Technology is in the early stages of a fundamental change that promises to revolutionize over the next decade the way banks use computers.

The catalyst for change is client-server computing, which transforms microcomputers, minicomputers, and mainframes into team players that share processing chores across an electronic network.

The American Banker's 1992 technology survey, conducted with the consulting firm Ernst & Young, clearly shows the drive to make computer systems more flexible and powerful for the benefit of customers as well as banks.

Over the next three years, bankers are planning to put more and more of their systems on smaller computers instead of mainframes, to tie those systems together in networks, and to use electronic mail and "groupware" to help people work together.

The client-server technology promises to make bank systems easier to use while delivering more information to bankers' fingertips.

Signs of Change

Technologists have long predicted that client servers would eventually dominate corporate computing, but old habits die hard. The 1992 American Banker/Ernst & Young survey shows bankg's transition to distributed computing is just beginning to take hold.

Among the findings: The number of distributed-computing systems, which typically use client-server architectures, is expected to grow from only 4% of the installed base now to 11% in 1995.

"We firmly believe that client-server is a key strategy," said Cecil Smith, senior vice president in charge of Wachovia Corp.'s operations unit in Winston-Salem, N.C.

And banks expect to hire far more experts on distributed computing over the next three years than any other type of technologist.

Shift in Specialties

Only about 4% of the 86,000 bank technology employees now specialize in distributed systems. But the number is expected to rise to more than 9% of banks' technology staffing by 1995.

By comparison, the number of mainframe-technology experts is expected to shrink slightly, from 50,000 now to 48,200 in 1995.

These projections were made by Ernst & Young on the basis of responses from the 68 banks, representing 28% of the industry's noninterest expense.

At present, most banks run systems on one computer at a time. A typical example is a demand-deposit accounting system. In large banks, these systems usually run on a central mainframe.

Branch employees typically access these systems with so-called dumb terminals - essentially, video display screens with no ability to process data on their own - that are linked by telephone lines to the mainframe.

Limiting Mainframe's Role

In a demand-deposit application using a client-server structure, a mainframe could serve as a central repository of a customer's account information and be the primary engine for computing and recording account balances.

Each day, the mainframe could send a tally of account balances to a so-called server computer at the branch. Employees could then extract balance information from the server by typing a command into so-called client computers sitting on their desks.

The client computer transforms the account balance information from bits of data into a number that can be displayed on a colorful computer screen, replete with graphics and other windows of information.

The advantage of this architecture is that a bank can use the power of the microcomputer to create a colorful, easy-to-use interface to a whole host of applications. Dumb terminals can usually support only spartan user interfaces, with text and numbers displayed on a black background.

Versatility Offered

Additionally, microcomputers can run an array of personal-productivity software, including electronic spreadsheets and word processing programs, that either are not available or cannot economically be delivered to users of dumb terminals.

The switch to client-server promises to improve bank productivity and customer service, for little added cost. The reason? Client-server computing systems are easier to use than other computing systems, and thus let bankers do more, faster. They also give bankers a wider range of information than older systems.

And client-server computing systems are now cheap enough to be price-coinpetitive with older technologies.

Wachovia's Mr. Smith said in 165 branches in South Carolina the bank holding company has installed new client-server software that gives employees access to a wide range of mainframe-based data, including demand-deposit account information.

Wachovia isn't alone. Banking companies throughout the country are deploying new platform and teller automation systems that use client-server technology in their branches.

A Varied Group

They include Banc One Corp., Columbus, Ohio; Fleet Financial Group Inc., Providence, R.I.; Huntington Bancshares Inc., Columbus, Ohio; Marshall & Ilsley Corp., Milwaukee; and Norwest Corp., Minneapolis.

One of the most ambitious projects is under way at Norwest. The company is installing a client-server-based platform automation system on 10,000 personal computers in 350 retail branches in 12 states, said Brian Phillips, executive vice president for technical services.

Norwest's new client-server system will replace a computing network in which branch employees work on dumb terminals linked to minicomputers that in turn are linked by telephone lines to a mainframe.

The new system, like the old one, will let branch employees access the bank's core processing system to read or enter customer information.

