Banks Challenged to SurfWave of New Technology

Technology will be the savior or demon of bankers, depending on how they react to it, experts preached at the Federal Reserve Bank of Chicago's 33d annual conference on bank structure and supervision.

Academicians, regulators, and bankers met for three days last week to discuss the influence of technology on the future of financial services.

"Technology is fundamentally altering the industry," Chicago Fed President Michael H. Moskow said. He likened the urgent pace of technological change to "a high-speed train."

"Some people are catching that train," Mr. Moskow said. "Others are still at the station." Jerry McElhatton, MasterCard International's president of global technology and operations, warned bankers that new competitors such as cable TV and high-tech firms threaten to steal banks' business.

To attract the generation under age 35, banks should dive headlong into offering smart cards, Internet access, and digital cash by themselves or with a high-tech partner, he said.

"How we manage rapid change will determine how we survive," Mr. McElhatton said.

To thrive, electronic banking will have to guarantee security, privacy, and the identity of the user as well as inspire public trust, panelists emphasized.

Government should continue letting the private sector address these challenges on its own without burdensome regulations, said William M. Randle, senior vice president at Huntington Bancshares, Columbus, Ohio.

He highlighted the Banking Industry Technology Secretariat's efforts to develop technical and consumer confidence standards as well as electronic signatures for authentication.

Christine A. Varney, a board member of the Federal Trade Commission, agreed that regulators should be circumspect. "Once the government regulates, it's difficult to alter the regulations," she said.

However, Ms. Varney suggested that the government could step in where market solutions don't work. For example, the private sector may prefer the federal government to set national standards on liability and consumer recourse in electronic commerce instead of coping with 50 state standards.

Experts fervently debated whether technology has made antitrust rules for bank mergers irrelevant.

Concentration of local branches will not matter in the next two to three years because the Internet will provide on-line access to banks nationwide, argued Brian W. Smith, a partner at Mayer, Brown & Platt.

Regulators instead should focus on joint ventures between banks and high-tech firms that could monopolize on-line banking, he said.

But Dean F. Amel, a senior Fed economist, argued that it's too early to change antitrust standards. Surveys show that "a vast majority" of households and small businesses bank locally, and electronic banking is used by "a very small percentage of the population," Mr. Amel said. Predictions about technology trends have been wrong before, such as the Fed's contention in the 1970s that the country was on the verge of becoming a checkless society, he noted.

The market for electronic banking remains "highly specialized," according to Fed researchers Arthur B. Kennickell and Myron L. Kwast. People under age 35 who hold college degrees and earn above $50,000 annually are the most likely users of ATMs, debit cards, and computers.

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