Retail banking is undergoing a revolution. As financial institutions wrestle with the problem of attracting and retaining customers in a rapidly changing regulatory and competitive environment, they are recasting their traditional, branch-centric delivery infrastructure while looking for new avenues to reach customers where they live, work and play.

Working in partnership with banks and with other technology companies that serve banks, Microsoft[R] Corporation is playing a crucial role in this transformation. Microsoft provides a technology infrastructure that allows banks to develop standard ways to deal with customers across every conceivable delivery channel, whether it's inside the traditional branch or via self-service devices, the telephone, the home or laptop computer, or the Internet.

As banks establish consistent product lines and delivery strategies, they are discovering both operational and strategic business advantage in having a single operating system underpinning their delivery infrastructure. Operationally, savings in both resources, skills and capital expenditures can be realized by focusing on one operating system. This approach also promotes the reusability of functionality across delivery channels, such that new applications need not be built from the ground up to take advantage of a new opportunity. From a strategic business perspective this approach could have a dramatic positive impact on time to market with either new products or channels. It also facilitates the development of one single, consistent and persistent brand and image, whether it be a physical brand or an electronic one.

Microsoft products such as the Windows NT[TM] operating system and the Microsoft BackOffice[TM] family, a sophisticated set of software that brings information stored on legacy systems to workgroups in a flexible and useful way, allow a financial institution to combine seamlessly their existing legacy systems with various delivery alternatives, be it the branch, self-service, a mobile worker, a call center, or the Internet, into a single infrastructure that is easy and inexpensive to manage.

In working with banks, Microsoft plays three fundamental roles:

Microsoft provides the underlying, enabling technology for banking solutions. A wide range of innovative banking applications ranging from item processing to funds transfer are now available from software leaders in these areas on Microsoft technology to further this effort, Microsoft works with other software companies who develop, integrate and support Windows[R]-based programs.

It provides skills transfer and technical assistance directly to banks, through published materials, educational courseware and Microsoft Consulting Services.

It also works as a business partner with banks in the areas of home banking and online services.

TRADITIONAL DELIVERY CHANNELS

DISTRIBUTED BRANCH

Microsoft technology is helping banks to evolve their branch networks into sales outlets that better reflect the revenue and cost objectives of banking in the 1990s.

As banks shift into their next-generation branch strategies, they have two at times conflicting goals. One goal is to reduce costs by delivering more products and services remotely, thereby reducing the reliance on expensive branches and tellers. At the same time, banks recognize the value of community presence, face-to-face relationships, state-of-the art sales tools and rich information in selling more sophisticated and profitable investment, insurance and complex credit products.

To create new sales tools, banks have to make a substantial investment in new technology that is flexible enough and powerful enough to put the right information in the hands of the sales person when he or she needs it.

While client/server technology in and of itself does not reduce costs, by using Windows NT and Microsoft BackOffice, institutions can deliver these new solutions in a very manageable, secure and cost-effective manner. That's because the products, while providing a foundation for advanced applications across the bark's network, car be managed easily by a few people in a central site. Minimizing the requirement for your IT organization to maintain skill sets and staff dedicated to the myriad of technologies associated with multiple operating systems has obvious bottom-line benefits to the bank.

Two of the BackOffice suite of products help banks to manage the branch more cost-effectively. Microsoft's SNA Server provides a powerful and easy to set-up and administer gateway to IBM[R] mainframe systems, allowing banks to unlock the data stored in legacy systems and empower their users with this information. The Systems Management Server allows the bank to manage thousands of desktop computers, to keep an inventory of the hardware and software on the network, to distribute software electronically and to remotely control machines running Windows NT or Windows 95 operating systems. Imagine the productivity gains and costs savings if your technical support staff did not have to personally visit the desk-top of a user who is having a PC problem.

The other products in the BackOffice suite supply the foundation for next-generation applications for branch and product profitability, advanced management reporting and advanced cross-selling programs. They fundamentally recognize, however, the need for centralized management, security and superior price/performance.

Microsoft SQL Server[TM] is a relational database product that enables applications that can be used by sales and marketing people to gather information about customers and their habits, or as a basis for decision-support software used by upper management.

Today, electronic mail is not widely used in branches because existing low-speed telecommunications lines that must be kept open for teller transactions would likely be overburdened. With the tremendous advances in telecommunications technologies and decrease in costs, it is likely to be used more frequently in the future as a way to share information about potential or existing customers, or to create and route forms and applications electronically Microsoft Mail Server, an advanced messaging system, and Microsoft Exchange Server, the client/server version of the system, can provide the underpinning for these applications.

SELF-SERVICE

The technology underlying self-service devices, particularly automated teller machines, is at a crossroads.

