as Schedule II Banks.
Exhibit 2 provides an overview of the internal and external threats pressuring the credit card division in
1995.
This Research Note is reprinted by Sybase with permission of The Tower Group.
Case Study: Building an Analytical Data Mart for Credit Cards at the Bank of Montreal
1998 The Tower Group
May not be reproduced by any means without express permission. All rights reserved.
4
US-based Card Issuers
Of all the threats to Bank of Montreals credit card portfolio, the threat of increased competition,
particularly from US-based organizations, was the most worrisome. Organizations such as First USA
or Capital One have the twin attributes of marketing scale and marketing skill that are less well
represented within the Canadian market. While Canadian card issuers can achieve the marketing skills
to compete with specialty US issuers, they would be hard pressed to match the scale of the marketing
budgets. Exhibit 3 provides an overview of marketing budgets for specialty monoline issuers in the
US.
Exhibit 2
Convergent Pressures on Canadian Credit Card Issuing Banks
The Changing World: A Matter of Survival
Profitability
Pressures
Increased
Competition
Increased
Regulation
New Technology
Mandates
Mergers and
Acquisitions
Minimal Product
Differentiation
Non-
Traditional
Businesses
Source: Bank of Montreal and Sybase Professional Services
This Research Note is reprinted by Sybase with permission of The Tower Group.
Case Study: Building an Analytical Data Mart for Credit Cards at the Bank of Montreal
1998 The Tower Group
May not be reproduced by any means without express permission. All rights reserved.
5
The foregoing exhibit is focused solely on the monoline issuers of the US. When US-based banks such
as Citicorp are added into the picture, the competitive threat is indeed formidable. For Bank of
Montreal, the inability to compete in terms of scale of marketing budget forced the bank to emphasize
improvements in the banks marketing skills, and hence the creation of the analytical data mart.
The Analytical Data Mart
The proposal to build the analytical data mart was submitted to bank management in late 1995.
Approval and funding for the project were granted in early 1996 and work on the underlying
architecture began almost immediately. In the initial phase of the project, the bank worked with Sybase
Professional Services to develop the business and technical requirements for the data mart.
The initial scope of the project was limited to providing risk analysis, segmentation capabilities, and
enhanced marketing functionality to the credit card division. Because the data mart was developed to
serve solely the credit card division, the number of data feeds was limited to two. The bank also added
external data from third-party sources to enrich its understanding of customer behavior. Although this
data set is somewhat limited, the bank was able to launch its first campaign in August 1996.
It should be noted that the banks first campaign was executed from the divisions heritage mainframe
system with a DB2 database from IBM. In an effort to achieve early successes from the analytical
data mart, Bank of Montreal ran its first few campaigns in parallel, using the banks existing
processing environment as well as the new architecture. The first campaign ran solely on the newly
created data mart occurred in January 1997. The data mart is currently positioned for 1.2 terabytes of
data and the bank hopes to carry two full years of transaction history within the data mart.
Architecture
Soon after receiving funding and management approval in early 1996, Bank of Montreal began
searching for solution providers for its analytical data mart. At that time, the credit card division had
virtually no personnel who were experienced with data warehouses or Unix-based systems. The bank
processed its credit card portfolio in a mainframe environment, and its existing technical personnel
were unsuited to align the technical requirements with the business requirements for the data mart.
Once the hiring of personnel experienced in data warehouses and Unix had been completed, the bank
Exhibit 3
North American Marketing Budgets for Credit Card Monolines (US$ millions)
First USA $375
MBNA $343
Capital One $224
Providian $143
Metris $30
Source: Bank of Montreal and Furst Annapolis Consulting Estimates
This Research Note is reprinted by Sybase with permission of The Tower Group.
Case Study: Building an Analytical Data Mart for Credit Cards at the Bank of Montreal
1998 The Tower Group
May not be reproduced by any means without express permission. All rights reserved.
6
worked with Sybase Professional Services to develop the technical architectural plan for the analytical
data mart shown in Exhibit 4.
The solution providers that Bank of Montreal chose to work with are listed in Exhibit 5.
Exhibit 4
Bank of Montreals Credit Card Data Mart
Staging Area
Datamart
NCCS,
CCAPS,
EFT/POS
Extraction
Processes
Transformation & Administration Processes
Analysts
MVS
UNIX
Client
Extraction
Delta
Creation
Metadata
Transport
Cleansing
Transform
Display
Manager
Perf
Manager
Backup
Manager
Archive
Manager
Security
BIW
Ext
Tapes
EIS SAP
BIW
Exporting
Processes
Timer
Extraction
UNIX/MVS
Data
Mining
Security
Architectural Components of Analytical Data Mart
Source: Bank of Montreal and Sybase Professional Services
This Research Note is reprinted by Sybase with permission of The Tower Group.
Case Study: Building an Analytical Data Mart for Credit Cards at the Bank of Montreal
1998 The Tower Group
May not be reproduced by any means without express permission. All rights reserved.