In addition, the new system will help branch employees cross-sell multiple products to customers. It will also let bankers crunch through "what if" scenarios - to learn, for example, the difference in monthly payments if the customer bought a 5-year or a 10-year loan.

Enthusiastic Response

"I would say the difference in capabilities [of the new branch system over the old] is 5 or 8 to 1," Mr. Phillips said. "Our bankers are falling head over heels for it."

Mr. Phillips said Norwest was spending about $20 million on hardware, software, and in-house development resources for the new client-server system, which runs on software from Argo Data Resources Inc. in Dallas with extensive customization by Norwest.

But he added that after amortizing the investment over a few years, the annual cost of the new computer system is about the same as maintaining the old one.

"The real payoff is in higher customer service and higher cross-sell ratios," Mr. Phillips said.

Mr. Phillips added that Norwest is planning to install a client-server system in its mortgage unit over the next 12 to 18 months. Norwest is one of the largest mortgage originators in the country.

Big Change in Processing

He said the bank hopes to use the new computer system to totally reengineer the way it processes mortgage transactions, with an eye toward minimizing paperwork and duplicate handling of data. The bank expects the change to greatly improve employee productivity and customer service.

Mr. Phillips said that Norwest is installing client-server systems now because their cost has dropped to affordable and their performance has risen to acceptable levels.

His analysis of the improving cost-to-benefit ratio was echoed by other bankers.

"The technology is really becoming sufficiently mature to let you use it," said Dave Sheppard, executive vice president of Fleet's data processing and operations unit in Providence.

Mr. Sheppard said Fleet was planning to install new client-server computing systems throughout the corporation to handle trust and retail branch operations and provide information for management.

A Matter of Economics

Greg Schmergel of Ernst & Young's Center for Information Technology and Strategy in Boston said the transition to client-server computing is a natural outgrowth of the changing economics of computing.

A unit of computing power costs a tenth as much on a microcomputer as on a mainframe, he said.

But the cost differential can be deceiving. Banks have 17 times as much computing power on microcomputers as on mainframes, according to the survey. But microcomputing power is utilized much less intensively.

Mr. Schmergel estimated that, on average, banks use only about 5% of the available computing power on microcomputers, compared to 75% of that available on mainframes.

Client-server systems help banks take greater advantage of cheap, underutilized microcomputing power. That's why technologists argue that more applications will move to that architecture.

But rather than using the computing power to cut processing costs, most banks and vendors are using client-server and cheap microcomputing power to do more computing.

Gradual Shift Foreseen

Technologists argue that the transition to client-server computing in banking will be gradual. Initially, banks and vendors are focusing on new branch automation systems that make branch employees more productive but leave most core processing chores on the mainframe, said Walter Tallent of bank software vendor Hogan Systems Inc., Dallas.

Next, the industry will focus on developing a raft of client-server systems for other operations, such as mortgage processing and trust, said Mr. Tallent, Hogan's chief technology officer. Eventually, he said - perhaps in five to 10 years - banks will move most of their core processing operations from minicomputers and mainframes to local-area networks. Such transitions are called downsizing.

The first banks to move in this direction will be community and midsize banks, Mr. Tallent predicted. This is because these banks have moderate computing needs that can more easily be supported by local networks.

But eventually, Mr. Tallent predicted, large banks will move core processing operations from mainframes to local-area networks, and use their mainframes only as huge data base engines from which local networks extract important data.

Slow Start for Downsizing

The American Banker survey indicates that banks have expressed only tepid interest in moving mainframe-based applications to networks of PCs. According to the survey, banks have downsized only 184 applications over the past three years, a minuscule fraction of the tens of thousands of applications in the industry.

But over the next few years, as network technology improves, acceptance of downsizing is expected to increase. According to the survey, banks plan to downsize some 1,045 computer applications from 1992 to 1995.

Timothy Suilivan, senior vice president in Portland, Ore., with Los Angeles-based First Interstate Bancorp, said his company is focusing its technology resources on consolidating disparate mainframe systems. As a result, the bank isn't doing much with client-server computing.

Right now I believe it's a solution that isn't mature, and carries with it some risks," Mr. Sullivan said. "But eventually, these systems will be able to deliver more at the worker level, and make information easier to use."

Next: Not everyone is satisfied with outsourcing.

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