At banks, the electronic ties that bind are getting stronger and a lot more costly.
Banks will spend $4.1 billion on telecommunications this year, again placing the industry among the top consumers of communications systems and services, according to American Banker's annual survey on bank technology.
The study, conducted by Payment Systems Inc., a Tampa-based research firm, found that telecommunications spending at nearly three-quarters of large banks jumped an average of 20% over the last year. That rate of growth was also posted by two-thirds of smaller institutions.
The survey also found that nearly 60% of banks expect spending to rise in 1997, although the average increase will drop to about 14%. The anticipated drop, observers said, will come largely as a result of recent federal deregulation of the telecommunications industry.
Much of the telecommunications spending is allocated for the upgrade of communications infrastructure, such as network backbones, said Leon Majors, a management information consultant at Payment Systems.
As banks grow by acquisition, they must integrate institutions that have operated on different systems, Mr. Majors said, a complex task requiring the realignment and consolidation of telecommunications equipment and services.
What's more, he added, banks are expanding alternative delivery channels to customers that rely heavily upon phone lines and a myriad of switching and routing technologies.
The most popular channel so far is the telephone itself. Equipped with automated voice-response units to handle customer inquiries around the clock, call centers have become almost ubiquitous in the banking industry. Financial institutions continue to pour money into this area to keep up with the rising volume of inbound calls and to handle more sophisticated transactions. Advanced call centers now support not only balance inquiries and the transfer of funds, but also bill payment and the selling of loans, investment services, and other financial products.
"We spent a couple of million dollars in hardware applications in 1996 just on our call centers," said James J. Collison, vice president of telecommunications at Philadelphia-based CoreStates Financial Corp. Like most big banks, $44 billion-asset CoreStates uses its automated phone system as an entry point for home banking and other remote services. So keeping the systems up to date is essential.
"The need for quality call centers has become critical to supporting customer preferences and the concept of anytime, anyplace banking," said Joseph S. Pendleton 3d, senior vice president of alternative delivery planning at CoreStates.
CoreStates' automated systems, which handle about two million calls a month, have recently been enhanced to take loan applications and verify checks. There are plans to increase capacity and add voice-recognition capabilities, which allow callers to communicate without using touch-tone commands.
Another bank planning improvements to its call centers is Chase Manhattan Corp., which operates centers in Hicksville, N.Y., Tampa, and Tempe, Ariz.
"We have reached a point where we now want to create even larger virtual call centers to balance traffic, improve service, and allow for more specialized attention," said Chris Karadimas, senior vice president in the bank's information technology and operations group.
One change, he explained, might involve connecting a call from a Cantonese-speaking customer in New York to Hong Kong at certain times of the day, creating a global call center.
"We also see the need for interaction between call centers and the Internet," he added.
The development of Internet applications has also caused a flurry of activity, as banks rush to offer services over the World Wide Web, the graphical portion of the Internet.
"Being open to the outside world is the next big development," said Timothy Meier, senior vice president of technology management at $32 billion-asset U.S. Bancorp. The Portland, Ore.-based bank provides customer access to Internet banking functions through Intuit Inc.'s Quicken financial management software, and it plans additional investments in this channel.
NationsBank Corp., BankAmerica Corp., and 13 other banks have recently joined International Business Machines Corp. to form Integrion Inc., which will provide an infrastructure to process banking and electronic commerce services.
"(Integrion) will give us more Internet banking options," said Sandy Sindell, a senior vice president responsible for call center services at the $194 billion-asset NationsBank.
The Charlotte, N.C.-based bank, which provides banking on personal computers through the Managing Your Money financial software package, expects to pilot Internet banking applications next year.
To take full advantage of the Web and channels like self-service kiosks, banks are beginning to invest more in the development of full- motion video and multimedia applications. Those investments, Payment Systems noted, are further driving up telecommunications costs.
The survey found that a third of the 100 largest banks- and just one-sixth of the second 100 largest - have installed video networks. For now, they are used predominantly for internal communications, and traffic is light - a scant 3% of the total, the study said.
But considerable growth is expected. Payment Systems found that by 2000, another third of the 100 largest banks plan to install video capabilities for both internal and external communications. Some 25% of smaller banks plan to deploy the technology as well. By the year 2000, video network traffic is expected to account for 18% of the total, the study found.
While most banks are using the technology to conduct videoconferences between employees and other banks or suppliers, an increasing number are using video to service customers.
Columbus, Ohio-based Huntington Bancshares, for example, has been replacing traditional branches with mostly unstaffed facilities equipped with advanced function automated teller machines and interactive video kiosks. The $20 billion-asset bank operates 13 such sites in Ohio and plans two more by yearend.
U.S. Bancorp expects to operate 15 to 20 interactive video systems in supermarkets, malls, and airports by yearend, bank officials said.
These applications are creating a growing demand for high-speed, high-bandwidth communications services.
U.S. Bancorp is not alone in investing in the leading-edge telecommunications technologies known as frame relay, ISDN (integrated services digital network), and ATM (asynchronous transfer mode), which can transport huge streams of data, voices, and pictures at high speed.
Spending on communications services already accounts for 44% of banks' telecommunications budgets, Payment Systems found. The remainder is allocated for hardware, software, and miscellaneous items.
Most banks, however, expect some savings in the communications services area as a result of the Telecommunications Act passed this year. It is expected to lead to intensified competition and lower prices.
Mr. Majors of Payment Systems explained that the law will change the way banks purchase telecommunications services. Now, telephone companies, cable providers, and other communications firms are able to act as one-stop shops, bundling local, long distance, cable, cellular, and Internet connection services. The option of purchasing packages of services is expected to result in lower prices.
"We view (the Telecommunications Act) as very positive for large consumers of telecom," said Chase Manhattan's Mr. Karadimas. "We are hoping it will translate into significantly lower costs for local telecom service and allow us to upgrade to much higher bandwidths to accommodate the demand for multimedia applications, especially image and video."
Bankers say they hope continued advances in telecommunications will lead to more homes and businesses being wired for high-speed connectivity. That will enable financial institutions to offer a more sophisticated level of remote service.
William M. Randle, senior vice president at Huntington, said, "The power to deliver all the services of a bank to any remote customer, face- to-face, using such technologies as full-motion video, secure encryption, and chip cards will eliminate the need for 90% of the branches."
Tracey Tucker is a freelance writer based in Hazlet, N.J.
