A top compliance software company is staking its fortunes on an automated loan-origination product that many banks won't be able to use without costly upgrades to a new operating system.

Bankers Systems' high-powered Rembrandt, which ties together all the pieces of the loan application process, is to enter its final testing stage next month. The software is expected to be released this fall by the St. Cloud, Minn.-based company.

But a problem, some bankers and consultants say, is that Rembrandt requires top-of-the-line Windows 95 or Windows NT. These operating systems alone can cost a bank hundreds of dollars per computer terminal, and installing them can cost much more.

"The cost of the software isn't the most significant issue," said Tony Pallante, executive vice president of Chicago-based Avondale Federal Savings Bank. "It's the disruption to the business that happens when you're making the conversion and the cost of making sure that all the applications fit together."

A study by Tower Group, a Wellesley, Mass.-based research firm, found that about 10% of the 100 largest U.S. banks used Windows 95 or Windows NT last year as branch operating systems. The study predicted that proportion would rise to 18% by 1998.

Bankers Systems officials are not fazed by the paucity of Windows 95 users among banks. Vice president Hal Andrews predicted that the operating system would eventually be adopted by the entire industry.

Windows 95 can run only on PCs that use Pentium-type processors, the current generation. But "the hardware is becoming more and more powerful and becoming less and less expensive almost by the week," Mr. Andrews said. "That's what makes these changes more palatable for banks."

He compared using outdated computers for automating bank functions to "wanting to win the Indianapolis 500 using a 1983 Buick with regular gas."

Bankers Systems had to use more powerful technology to run Rembrandt because of its complexity. It is designed to handle all parts of the loan process with "one touch," Mr. Andrews said. Rembrandt could replace software used to obtain a credit score, map a borrower's location, or fill out an application, he said.

Linking all these pieces requires updated operating systems that can use a great deal of memory, he said.

A lot is riding on the product's success, according to sources in the compliance software industry.

In early 1995, Bankers Systems was purchased by BancBoston Capital, a unit of Bank of Boston Corp., and the Minneapolis investment firm of Goldner, Hawn, Johnson & Morrison. The new owners poured $9 million into Rembrandt, on which Bankers Systems had already spent $5 million.

Some competitors said that if Rembrandt isn't a success in sales, the new owners might make top-level management changes at Bankers Systems.

David Peat, a vice president of legal affairs there, said that probably wouldn't happen but agreed that Rembrandt "is a very significant product for us."

Mr. Andrews readily acknowledged the challenge of revamping a computer system. But he said the company is aggressively marketing its product to banks that already have converted to Windows 95 or Windows NT or will soon do so. Bankers Systems made presentations to nine of the nation's top 14 banks, he said, and Rembrandt has gotten "boffo reviews" from bankers so far.

Bankers Systems won't close any sales until Rembrandt's testing is complete, he said.

Rembrandt's price varies with a bank's asset size. For example, a $3 billion-asset bank would pay about $230,000, with annual updates costing about $70,000. A $500 million-asset bank would pay $68,000, plus about $20,000 a year for updates.

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