Big Retail Banks Seeking the Right Mix Of High-Tech, High-Touch for

Major retail banks are taking different roads to the branch of the future-and they are hardly toll-free.

Recent announcements and disclosures indicate that the industry continues to search for the branch strategy that will carry it into the next century. And the search carries a cost.

First Union Corp., which undertook one of the most aggressive branch- transformation initiatives and dubbed it "Future Bank," said the project was one reason it had to reduce its 1999 earnings forecasts.

Citigroup Inc., despite operating one of the most automated and global of retail banking networks, has turned to hiring more people for its branches, expecting to capitalize on the high-touch aspects of customer service and counseling.

Such moves reflect the widespread agreement among banking executives that physical offices will remain crucial to their strategies, even as the Internet and telephone centers take on more of the service burden. But few bankers are sure that they have yet found the winning combination of automation and human interaction.

Video connections between branches and remote service representatives have not impressed SunTrust Banks Inc. since its takeover of Crestar Financial Corp. of Richmond, Va., last year. Crestar experimented with "video tellers" at four of its 158 Washington-area offices. SunTrust is not likely to expand the initiative, said Gene Kirby, executive vice president of retail banking in the Washington area.

Mellon Bank Corp. is "fairly satisfied" with the self-service video terminals it installed in 338 of its 425 branches, said Raymond Halackna, vice president of direct banking. The company opens about 20% of its accounts through the video terminals, which let representatives at Mellon's call center converse with customers.

Huntington Bancshares of Columbus, Ohio, has "totally evolved" its strategy of deploying fully automated "Access" branches since it began the program in 1994, said Gregg Christenson, vice president of alternative delivery.

The original plan was to replace traditional offices with smaller Access branches that have video conferencing, advanced-function ATMs, and telephones linked to Huntington's call center. Now the plan is to deploy them as a complement to regular branches, Mr. Christenson said.

Also, Huntington has dropped video conferencing from the Access branches, he said.

Only two traditional branches have been converted to Access branches. The other 43 Access branches, in Ohio, Florida, and Michigan, have been additions at high-traffic sites such as grocery stores, university campuses, office complexes, and retailers.

In contrast to these high-tech experiments of the mid-1990s, Citigroup's Citibanking retail unit is moving decidedly in the direction of in-branch consultations and conversation.

"Our strategy is to help people in a caring way," said Joseph Plumeri 2d, who has headed Citibanking North America since January.

First Union plans to do the same but not necessarily by hiring more people. It is spending hundreds of millions of dollars to convert its 2,400 branches into "financial centers."

First Union spent $150 million on the project in 1998 and $100 million in 1997, said a bank spokeswoman. Michael Ancell, an analyst at Edward Jones & Co., said the banking company is spending another $150 million on it this year.

One aim of the centers is to teach customers about more convenient and cost-effective ways to bank, such as through the Internet, automated teller machines, and call centers. First Union also installed technology to help its employees in product sales.

Begun in the spring of 1997 as a pilot test in 66 Atlanta branches, the redesign has now been adopted throughout the Charlotte, N.C., company's branch network. The effort involved more than 800,000 hours of training for 25,000 branch employees.

Representatives are told to greet customers and direct them to various points of automated service. For routine transactions and inquiries, that may be a personal computer or an ATM. Often, people are encouraged to step into a small office and use a telephone to call First Union Direct, the remote call center.

Traditional teller lines exist, but they are hidden behind large television screens broadcasting the market news. Loan officers, called financial specialists, are available to discuss more complex credit and investment needs in private offices.

First Union said it expects the automation will let branch employees sell 80% of the time, instead of 20%. It also foresees lower operating costs, increased access for customers, and improved customer retention.

Edward Crutchfield, First Union's chairman and chief executive officer, said in a statement related to second-quarter earnings that the initiative "is delivering significantly increased retail product sales."

But Mr. Ancell of Edward Jones called it "an expensive experiment," requiring massive retraining and centralization of functions. "It has certainly contributed to lower earnings and is certainly not paying off in 1999," he said, though ultimately he expects the program to generate more loans and revenue.

Whether or not revenue "exceeds the cost of the investment required is definitely an open question," he said.

The small SunTrust video experiment got mixed feedback from customers, according to Mr. Kirby. "We found that people who came into the branch were expecting to interact with a live person," he said. "Some viewed it as impersonal; others viewed it as positive."

SunTrust may use video technology to offer services for extended hours at remote sites, Mr. Kirby said. For now, however, its priority is to promote Internet services.

"We have to be careful to maintain a physical distribution network and still invest in technology," he said.

Mellon also is focusing on Internet development. "Our next goal is to have video on the Internet," Mr. Halackna said.

The Pittsburgh banking company is not installing more video terminals in its branches because the Integrated Services Digital Network, or ISDN, telephone lines that are needed are unavailable in the remote areas where the remaining branches are.

The research firm GartnerGroup has predicted that bank spending on branch automation would decline 2% a year from 1998 to 2002 as banks devote more resources to the Internet and PC banking, on which spending is expected to grow 35% a year.

Citibank, though pumping money into the Internet, also is staffing up for an effort to offer personal financial analyses to any of its 1.5 million account holders who walk into its branches.

Mr. Plumeri said the aim is to turn branch banking into an attractive experience. Given the Internet's convenience, branch visits "better be nicer or more fun," he said.

He said he is drawing on his experience as CEO of Primerica Financial Services, a unit of Travelers Group before the insurance company's merger with Citicorp to form Citigroup.

A four-year Primerica effort to increase sales by doing financial-needs analyses for customers resulted in earnings for the group last year of $400 million. Earnings had hovered for five years at about $180 million before the sales effort, Mr. Plumeri said.

"Business just exploded because of the financial-needs analyses," he said.

The program has been branded CitiPro and will be offered for free throughout Citi's 376 branches beginning this fall. Mr. Plumeri said he expects sales resulting from the individualized analyses to raise branch earnings by 200% in two years.

About 3,000 Citibank branch employees are getting sales training, and 1,000 are now licensed to sell term life insurance and mutual funds. A new compensation structure calls for a greater portion of pay to come from commissions and fees tied to referrals.

The efforts support Mr. Plumeri's belief that "financial services are mostly sold, not bought."

Citibank's people-oriented branch approach is not intended to interfere with its development of high-tech services aimed at Internet-savvy customers. "It's not all or none," he said. "Everyone is different."

Face-to-face interaction will appeal to a large segment of the population, Mr. Plumeri added. The Internet is "great for data and information, but it doesn't have wisdom and a heart."

Employees in a branch have the advantage of being able to "control how people feel when they do business with you," he said.

As Wells Fargo & Co. proceeds with its integration of Norwest Corp., it is learning to balance the old California bank's high-tech orientation with Norwest's branch-based sales approach.

"We see them as complementary," said Bob Chlebowski, executive vice president of distribution strategies.

The old Wells Fargo has hundreds of branches with video conferencing, automated check-cashing machines, and grocery store branches. Success with each approach has varied according to location and customer segment, Mr. Chlebowski said.

The company now is focused on analyzing "best practices" in retail distribution and exploring new retail sales and service techniques, Mr. Chlebowski said.

He asked, "Can we help our individuals sell to customers better, or can technology serve our customers better?"

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