In the middle of a major ad campaign urging customers to "expect more" from it, Chemical Banking Corp. is experiencing service problems with its automated teller machines.

An internal report obtained by the American Banker found that customer complaints about ATM service at the company's 900 machines surged 70% from March to April.

Most of the problems related to the machines' failure to dispense cash, said the report, distributed in June by the bank's service management group.

"Chemical Bank is losing credibility with providing 24-hour banking through the ATM network," the report said.

Moreover, it warned that the bank's "systems and operations areas are scheduling significant amount of downtime for maintenance in the next few months" and have "no forms of action in place to produce less impact to customers. . . ."

The problems are occurring as the nation's third-largest bank company is trying to prevent defections related to the recent conversion of the former Manufacturers Hanover Trust Co. branches to Chemical branches. The two companies merged at the end of 1992 and began the branch conversion in March.

Chemical officials linked the ATM problems to installation of touch-screen machines from NCR Corp., a process requiring some service interruptions.

The report also found numerous unscheduled outages and delays in transmitting account balance information as a result of attempts to integrate the two banks' systems.

"We're trying to schedule the downtime during the hours of 2 a.m. to 6 a.m. to minimize disruption to the customer," said John Stefans, a bank spokesman.

He argued that existence of the report reflected Chemical's attention to customer service.

Quick Turnaround Cited

"There's a great effort to quantify the problems and get them fixed," he said, noting that 99.6% of complaints were "addressed" within 24 hours.

The report focused on customer satisfaction results in April, the first month in which data were available for service at both Chemical and Manufacturers Hanover machines. The overall satisfaction result was 94.5% versus an industry standard -- and "a Chemical goal" -- of 98.5%, the report found.

The report implied that the problems may be worse than indicated, since the service management group receives only those complaints that cannot be handled at the branch level. Branch employees "have been unable to help because the downtime has been sporadic and [they] are not always informed of when the network will be available," it said.

It also found that customers are waiting longer on lines in front of functional ATMs. "Customers have commented that Chemical Bank should develop a program giving $5 for seven minutes of wait time," it said, referring to an offer made to customers who wait on teller lines.

Mr. Stefans said the bank is considering extending the offer to ATM lines.

Although the number of complaints surged by 70%, Mr. Stefans said the ratio of complaints to transaction volume is small. Chemical processed 4.7 million requests for ATM cash in April -- when volume is traditionally high because of tax season -- and received 1,424 shortage complaints.

Funds transfer consultants said the service problems could have far-reaching implications.

"The value to customers of ATMs supersedes most other things that banks package in their checking account products," said David Dove, president of Dove & Associates, a Boston market research firm.

Mr. Stefans said Chemical has no indication that it has lost customers because of the ATM problems.

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