Boston Merger Partners a Good Systems Fit

In its proposed acquisition of BayBanks Inc., Bank of Boston Corp. would gain from its former rival's strong retail image as Boston's high-tech bank.

But paradoxically, the merger should bring better retail technology to BayBanks than it has had in the past.

BayBanks, with its large network of 1,200 automated teller machines and its emphasis on telephone-based banking, has been a sophisticated marketer but a relatively conservative technology investor, observers said.

Conversely, Bank of Boston, a latecomer to sophisticated retail technology, is now in the midst of a $30 million project to install in its branches personal computers that use client/server technology.

"BayBanks has not been a huge innovator, but it made good decisions at the right time," said Robert Landry, technology analyst at Tower Group, a Wellesley, Mass., consulting firm.

BayBanks put PCs in its branches in 1987, and was planning to move to client/server technology - but not until 1997, when an upgrade of the software underlying its ATM network was to be completed.

With the merger, BayBanks could get those branch upgrades up to three years sooner, according to Edward A. O'Neal, Bank of Boston's vice chairman in charge of consumer banking, technology, and operations.

Meanwhile, Bank of Boston would save three to five years of development time on new ATM software because of BayBanks' project, said Mr. O'Neal, who would retain his titles with a merged bank.

Neither project would be disrupted by the merger, he said.

In wholesale areas, Bank of Boston is considered much stronger, and observers expect its systems to win out in a merger.

Although the two banks are historically very different in their use of technology, their strategies have dovetailed in recent years, Mr. O'Neal said.

BayBanks won a loyal following among college students and young professionals by marketing itself throughout the 1980s as the bank of convenience, with 24-hour telephone banking and an ATM on every block.

By contrast, Bank of Boston traditionally focused heavily on commercial and corporate banking, and until this year was still using "dumb" terminals - those that rely on a host system for computing power - in its branches. With four times the assets of BayBanks, Bank of Boston had about one- quarter the number of ATMs.

But over the past few years Bank of Boston has made a concerted effort to build its retail business.

Over the last three years, Bank of Boston added 170 new ATMs, bringing its total to 470. It has upgraded ATM software to include more on-screen graphics, and it is considering adding optical scanning and multilingual capabilities to its terminals.

It also has finished the first phase of its retail automation project, installing PCs running in the OS/2 computing environment in all its branches.

The next phase will give the terminals sales support capabilities, and the third phase will spread those capabilities across the bank to investment areas, ATMs, the call center, and other delivery channels.

In addition to the focus on ATMs and retail automation, the banks share a new commitment to supermarket branches. Each plans to install 50 by the end of next year.

The acquisition is expected to bring annual cost savings of $190 million, of which about $40 million is expected to come from back-office and operations areas.

About 2,000 positions are to be eliminated across the two banks, with half coming from attrition. About 500 of the eliminated positions may come from technology areas, said Mr. O'Neal.

Some employees will be redeployed to areas such as the back office of the global capital markets group, Mr. O'Neal said.

Bank of Boston has two data centers, and BayBanks has one. These are likely to be consolidated, but the details have yet to be worked out, Mr. O'Neal said.

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