Bank One Corp. chief executive officer John B. McCoy said the size question-whether it is best to be big-has been on his mind for 20 years.

Over that time, what was a regional bank in central Ohio with about $3 billion of assets has grown to almost $300 billion, which makes it pretty clear where Mr. McCoy stands.

"Scale and size are more and more important," Mr. McCoy said last week at the Retail Delivery '98 conference in Las Vegas. "If you are not a player, it will be hard to get to be a player."

This has become big-bank orthodoxy in the megamerger era. The CEOs of BankAmerica Corp., Chase Manhattan Corp., and First Union Corp. have similarly said that they had to get bigger to get better. Citibank, a megabank before it merged this year with Travelers Group to create Citigroup, has taken that argument to an even higher level.

Comments by Mr. McCoy and others at Retail Delivery '98, attended by almost 10,000 people, indicated some refinement in the message. They are not embracing size as a virtue in itself.

"It is not so much a competitive advantage than it is a condition of doing business," said Robert B. Hedges Jr., retail banking chief at Fleet Financial Group.

These executives tend to talk about what size buys, particularly brand power and technology. The proposition drew little if any dissent at the Bank Administration Institute's big event, which, given changes in the last year, may be something of a barometer on the issue of "does size matter?"

To be sure, empirical research remains inconclusive at best. Study after study, including a recent one by Electronic Data Systems Corp.'s A.T. Kearney consulting unit, has found that large-scale mergers are far more likely to destroy than to enhance shareholder value. Proof of economies of scale is elusive. In the American Banker's annual consumer surveys, credit unions, the smallest-scale financial institutions, always score highest in customer satisfaction.

The rapid-fire 1998 transactions-Citigroup, NationsBank-BankAmerica, Bank One-First Chicago, Norwest-Wells Fargo, and on a multinational scale, Deutsche Bank-Bankers Trust-have either changed the tenor of debate, or drowned out those who may disagree.

A year ago at Retail Delivery '97 in New Orleans, First Union Corp. chairman and CEO Edward E. Crutchfield, who had just closed a deal for CoreStates Financial Corp. of Philadelphia, made a memorable commentary on bigness. He said he would personally prefer small-scale community banking "but they don't pay me to be nostalgic."

He said First Union had to be big enough-in assets, market capitalization, or, in subjective terms, market presence-to be noticed on a nationwide and global stage, to be the kind of "player" Mr. McCoy was talking about.

Mr. McCoy followed almost the same script. "If I had my druthers, I'd be back in Columbus, Ohio," managing 25 branches, said Mr. McCoy, who now oversees his midwestern empire from Chicago.

He just does not see a second-tier or lower existence as viable. If Bank One is to manufacture and distribute products, owning the necessary technology and controlling its destiny, with brand names powerful enough to hold sway on the Internet, it has to be one of the giants, he said.

That is why Bank One and its First USA credit card subsidiary are spending in the hundreds of millions of dollars to lock up promotional space on Microsoft, Excite, and other on-line locations.

Mr. McCoy said he wondered about the prospects of a $1 billion bank without such access to Internet portals, or a $1 billion credit card portfolio competing against a company like First USA, which with little exertion recently swallowed the $4.6 billion credit card business of Chevy Chase Bank.

The megamergers did not fundamentally change the banking business overnight, Mr. McCoy said. But they "changed our industry's direction (and) added weight to that directional change."

"The industry consolidation seems to set a standard for the market cap you need to compete," said Mr. Hedges of Fleet, which sat out the most recent bank merger wave while bulking up outside the core business with credit card, discount brokerage, and commercial finance acquisitions.

"We know what we need to get done in the next five years-size is not an issue for us and there is no obstacle there."

Fleet chairman Terrence Murray "has said that banks will get larger as the consolidation continues, and we expect to be a part of that," Mr. Hedges said in an interview last week.

There was some talking back at Mr. Crutchfield a year ago. This year the one Retail Delivery conference session with community banker speakers was mainly how-to, nuts-and-bolts advice about using the World Wide Web. The message was that the technology is accessible to all, but it lacked the grandiosity that the asset-size leaders are asserting.

"Even if you are a small institution, you can look big," said one of the panelists, Joyce Hlava of Stanford Federal Credit Union in California.

Mr. McCoy was feeling enough of his oats to almost stomp on a credit union official who asked a question after his keynote speech last Wednesday.

