Are Banks Missing Out on Promise of PCs?

Ten years after the advent of the IBM Personal Computer, some automation experts are questioning whether bankers are making the best, most cost-effective use of microcomputers.

Even as the industry continues to purchase desktop computers at a frenzied pace, there is a growing body of opinion that PCs have not lived up to their potential because the proliferation has been poorly planned.

|Lack of Foresight' Faulted

"As with many new technologies, bankers have shown a tendency to experiment with the PC without any real plan for what the machines will do a few years down the road," said Robert E. Moll, a director with Arthur D. Little & Co., a consulting company in Cambridge, Mass.

For a large bank with thousands of PCs deployed, "such a lack of foresight could be tremendously costly," Mr. Moll said.

According the American Banker's annual technology survey, completed last spring, commercial banks in the United States have more than 600,000 microcomputers. Ernst & Young, which conducted the survey, expects the figure to reach 1.5 million by 2000.

Relieving the Mainframes

The PC's increasing power and flexibility were expected to reduce programming costs and take some of the processing burden from large-scale mainframe systems. The machines have largely succeeded in doing so.

Problems arise because bankers typically purchase a PC for specific applications such as loan origination or document printing, with little idea of how the machine would fit into future, overall automation plans.

In such a scenario, personal computers -- which most institutions see as affordable because of their $1,500 to $10,000 price tags - stop paying adequate returns once a specific job is done.

One of the areas where lack of vision may prove most expensive is in retail branch networks, where PC automation is in vogue.

Changing the Workflow

In the last five years, automating the teller windows and customer-service platforms has ranked as one of bankers' highest technological priorities. By placing customer and marketing information at the fingertips of service representatives, bankers hope to shorten teller lines and increase cross-selling opportunities.

Five years ago, most platform automation projects employed "dumb terminals" - computer screens that get all their information and processing power from a mainframe or minicomputer.

But according to a 1991 study by the Bank Administration Institute, Rolling Meadows, Ill., personal computers are rapidly replacing the previous generation of on-line terminals.

Hazards in Not Planning

While putting PCs in the teller line reduces demands on, and maintenance costs of, mainframes, such a venture can prove very costly without a long-term PC plan.

PC expenditures for a typical platform automation project range from $500,000 to $1 million. If the power of the hardware does not correctly anticipate the applications that the bank will require a few years down the road, the project is likely to fail in its efforts to reduce costs.

Banc One Corp. is recognized by many industry observers as one of the pioneers in large-scale PC implementation. The Columbus, Ohio-based company earlier this year unveiled a $100 million retail banking software package which, among other things, uses PCs to process portions of the bank's data that were once handled by IBM mainframe computers.

Banc One has implemented an aggressive and focused long-term plan for its PCs that observers say is primarily responsible for the success that the bank has experienced in reducing the processing stress on its mainframe.

Also ranking highly in the estimation of industry watchers is Barnett Banks Inc., Jacksonville, Fla., which is carrying forth a $33 million plan that includes installing 9,000 fully integrated PCs into its branch offices by the end of 1992. The microcomputers all be interconnected through the bank's IBM mainframe.

"If you underestimate the power you need in your PC fleet - and it's been done before -- you're talking about a major upgrade hassle," said M. Arthur Gillis, president of Computer Based Solutions Inc., a New Orleans-based consultant.

A report by Computer Based Solutions found that a reexamination of PC policies and procedures ranked as one of U.S. bankers' highest priorities for 1991. The concerns about PC policies go beyond platform automation.

Specialized Uses

At many institutions -- particularly community banks - PCs have become integral stand-alone processing units for loan documentation, mortgage origination, and other functions.

The increasing power of the small computers has allowed institutions with less than $100 million in assets to make inroads in markets that were once dominated by large institutions.

In the last five years, software applications that once resided in mainframe computers have become available for PCs, opening the doors to banks that cannot afford such systems or the personnel to run them.

Boon to Small Banks

"Most banks, even small ones, can cost-justify a PC without any problem because you don't need a team of programmers to run it," said Robert N. Shindler, vice president at Formation Technologies Inc., Denver. "The birth of the PC in many ways was the rebirth of the small banker."

But for all the success enjoyed by community banks with PCs, there are also problems. According to consultants and industry watchers, community banks typically purchase a PC only for a specific application, and often the desktop computers are not integrated into the bank's main systems.

"Most banks procured PCs without a formal strategy or policy," said Mr. Gillis. "Everyone bought first and worried about the integration and standards later. It's time now to harness the whole process because it's getting too big and out of control."

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