Despite bankers' lingering perception that client/server computing remains unreliable and poses significant data security risks, banks are doggedly moving key business processes from their mainframes to the newer distributed desktop computing environment.

The personal computer's ever-increasing processing capability, combined with the financial industry's desire to cut costs while improving customer service, is causing banks to convert their branch operations to client/server at a steady clip.

According to the 1995 American Banker/Tower Group survey of bank technology, banks will spend $795 million on client/server systems this year, and $1.4 billion a year by 1998.

The study, which surveyed the top 100 U.S. banking companies, found continuing growth in the number of large client/server systems (those with over 200 users), that are in the production, rollout, or development stage.

Yet, in spite of the flurry of activity, mainframes are expected to provide the foundation for core banking applications well into the future, particularly among the largest banks.

"Mainframes will continue to be used for mission critical applications, and as giant data servers to the client/server environment," said David Medeiros, an analyst at the Wellesley, Mass.-based Tower Group. "Client/server systems are predominantly being used for departmental solutions, to improve decision support."

Mr. Medeiros added that it's just a matter of time before client/server technology is developed with the same degree of reliability as mainframe environments.

"Continued increases in processing capability will eventually change user perceptions, so that banks will ultimately begin moving mission critical applications to client-server," he said.

But bankers' views as to when the systems will become reliable enough for these tasks is not particularly optimistic. Only 2% of respondents said they feel today's client/server systems are as "industrial strength" as mainframes, and many feel it will take at least several years for the systems to be just as "bulletproof."

One of the main problems banks see with client/server is the lack of controls for security and storage management that are intrinsic to the mainframe environment.

Nevertheless, most feel that the benefits of client/server outweigh the risks.

"While we are not completely satisfied with the maturity of client/server, we feel we have to move to it or be left behind," said Mari Nimmerrichter, vice president of First Chicago Corp. "We have to be ready for it when it does finally mature."

Within the changing processing landscape is a shift in operating system usage that will occur over the next several years.

The survey found that MS-DOS usage is decreasing dramatically, while OS/2, adopted by a number of major banks, is holding its own, and Windows is coming on strong. A handful of large banks are also making use of the Unix operating system as part of their client/server schemes.

But with the installed base of DOS operating systems expected to decline rapidly - from 35% this year to 8% by 1997 - and the small growth projected for Unix, the real battle of the branch automation systems looks like it will take place between Microsoft Corp.'s Windows NT and International Business Machines Corp.'s OS/2.

OS/2, with an installed base capturing 9% of the desktop operating system market this year, continues to be a force in the branch automation area due to its time-tested reliability and processing power, said Bob Landry, an analyst with the Tower Group.

IBM is still winning major OS/2-based branch automation contracts. The company recently cut deals with Bank of Boston Corp., and NationsBank Corp.

Still, Windows is expected to be the big winner.

Although Windows NT has a negligible share of the market this year, it's expected to grab 23% by 1997, versus 12% for OS/2.

In addition, Windows and Windows 95, workstation-oriented products, will between them capture 50% of the desktop operating systems market this year, and slightly more by 1997, according to the survey.

Mr. Landry believes that Windows NT is starting to pose a threat to the OS/2 market, because more powerful desktop computers that can handle the system have finally become available.

Further, Mr. Landry said there is some concern among banks and branch automation software vendors as to whether OS/2 will remain viable over the long term in light of Windows' increasing momentum. A question that is being considered is, will vendors cease writing applications to OS/2 so that, eventually, the ability to obtain those applications will diminish?

Software vendors have already begun aligning themselves with operating systems. Argo Data Resource Corp., on OS/2 now, pledges to move to Windows NT if the system becomes popular. Broadway & Seymour Inc., using OS/2 now, plans to develop for Windows. Culverin Corp., EDS/Ampersand, and Unisys Corp. have developed software for Windows and Olivetti North America Inc. has developed specifically for Windows NT.

Banks have also begun placing themselves in one camp or the other.

Some started down the OS/2 path several years ago, before Windows NT was an option. With heavy investments already made in the IBM system, and no evidence that Windows NT is superior, these banks see no reason to change.

This was the case for First Union Corp., which has invested $10 million to $15 million in OS/2 applications since 1989. Bank officials say OS/2 was the best option at the time and remains a viable one.

Banks choosing Windows NT often cite the number of available applications as the main reason for its selection.

This was why Bank South Corp. opted for the program, said Alan Schulman, information services project manager at the Atlanta-based bank.

He added that the $7.2 billion-asset bank is already using other Microsoft products in its enterprise, and decided to make Windows the bankwide standard.

First Chicago is still undecided as to what operating system it will be using. With its pending merger with Detroit-based NBD Bancorp, the bank is looking to standardize its operations onto a single platform, said Ms. Nimmerrichter.

The $72.3 billion-asset bank, currently using a variety of operating systems, is "feeling the pressure of Windows," as are other institutions, she said.

"Windows may be the ultimate winner in the desktop operating systems game because of a critical mass," she said. "There is a greater variety of Windows tools and third-party software. Plus, banks are using Windows in many areas, as are bank customers. The market is clearly headed in that direction."

Despite Windows' rising popularity in the financial industry, there is a view among bankers that Microsoft, the indisputable leader at the desktop, has not yet come to grips with servicing the corporate market.

"They still operate like they're selling to a stand-alone desktop environment, rather than a corporation which has many networked computers," said Mr. Schulman.

IBM, on the other hand, has not yet reached down far enough from the large-scale environment, he said.

"Both companies ultimately need to come to some middle ground."

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