7
The analytical data mart is updated weekly via a delta process. Transactions are captured daily and
held in the staging area. Given the limited number of data feeds and the specialty product nature of the
data mart, the bank considers weekly refreshing of the data mart to be sufficient. Users of the data
mart are almost exclusively analystsapproximately 30 in number. With the adoption of easy-to-use
graphical user interface (GUI) front end tools, the bank expects to extend access to the data mart to
management.
Budget
Bank of Montreal spent US$710 million on the initial implementation of the technologies for the data
mart. The bank defines this category as the solution tools listed in Exhibit 5. The cost of internal
resources for technologists and marketers has not been included in this figure, nor has spending for
external services. Although the bank has not disclosed the amount spent on these items, The Tower
Group estimates the total spending for the analytical data mart to be approximately US$1215 million.
Management at the bank expects the spending on the data mart to increase significantly over the next
few years as additional data sources are added for analytical purposes. The data mart is considered
very much a work in progressnew software tools, new modeling capabilities, and new data sources
are expected to represent an additional expense, albeit a relatively small one.
Goals for the Analytical Data Mart
The analytical data mart was given the green light for development by the bank as a result of the
portfolio and competitive analysis completed in 1995. The bank acknowledged that immediate action
was needed if the portfolio was to grow in the face of an intensifying competitive threat. The purpose
of the data mart was to mimic the customer relationship management (CRM) capability of a monoline
over the short term. Bank of Montreal wanted to institute a cradle to grave management of customer
Exhibit 5
Solution Providers for Bank of Montreals Data Mart
Software/Services Provider
Extraction and transformation
software
Prism, Inc.
Data mining and statistical analysis SAS Institute
Harte Hanks
Relational database management
system (RDBMS)
Sybase, Inc.
Database server Sybase, Inc.
Data storage Amdahl
Hardware platform Sun Microsystems, Inc.
Campaign management Proprietary
Source: Bank of Montreal
This Research Note is reprinted by Sybase with permission of The Tower Group.
Case Study: Building an Analytical Data Mart for Credit Cards at the Bank of Montreal
1998 The Tower Group
May not be reproduced by any means without express permission. All rights reserved.
8
credit card relationships. More specifically, the bank hoped to cut customer defections by 5%,
resulting in an anticipated 25% increase in card portfolio profitability. Exhibit 6 provides an overview
of the customer strategies and tactics driven out of the data warehouse.
Business Results
Since its inception in 1996, the analytical data mart has provided an internal rate of return (IRR)
greater than 100% and the bank has seen its credit card market share grow by 70 basis points. The
average card balance outstanding on the newly acquired accounts is 129% higher than the existing
portfolio, and transaction volume on these new accounts is 59% higher than the average account in the
portfolio. The payback on the project was expected in 2.1 yearsa point that Bank of Montreal will
reach shortly.
The bank was focused intensely on achieving quick results, and an early change to the marketing
process has been an increase in the numbers of campaigns. Campaign cycle time has been increased
two campaigns are initiated every six weeks. The campaigns are developed on the output of several
key models, such as the following two:
Exhibit 6
Business Strategies and Tactics of the Data Mart
Information Technologys Role in Providing Better
Customer Management
Call to Action
l Develop New Products and
Services
l Consolidate Systems from
Mergers and Acquisitions
l Create Automated System to
Transfer Information
l Provide Differentiation with
Better Customer Service
l Create Closed-Loop Customer
Tracking System
Create Sustainable
Advantage
Create Sustainable
Advantage
Business
Strategies
Increase Revenue/
Increase Efficiency
Increase Revenue/
Increase Efficiency
Meet Rising
Customer Expectations
Meet Rising
Customer Expectations
Targeted/
Niche Marketing
Targeted/
Niche Marketing
Source: Bank of Montreal and Sybase Professional Services
This Research Note is reprinted by Sybase with permission of The Tower Group.
Case Study: Building an Analytical Data Mart for Credit Cards at the Bank of Montreal
1998 The Tower Group
May not be reproduced by any means without express permission. All rights reserved.
9
Propensity to Borrowthe likelihood that the customer needs or is willing to use a credit card
product
Propensity to Respondthe likelihood of the customer to respond to the direct mail solicitation
using the call to action outlined in the offer
The banks response rate has improved dramatically as a result of the modeling process. Previously
the bank had averaged solicitation response rates that were slightly above the industry average at 1.5
2.0%, whereas currently the bank averages 3% for its response rate. When using internal lists, the
bank has also seen response rates as high as 16%. The increases in response may not seem
earthshaking, but it should be noted that the increases in response rate occurred during a period of
heightened competition from US issuers.
Aside from experiencing an increase in its response rate, the bank has also experienced a slight decline
in its write-offs, with a current rate of 1.75%. The bank has traditionally been a conservative lender
and has not changed its underwriting criteria since starting to use the analytical data mart. At present,
the rate of delinquencies and write-offs is much lower in the accounts generated from the new
campaigns than for the portfolio as a whole. However, as the new accounts age within the portfolio,
this performance may change.
