For branch automation, 1996 has been a year of wait-and-see.
Spending on technology equipment for retail bank offices is shaping up to be about 7% lower than 1995's $904 million - surprising, since U.S. banks, on average, continue to open more branches than they close.
Branch-related expenses still account for about 51% of bank retail spending, according to data from Mentis Corp., a research company based in Raleigh, N.C.
But experts said concerns about the impact of mergers and alternative delivery channels have combined to make many banks more choosy about where they spend their retail dollars.
And, at least for now, many want to see how industry-changing movements shake out before investing heavily in new branch technology.
"The momentum that had been in branch automation has cooled considerably," said James B. Moore, president of Mentis.
"I don't think there's any huge change in that market this year," said Robert Landry, a technology analyst with the Tower Group, a consulting firm in Newton, Mass.
One factor contributing to 1996's falloff in branch automation investment is uncertainty about computer operating environments.
Microsoft Corp.'s DOS operating system dominates the branch automation market. But DOS is expected to give way to newer, more functional environments soon, such as Microsoft's Windows NT and OS2 from International Business Machines Corp.
Experts said some banks are waiting to see which of the newer environments emerges as dominant before upgrading branch technology.
The relative newness of some branch automation software applications could be contributing to the fence-sitting atmosphere, said Carl Faulkner, managing director at Phoenix-based M One Inc.
Another factor in the spending drop is projects derailed or put on hold because of mergers.
For instance, First Interstate Bancorp's branch effort was sidelined when the bank was acquired by Wells Fargo & Co. Also, Bank of Boston Corp.'s has shelved its branch upgrade, at least temporarily, while it manages the merger with BayBanks Inc.
To some, the drop in branch technology spending came as a surprise.
After all, at the close of last year, branch automation upgrades were all the rage, with 10 of the top 25 banks embarking on overhauls of their retail office technology. And the sales culture that most banks say they want to instill in branches would seem to point to major technological projects.
Experts said a spending downturn does not necessarily mean branches gradually are being ignored. Rather, banks are figuring out how to spend their branch dollars more intelligently, rooting out all unnecessary expenses.
And this trend is expected to continue. Mentis predicts that annual branch automation spending will drop through 2000.
Since the branch is expected to play a large role in retail banking for at least the next decade, the automation choices confronting bankers will become even more important, bankers said.
"At this point in time, the branch network continues to be extremely important in terms of selling to the clients," said Michael P. Barnum, senior vice president of retail delivery at KeyCorp.
But branches won't play the same role in the future, Mr. Barnum said. His bank has just announced its intention to rid itself of 280 branches.
"We see, on a longer-term basis, the call center really becoming the primary sales channel," Mr. Barnum said. KeyCorp has experienced "rapid growth" in "sales occurring via the phone," he added.
With the dizzying pace of technological evolution, branch automation projects put banks - particularly large ones like KeyCorp - in a tough position.
In the time it takes to complete an upgrade, the technology selected to modernize a branch network may be out-of-date.
In addition, predicting when alternative channels, such as call center, will replace a critical mass of branch transactions is difficult.
To make itself more flexible, KeyCorp has spent a lot of its time and resources developing a sales and service system that supports branches as well as call center employees.
Other banks are engaged in similar projects, breaking down the walls that once clearly separated various retail delivery channels.
Banks are beginning to realize that "you can't build a branch system in isolation," Mr. Landry said.
