NEW ORLEANS -- Digital Equipment Corp. stemmed a tide of bad news with an announcement this week that it had landed the first customer for its new retail banking system.

The branch automation software, being installed at Akron-based First National Bank of Ohio, is based on an open computer architecture, which allows the system to run on a variety of hardware.

A Change in Strategy

The software replaces Digital's proprietary retail system, which lost ground in the merger-happy banking market. Chemical Banking Corp. and Society Corp., for example, decided to discontinue seeking newer technology after their respective mergers of Manufacturers Hanover Corp. and Ameritrust Corp.

Digital executives shrug off the drop in business, saying it does not reflect on system quality. But Digital acknowledges, through its open-system product, that bankers are increasingly reluctant to be wed to a single hardware vendor.

"I'm not going to apologize for what merger activity among banks has done to our business in this [retail banking] market," said Robert M. Russell Jr., vice president at Digital, which is based in Marlboro, Mass. He pointed out that versions of the old system are currently operating in tens of thousands of branches worldwide.

"But we clearly feel the demand from bankers for the flexibility that comes with an open environment," he said in an interview during the American Bankers Association's operations and automation conference.

The groundwork for Digital's new branch automation offering was the acquisition of a unit of the Dutch electronics vendor Philips in November 1991.

The acquisition of the open-system advocate signaled the end of a strategy focused on increasing hardware sales to banks. Like other computer vendors, including International Business Machines Corp. and AT&T's NCR Corp., Digital has begun emphasizing software and services over hardware sales.

Mr. Russell said revenues from computer services are outpacing hardware for the first time in Digital's history. The services side is expected to grow further as banks, such as First National in Akron, look for help in integrating the new opens-system software with their existing systems.

Software Slated for 65 Branches

The $2.2 billion-asset bank, a subsidiary of First Bancorporation of Ohio, has begun installing the software. It is to be piloted in seven locations in September and be fully installed at 65 branches by the end of 1994.

First National's director of retail banking, Mary Hoover, said the choice reflected a need to keep pace with competitors, such as National City Corp. and Society Corp., that are improving customer service through branch automation.

While First National Bank has only committed to installing the software on its branch platforms, to aid in cross-selling, it is considering buying a Digital system for its teller operations as well, Ms. Hoover said.

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