John W. Smith knew he was taking a chance when he created a call center at Peoples Bank and Trust in Tupelo, Miss.

In the Deep South, personal relationships still matter deeply. And Mr. Smith, the bank's chief executive officer, feared that some customers would not take kindly to a recorded voice answering their phone calls.

Yet Mr. Smith contends that he did not have a choice. Customer service was beginning to suffer at Peoples Bank, the 42-branch affiliate of $1.2 billion-asset Peoples Holding Co. "We would get any number of calls from people who said, 'We've been transferred five or six times and did not get an answer,' " he says.

Does this sound familiar? Improving customer service and bolstering sales programs are driving banks of all sizes into investing in a call center. Once the domain of large banks trying to centralize hundreds of branches or to beef up sales for a multimillion-dollar credit card operation, the call center is becoming a normal part of doing business for community banks.

The typical community bank call center employs less than 10 representatives who field incoming calls to the branches, making sure a stop payment is put on a check or questions about an account are answered. But community banks, ever striving to compete with larger banks, are also employing the call center to sell products.

The Mentis Corp., a Durham, N.C. research firm, found that about two-thirds of banks with $500 million to $1 billion of assets had call centers by the end of 1998, up four percentage points from the previous year.

Even without the numbers, industry experts say the evidence of the growing popularity of the call center is clear at conventions and conferences, where consultants are often besieged by bankers who demand more information.

In trying to meet the demand, the American Bankers Association held a conference in Washington to help community bankers learn how to start a call center. The May event drew 200 people, a "full house," according to ABA officials.

"We are seeing that the call center is becoming the central point for customers instead of calling individual branches,'' says Donna Berzellini, an ABA associate director.

Dina Vance, vice president of the call center division at FTR Inc., a bank consulting firm in Lombard, Ill., says she is hearing from more community banks than in the past. "I would guess that most of these banks have seen the success of the larger banks,'' she says.

Ms. Vance said customer demand is dictating the move toward call centers at many community banks. With many larger banks providing customers with telephone banking, PC banking, and longer branch hours, smaller banks are forced to keep up.

"It makes no difference in asset size, it seems the small banks need a call center as much as the larger banks," she says.

The ABA's Ms. Berzellini suggests several reasons why a bank should consider a call center. Among them is the need to serve existing customers outside the traditional bricks-and-mortar branch. Also, with a call center in place, the bank can ensure that customer service is centralized and that each customer has a "quality interaction" with bank employees.

"There's no question the call center is taking work off the retail branches," Mr. Smith says. "We're right pleased at the fact it is relieving our retail."

Anthony S. Abbate, the chief of Interchange Financial Services Inc., of Saddle Brook, N.J., said he realized that $675 million-asset Interchange Bank, the company's main subsidiary, needed a call center when the branch staff was having trouble juggling both customers within the branch and those calling in with questions.

"I cringe when I'm at the branches when I see people get interrupted by incoming phone calls and there's a customer at the desk," Mr. Abbate says. "We need to be more efficient at product delivery."

Mr. Abbate says the bank is currently creating a call center, though he's still not sure how large it will be or how much it will cost. But Abbate is certain that the system will improve his bank's ability to respond to customers.

Bayview Capital Corp., of San Mateo, Calif., is an example of a bank that is in the early stages of developing its call center.

The $6 billion-asset bank company opened its call center in December last year and has focused only on centralizing customer service and selling to customers who call into the bank with questions.

With 56 branches and a new commercial charter, Lisa Rosen, vice president and manager of customer service, said Bayview knew it needed to service. But so far, it's not embarking on outbound telemarketing.

Bayview spent $200,000 to open the eight-person call center and Ms. Rosen said it's been a success.

"We get 400 calls a day," Ms. Rosen says. "It's basically one stop shopping for our customers."

Bank of Newport, located in Newport, R.I., started looking into creating a call center about three months ago. A major goal, besides improving customer service, is to jumpstart sales of the $600 million-asset bank's insurance products, says John H. Ellis, president and CEO of Bank of Newport.

"We want to do out calling, that pesky thing you receive at 6 o'clock at night,'' he says.

Ellis said the bank's proposed five-person call center, which he expects will cost about $250,000 to start up, will eventually pay for itself.

"It's going to act like a branch," he says. "We're going to treat it like a branch and it will be measured upon its profitability."

Estimates on what a bank can spend on a call center range from a low of $75,000 for a small staff and the most basic of technology to several million dollars for state-of-the-art telephone systems and dozens of agents.

About 60% of the costs of a call center come are attributed to the employees, according to McGladrey & Pullen, a Chicago consulting firm.

Brent Carstensen, a consultant with McGladrey & Pullen, says a bank must follow certain steps when establishing a call center.

First, he said that banks must determine why they are opening a call center. Is it to centralize customer service, to sell products to existing customers, to telemarket, or all of the above?

''We would encourage most banks to have a period of time where you think strategically," he says. "Define a purpose and mission. What best supports the business plan?"

Mr. Carstensen also warns bankers not to try cross-selling products too quickly. "If the bank doesn't have a sales management training program, it will be difficult," he says.

Banks should develop a sales culture first and determine how they want to market their products before letting agents loose on the customer base. For example, if a call center agent recommends an overdraft line of credit to all callers who have overdrafts, it could negatively affect the fee income the bank makes off those customers, he said.

The next step is considering the type of technology to employ.

''We have a saying that you need to find the right level of technology,'' Mr. Cartensen says.

First Citizens Bankshares, of Raleigh, N.C., invested heaviily in creating what is known in banking circles as a "leading edge" bank call center.

The $9 billion-asset bank company, which first dove into the call center business 10 years ago, currently employs 50 customer service agents who answer customer questions. The bank employs a dozen retail telephone bankers who open checking accounts, process consumer loans, and support small-business banking. In addition, there are three mortgage specialists who handle inbound telephone calls and six people who deal directly with PC banking customers.

Though he could not disclose how much the bank spent on technology, J. Mark Coble, senior vice president and call center director, says First Citizens revamped its call system to include a state-of-the-art automated recording system that allows the bank to monitor calls.

But Mr. Coble, who established call centers in his previous post at American Express, said an important part of the bank's strategy to improve its call center was investing in staff training and development. The call center industry has high attrition rates because of the stresses of the job and stiff competition for employees.

He said the bank's next challenge was to find ways to prepare the call center for the onset of electronic commerce.

"That investment in upgrading the technology is going to allow us to extend the convenience of banking into nontraditional ways, such as the Internet," he says.

Ms. Falcone is a writer in Baltimore.

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