The questioner asked how he might serve younger people's preferences for automation without alienating older customers who want personal attention. Mr. McCoy's admittedly "wise-ass answer" was: "I hope you can't so I can get their business."

Some among the vast population of technology vendors and consultants at the Las Vegas show pointed out that the megabanks still have a ways to go to deliver on their promises.

Robert Hall, chief executive officer of Action Systems of Dallas, who has advised many major banks on how to translate their storehouses of customer information into product sales, said too many institutions have essentially been in the "parts business"-accumulating components without putting them together into true marketing machinery.

To be sure, the technology of data warehousing and of what some of the big companies like to call mass customization has made major advances.

"Technology makes it possible to be big and to be effective marketers while big," said Mr. Hedges.

Lawrence J. Ellison, chairman of Oracle Corp., which sells data base technology to elite banks, said the time has come to seize the advantages of "Internet computing" to "centralize the complexity" left behind by the personal computer and client/server generation. That kind of conversation goes right over the heads of community-oriented bankers who do not have vast geographies, staffs, or branch networks, and have less need for computers to know their customers.

The mass customization movement plays into the hands of an Oracle. Mr. Ellison said banks that have gotten big and global have heretofore focused "on how to put their back offices together. The challenge now is to make those things pay off" through customer relationship management, profitability analysis, and alternative distribution systems.

Fair, Isaac & Co. of San Rafael, Calif., best known for its credit- scoring systems, held a press conference to explain its "vision of customer relationship management." Vice president Patricia Hudson said the pieces are in place for "a new phase of personalized service (that is) better than old-fashioned service."

Ms. Hudson conceded that "some of the returns on data warehousing have been illusory," but years of experience and technological improvements now make it possible to truly know customers and reinvent relationships.

She said a bank does not have to do a "mammoth, enterprisewide data warehouse" all at once. It can start small with special-purpose data marts or by applying the methodology to a single line of business such as credit cards.

Nor does an institution have to be huge to get the benefits. Fair, Isaac may develop sophisticated "tailored solutions" for the very biggest banks, but smaller ones "don't have to make massive investments. We can scale the solution. It won't be the BankAmerica-type customer relationship management vision, but they can get the benefit."

It remains to be seen how that type of operation can stand up to, say, Citigroup and its ambition to be within a mile, a phone call, or a mouse- click away from anyone on earth. Edward Horowitz, the Citibank corporate executive vice president who articulates that vision, boasted that Citigroup has "150,000 agents with one-to-one relationships with millions of customers." They can meet customers at their kitchen tables with "cost savings and greater products."

Mr. Horowitz spoke of e-Citi, the name of his organization and his designation for the overall Internet strategy, as "the financial capital of the new electronic world."

Not too many can play at that game. Maybe not too many can play, period, which might be one reason megamergers happen.

"There are just two booksellers on the Internet," Mr. McCoy pointed out. He meant that after Amazon.com and Barnesandnoble.com, consumers don't know much else. There may be room for more than two financial institutions, maybe even dozens, but there is a widespread conviction that the number is finite.

"In cyberspace, brand is hugely important, maybe more so than in the physical space," said William Harris, president and chief executive officer of Intuit Inc. "It is the only thing people have to latch on to."

As the maker of Quicken personal financial software and proprietor of Quicken.com, the most popular of the financial portal sites, Intuit has caused some concern among bankers as a potential usurper of the customer relationship. Mr. Harris disputed that anyone can "own" the customer, except by giving them compelling reasons to keep coming back to their chosen primary provider.

Mr. Hedges said he focuses on the fact that "bargaining power goes to the consumer. The question is, can you compete on their terms? Can you be prepared for that technologically, and do we have the right cost structure?"

Typical of an Internet entrepreneur, Mr. Harris stresses the opportunities for cooperation and cobranding.

"We believe our brand is different than the financial institution brand," he said. "It represents different things and is complementary. Nobody would come to us for a bank account or trading."

Mr. Harris said bankers can take heart from what Intuit market research has turned up: the importance of trust.

"People want to do things electronically with people they know," he said, "which plays to a bank's strength. It goes back to the security and trust issue."

From Mr. Harris' Web-oriented perspective, brands that matter, which happen to be Intuit allies, include America Online and Yahoo.

But "Yahoo can't be a bank," he said. "There won't be a First National Bank of AOL. But put those brands together with strong financial institutions and products, and it benefits both sides."

The big question is, are there enough openings to go around?

Mr. McCoy said he stills supposes that "niche players can be successful"-but "not by continuing to do business they way they always have."

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