Key Lessons Learned
Since the analytical data mart came on line, the bank has arrived at several important realizations
regarding the marketing of credit cards and the managing of customer relationships. First and foremost
has been the need to continually test marketing offers, solicitation treatments, lists, and response
mechanisms. Bank of Montreal conducts champion/challenger tests for every solicitation. This is
particularly important for the propensity to purchase model and the propensity to borrow model. As
noted in Exhibit 6, the bank is striving to create a closed loop tracking system. It is only through
rigorous testing, measuring, tracking, and reporting that the bank is able to draw reliable conclusions
about what is working in their solicitations and why.
One additional insight gained that has had a tremendous impact upon the bank is the realization that the
skill set necessary for sophisticated modeling and statistical analysis typically does not reside within
banks. The quantitative skills required for this type of work are found in individuals who are not
usually bankers. Bank of Montreal has acknowledged this fact and has gone to some lengths to assure
that the analytical employees hired for modeling are retained as long-term employees. Bank of
Montreal has instituted the following guidelines to assure the satisfaction and ultimately, the retention
of these key employees:
Employees sign a noncompete agreement as a prerequisite for employment.
Incentives for analysts are team-based.
Analysts are accountable for their results for 18 months following a campaign.
This Research Note is reprinted by Sybase with permission of The Tower Group.
Case Study: Building an Analytical Data Mart for Credit Cards at the Bank of Montreal
1998 The Tower Group
May not be reproduced by any means without express permission. All rights reserved.
10
Outside professional training for analysts averages 11 days per year.
Analysts are encouraged to spend 10% of their time on pure research. The analysts present their
research findings to their peers in regularly scheduled Knowledge Seminars.
The realization that statistical analysts and modelers require different challenges and rewards for
motivation is quite interesting. Building an analytical data mart, committing resources to continually
testing of new strategies, and searching for new human resources policies for nontraditional employees
reflects the depth of the banks commitment to the credit card business.
Developing an Enterprise-wide Solution
Bank Information Warehouse (BIW)
For the Bank of Montreal, its enterprise-wide data warehousethe BIWrepresents a considerably
more extensive expenditure of capital. The BIW is expected to be the engine that will enable the bank
to effectively execute a customer relationship management strategy. In the current environment, the
analytical data mart is updated more frequently than the BIW. The data mart provides information to
the BIW, but at present the BIW does not yet feed the data mart.
A significant challenge facing the Bank of Montreal will be the convergence of the BIW with the
analytical data mart. The data mart represents a carefully bounded set of functionalitiesa bottom-up
approach to developing a CRM capability. The BIW represents a top-down projectone that is
enterprise-wide in nature and is designed to meet the CRM needs of the entire bank. Unfortunately,
enterprise-wide projects are far more complicated in scope, always requiring considerable planning and
business unit participation. With these two projects Bank of Montreal has elected to allow the credit
card business unit to function like its most nimble competitora monoline issuer of credit cards. Yet
the bank has not forsworn an enterprise-wide CRM-oriented solution.
Merger with Royal Bank
While Bank of Montreal must look to reconcile the BIW with the analytical data mart, it must also look
ahead to its impending merger with Royal Bank. Although the merger with Royal Bank has not yet
received regulatory approval, Bank of Montreal must start considering how to merge the best practices
of both organizations for CRM. Royal Bank has been working toward developing a CRM capability at
an enterprise level. The challenge of merging the CRM initiatives of both banks should not be
underestimated. Similarly, the banks will need to merge the specialized solutions developed within the
separate business units of the banks, like the credit card portfolio. Since Royal Bank currently has in
excess of 10 separate lines of business, it should be expected to have these specialized solutions as
well. Over time it will be interesting to note which solutions and tools are chosen to serve the larger,
merged bank.
This Research Note is reprinted by Sybase with permission of The Tower Group.
Case Study: Building an Analytical Data Mart for Credit Cards at the Bank of Montreal
1998 The Tower Group
May not be reproduced by any means without express permission. All rights reserved.
11
Conclusion
The credit card division at Bank of Montreal has built a focused, analytical data mart to enhance its
ability to market in the face of increased competition. While some resources within the bank continued
to focus on an enterprise-wide solution to CRM via the BIW, the credit card division was allowed to
build a solution bounded by the needs of one business unit.
In assessing the efficacy of bank data warehousing projects of recent years, one common complaint is
the lack of business unit value and focus. Projects that are developed for enterprise-wide purposes, if
not designed carefully, are often unable to deliver true value to the business units. Often the business
units are required to expend considerable time and energy to the design and definition of such a project
but must wait years before seeing any practical benefit. In this instance, Bank of Montreal has decided
upon a parallel development trackthe credit card division has invested in its immediate future while
the bank continues to work on its Bank Information Warehouse. It will be interesting to evaluate the
progress and success of the bank on both initiatives over time.

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