There's no point glossing over the fact that the consumer movement and the banking industry have their differences. But we also have a lot in common. To be successful, bankers need to be driven by consumer satisfaction.

Last year's wave of bank and thrift mergers involved more than one- quarter trillion dollars in assets - nearly a third more than in 1994, and a new record.

Media coverage has placed overwhelming emphasis on Wall Street as the driving force behind the merger wave. This makes it easy to view mergers as just another sign of Wall Street greed that costs people jobs and customers convenience.

But look beneath the surface and you will find that long-term changes of this magnitude are driven not so much by the investor as they are by the customer.

What is happening in the banking industry is a fundamental change in the way we deliver financial services, a change driven by customer needs.

Until the 1970s, corporate lending was the banking world's No. 1 profit center. But starting in the mid-1970s, corporate lending declined as the commercial-paper market expanded. The margins that sustained banks quickly diminished as corporations turned to Wall Street for more favorable credit terms than banks could offer.

This made another set of banking customers - consumers - suddenly more important than ever.

Up to that point, most large banks had treated consumers essentially as an inexpensive source of funds. Price was not an issue, for the bank or the customer, because the federal government regulated deposit rates. The banker didn't have to understand retail pricing very well and the customer didn't have to put much energy into understanding a relatively limited line of products. We were almost a public utility.

With the demise of corporate lending, bankers suddenly had to generate profit, not just deposits, from their retail customer base. And just as bankers were beginning to learn how to price the consumer market for profitability, their customers were offered a widening menu by other financial services providers.

Brokerage firms, insurance companies, consumer finance and other nonbank companies took the lead in playing by rules the retail customer could now set. As a result, those other segments of the financial services business have expanded their market share at the banks' expense.

Here's a picture of how badly some banks missed the boat. Between 1970 and 1990, the output of the financial services sector overall rose from 12% to 24% of gross domestic product. In the same period, the bank share of GDP stagnated in the 2% to 4% range. This has been a key factor in shrinking the industry.

Competition for the customer has tightened margins in virtually every line of business for banks. When margins get too tight, what must you do to return to profitability? Reduce expenses. Higher cost structures must go. The only way to afford to offer a broader array of products that will attract and retain our customer base is, once again, to reduce margin pressure by reducing expenses. Hence last year's wave of mergers.

What's going on today in the banking industry is high-speed catch-up. Like the U.S. auto industry in the last decade, we are retooling to become a more consumer-driven industry. In order to succeed, we must make the rules of the consumer market the rules we live by. How well we follow these rules will determine our fate as an industry.

What are these rules?

The first rule is that the price has to be right.

The biggest impact on bank deposits in the last 20 years resulted from high returns offered by investment products, cash management accounts, money market funds, mutual funds, and securities. Savers have voted with their feet. In the early 1980s, banks held some 50% of the financial assets in the U.S. Today they hold barely a third.

The second rule is convenience. By this I mean choice, simplicity, and superior service. Here banks have performed fairly well. Today, consumers can walk into any one of 56,000 branches to conduct their banking. You may be surprised, but that's 25% more branches than existed in 1980.

Since 1980, ATM transactions are up fivefold, but you can't force customers to use ATMs or phones exclusively, and you shouldn't want to. That's one reason the number of tellers has fallen only slightly in the last decade, to 440,000 in 1994, compared with 480,000 in 1984 - another surprising statistic.

If you're still a skeptic, think about this: The rule of price has become a dominant factor in one of the most popular services for consumers and historically one of the most profitable areas for banks - credit cards.

Today, fee-free credit cards have virtually wiped out annual fees for a large percentage of card holders. And a handful of large banks are now forcing an intensified pricing battle by offering credit cards with interest rates far below the historic national average. This competition has forced bankers to find ways to deliver card products more inexpensively.

Success in all of these areas depends on bankers' recognizing that the consumer really is in the driver's seat. Acknowledging that does not resolve all public policy questions on which bankers and consumer advocates differ, but it does suggest we are together on the main point.

Mr. Schenck is vice chairman of Great Western, which is based in Chatsworth, Calif.

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