Consumer bankers are depending more than ever on technology to help them survive a brutally competitive business climate, but many are still unsure how their systems investments affect their institutions' profitability, according to soon-to-be published research.
The study, commissioned by the American Banker and Andersen Consulting, is scheduled for publication in November. It is based on responses to a questionnaire returned earlier this year from 53 of the nation's top 150 banks.
It found that more and more retail bankers see technology as their most important weapon in winning and retaining consumers.
Of the retail bankers responding, 33% said they viewed information technology as "very important" in the achievement of their institution's business objectives over the next three years, up from 28% for the period from 1992 to 1994.
Bankers also were asked whether they agreed with the statement: "A bank that has invested in technology is going to be more effective and productive than a bank that hasn't." Eighty-four percent said they agreed -- 55% saying they "strongly agreed
These perceptions about technology's role are not necessarily new in consumer banking, as the business has historically been more operations-intensive than wholesale banking. But the survey points to an important shift regarding the expectations of what computers can do to increase revenues and profitability, bankers and consultants said.
"Technology in banking has in past been viewed as kind of a necessary evil," said Daniel R. Pfau, a Boston-based partner at Andersen Consulting. "Now banks look to systems not only to lower or control their costs, but to transform the cost equation."
"The increased sensitivity to the role of technology in retail banks is coming from our need to better mine the wealth of information we already hold about our customers," said Peter Purcell, a senior vice president involved in retail banking systems development at $21 billion-asset First of America Bank Corp. in Kalamazoo, Mich.
A second factor affecting bankers' higher expectations of retail systems is based on increasing consumer use of automated delivery mechanisms. Automated teller machines, telephone service centers, and home banking via PC are rapidly replacing the branch visit as consumers' choice method of interacting with banks.
"These new distribution methods require more precise channel management from bankers to make sure we're giving the customer what he or she wants, while at the same time maintaining acceptable profit margins," Mr. Purcell said.
Mr. Pfau concurred. "It's all about getting the right products to the right customer at the right cost through the right channels. And that all involves technology."
But despite this increasing dependence on technology to help financial institutions grow their businesses, the American Banker/Andersen Consulting survey that many bankers are still scratching their heads as to exactly how the billions of dollars they spend every year on computer systems flow to the bottom fine.
While 37% of respondents said technology spending had a positive impact on their institutions' retail bank return on equity, 60% said systems investments had little or no impact on profitability.
And many retail bankers felt their employees lacked a clear understanding of the strategies promulgated by their systems experts.
Mr. Pfau said the study found a link between bankers' perceived value of systems investments and the bank data processing departments' alignment with business objectives.
"Bankers who said their technology vision was in line with their business goals were more likely to say they received tangible benefits from their investments."
Mr. Purcell said trying set return-on-investment criteria for technology projects will remain a vexing but important issue.
"Even if you can't set a profit level for every systems project, bank management should at least set goals that prove the investment will add incremental value," he said. "Otherwise, banks will go out and build Lear jets to travel three blocks to the grocery store."