The past several years have seen an extensive debate about the role of client/server technology in banking. While this debate has certainly identified important economic and operational issues, much of it has been fundamentally misdirected.
In concentrating on how the technology will perform, and at what costs, financial technologists have slighted the question of how the new technology will serve the essential objectives of banking.
The real issue in banking technology today isn't client/server; it's client service. The technology a bank chooses will be far less critical to its success than the ways it puts that technology to work for its clients.
Over the past 20 years, almost everything about banking has changed except the fundamental objective of client service. This objective may be more important today than ever before, because the fundamental profit dynamics of commercial banking have changed so dramatically.
Bankers once depended primarily on interest margin to generate income. Now fees represent the most critical component of revenue. Indeed, in a world where instantaneous communications allow banks to respond immediately to competitive rate offerings, the development and marketing of fee-based services represent the principal avenue by which a bank can overtake and pass its competitors.
The most critical significance of advanced technology in contemporary banking is not that it reduces costs and improves productivity.
These objectives are certainly important, and properly managed technology will deliver them. But the fact that technology enables banks to offer their customers a far broader and more valuable range of desired value-added services is far more significant. It is these services that have become central to the commercial banking mission.
The shifting dynamics of profitability have altered the nature of competition in the commercial banking marketplace. Today few businesses evaluate their banking relationships solely or even principally on the basis of interest rates, since most banks can usually match the rates their competitors offer to creditworthy customers. And successful corporations can easily raise money from nonbank sources.
The principal selection criteria for today's banking relationships are the breadth, efficiency, and perceived value of banking services. Under these criteria, the successful bank will be the one that can differentiate its services from its competitors and deliver products tailored to the client's unique needs.
In particular, businesses want banks that can integrate a full range of essential payment services, or provide electronic delivery services that reduce the cost of some inefficient paper transactions. Such banks serve in effect as reengineering partners, enabling dramatic efficiencies in their client's internal operations.
Competitive pricing is also a major selection criterion for today's bank clients, but a bank's long-term commitment to advanced technology may be an even more critical factor. Bank clients today see banking relationships as business partnerships. They want assurance that they will not be left behind when a competitor's bank institutes dramatically improved services based on innovative uses of new technology.
Please note that it is the commitment to innovative use of advanced technology in the customer's interests - and not to the technology itself - that makes the difference. Client service must be the engine that drives technology decisions.
It will, for example, do a bank little good to implement state-of-the- art check imaging systems when its customers are demanding electronic payment systems that eliminate the checks to be imaged.
Conversely, it does a bank little good to convert entirely to an advanced technology when its most important clients still rely heavily on traditional systems and services. Most businesses still require broad mixtures of electronic and paper-based services, and will probably require mixed services for some years. Most banks will consequently need to maintain mixed processing applications for the foreseeable future.
The point here is not that banking is in a period of transition, in terms of both services and technologies. Everybody knows that. The important thing is to realize that this transition is going to continue.
Once a bank accepts this fact, it is free to take advantage of it. Remember that changing markets are inherently dynamic. They quickly create new opportunities to replace outmoded ones.
Today's dynamic banking environment is creating opportunities so rapidly that I can call more than a dozen to mind in the areas of electronic commerce and item-processing alone. Some contemporary banks now offer commercial customers fully integrated payment services and outsourcing for accounts payable and accounts receivable. Others market advanced and more economical processing services for mortgages, student loans, or consumer credit. Some innovative banks now sell health care payment services, a market with remarkable growth potential.
Trade agreements like the North American Free Trade Agreement and General Agreement on Tariffs and Trade are creating significant new opportunities for banks to assist businesses with international services like cross-border payments. The recent devaluation of the peso gives us a stunning example of the exposures that increased cross-border trade can create - where even a day's delay in executing a transaction can spell disaster. Banks that help minimize these exposures will win plenty of business.
Electronic commerce, electronic data interchange, and financial EDI services already offer tremendous advantages in transaction speed and cost reduction, but banks have only begun to capitalize on these services. Most bankers now recognize that treasury management services constitute one of their most important commercial product lines, but relatively few have exploited the opportunities for on-line access and information services that these products are creating.
All these opportunities are being made possible by the successful deployment of modern information technology, but none of them spring fully developed from the technology itself. They all represent innovative adaptations of technology in response to client requirements.
Client/server technology is itself a product of this process. This technology was initially driven by the desire to cut costs with the inexpensive power of microprocessors. Some substantial savings have materialized, but the client/server approach has proven more expensive in practice than its most enthusiastic adherents predicted.
The real force that drives client/server technology in the marketplace today is its ability to create value by extracting the information stored in banking systems and delivering it directly to the user in a flexible, easily used PC environment. Client/server technology is not really about systems, but about this process. Of course, the process requires security and stability in the server.
The bottom line is that client/server technology places computer power where it should be, at the service of the user who needs it. Only there can it be applied readily to the customer's immediate needs. And only there can it be adapted to meet new needs as they are created by a changing marketplace.
Regardless of the system involved, the process of client/server technology - like the rest of banking - should first and always be about serving clients.
Mr. Hymes is president of Sterling Software's banking systems division.