WEEKLY ADVISER: Small Banks Better Off Following, Not Leading, Bank

I'm booked to talk in May at a state bankers' convention. They asked me if I'd talk about "technological changes and the community bank." Of course I said yes.

Then I had second thoughts. How, I asked myself, can a man who still writes on a typewriter instead of a computer address this topic?

Well, I decided, maybe I'd be better than some techie who is all wrapped up in the Internet, the Web page, and cyberspace.

Then I remembered what someone had told me about the information superhighway:

"It is a series of solutions looking for problems."

This will be my theme when I address the convention.

Yes, community bankers must monitor cyberspace and consider their role in it. Developments are coming thick and fast.

But do community banks really have problems that require them to get on the Internet, with all the time and money that now takes?

Look at it this way.

First of all, some of what we call the new technology is simply faster ways of doing what we have always done.

"E-mail" is just electronic movement of what we used to call "letters." "Phone mail" is a fancy answering machine.

E-mail gives the convenience of getting immediate response to messages and an ability to retrieve these messages from remote locations. Both E- mail and phone mail allow communication with a large number of people.

So acceptance and utilization of these tools is a no-brainer.

What is amazing is how the electronic superhighway has evolved - in no time at all. It is estimated that 30 million people now "surf the Net" to see what information has been added to the millions of interconnected Web pages.

It is also striking to see how home pages have attracted huge numbers of interested people.

But the typical community bank does not need nationwide publicity, unless it is attempting an extremely unusual program that would interest potential clients far away.

The Internet will never replace the teller, the ATM, or the grocery store courtesy desk as a source of cash. It will be a means of downloading funds from customer accounts to smart cards, when that payment vehicle blossoms as a cash substitute.

But this appears still to be years away.

And when it comes to paying bills, though some major banks tout automatic bill-paying through the Internet, customers have long had this service available in the form of funds transfers via telephone.

Programs like Zipcheck use automated clearing house networks to automatically take money out of banks account to cover utility or water bills on a specified day.

So where is technology important today?

*It is important in automating credit extension to individuals and small businesses.

*Authorized contact people can use it to get data immediately into or out of the system. Banks will no longer need the large back-office staffs that now massage this data.

*It can be used to see what the bank's liability mix really looks like, and how promotions can be broken down to tap each individual market sector.

The bottom line: It's easy to agree with Alan Greenspan that bankers must keep current on technology - but community bankers needn't lead in investing in the Internet.

There'll be plenty of time to join further along the learning curve, when state-of-the-art doesn't cost so much.

Mr. Nadler is a contributing editor of the American Banker and professor of finance at Rutgers University Graduate School of Management.

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