ATM technology must meet very stringent technical requirements in terms of security, guaranteed uptime, unattended mode management and strong auditing capabilities. These requirements have driven the development of a set of proprietary "black box" devices. This has significantly limited the ability to add new functionality dynamically to these devices. This is evident by the fact that most ATMs today share the same non-graphical user interface as the PCs that bank customers had in their homes five years ago.

While Windows has always been a powerful platform for rapid development of new functionality, it has rot met the specific requirements dictated by self-service. But today these capabilities are available from Windows NT. Using Windows NT across delivery channels helps reduce costs, by eliminating the need for a dedicated maintenance staff to support ATM equipment; it helps the bank to deliver products and information seamlessly; and it helps the bank create awareness of its digital brand--an image that is recognizable no matter where or how the customer contacts the bank.

Newer self-service devices, such as the kiosks where cash is not dispensed but where customers may apply for a loan or talk to a financial planner by video, have already adopted Windows technology Bankers are setting up kiosks using personal computers rather than proprietary hardware because it is cheaper and more flexible. And they are using Windows because of the wide availability of general tools from the thousands of companies that are developing for the Windows environment.

ALTERNATE DELIVERY CHANNELS

CALL CENTER

The evolution of computer and telephony technology is enabling dramatic improvements in productivity and in the quality of sales aids that can be delivered to the customer service representative in the call center just as information processing shifted from dumb computer terminals to personal computers in the 1980s, telecommunications is today shifting away from dumb telephones to personal computers in the 1990s. The PC is becoming the principal communications device on a network.

Another transformation is taking place in the centralized devices, called PBXs, that control the telephone networks. Historically based on proprietary hardware and software, PBXs are now being built on industry standards. For the first time, data stored inside the systems can be made available to the computing environment. Finally, an enormous amount of innovation is taking place which bridges computing and telephony, known as Computer Telephony Integration, or CTI.

In this environment, Microsoft again wears several hats:

Windows and Windows-based tools for the call center are proliferating, as it becomes apparent that sales and service applications created for the branch also are appropriate for the call center

At a more technical level, Microsoft has developed a specification that makes it possible for banks to make available a range of telephony capabilities from hundreds of companies to call center applications that were developed specifically for a retail banking environment. The Windows Telephony Applications Programming Interface (TAPI) bridges the gap between the telephone and the computer by helping the PC to "understand" how telephone networks work and lets programmers exploit network capabilities in normal Windows-based applications.

As a customer calls with a question about an account, the system can alert the call center representative to the customer's high CD balance, so the representative can refer the customer to the mutual fund sales area, for example.

The bank can also now store behavioral data about its customers. In the past, much of the key data on the characteristics of a telephone session would be locked away in an inaccessible hardware device. Today, that information is available to service representatives and management. Banks can find out how often a customer calls, at what time, and what kind of questions they ask. That data can help in new product development and direct-marketing campaigns.

HOME BANKING

Microsoft recognizes that banks want options and a flexible approach in terms of delivering information, facilitating transactions and selling new products and services directly to the customer at home. Today, Microsoft offers powerful Windows-based client development tools that allow banks and solution providers to develop and implement customized home banking applications. Windows NT Server and Microsoft BackOffice can also be used to develop a generic gateway through which transactions and information from multiple home devices can flow. As an extension to this traditional approach, we have significant technology and business offerings in three areas to address this demand. They include:

1. PC Client, Server and Development Tools for the Internet 2. MSN[TM] The Microsoft Network: an online service that offers an easy and affordable way to access the Internet 3. Microsoft Money: a leading personal financial management application with robust online banking capabilities.

INTERNET

The use of the Internet as a vehicle for commerce has emerged over the past two years, with profound implications for financial institutions'

A number of banks and their non-bank rivals have embraced the Internet, seeing it as a way to sell products to a vast new audience, or more modestly, as a way to inexpensively market their services. Other banks view the Internet as a threat--one that heightens the competition dramatically as every person's home becomes a potential bank branch.

Bankers can use Microsoft solutions to create compelling Internet sites to reach existing and potential customers, and to facilitate transaction processing over the Internet.

Microsoft's goal is to be a leader in providing best-of-breed technology and technical services to banks, whatever their goals on the Internet. If an institution wants an aggressive Internet presence, Microsoft can provide the security, development tools, server technology and consulting services so the bank can do what it wants in an engaging yet safe and effective way. If a bank wants to further leverage their work on the Internet by establishing a presence with an online partner, it can become part of the Microsoft Network, an extension to the Internet with a set of improved services that allow customers to reach the bank online more easily.

Microsoft provides an array of enabling technologies for those institutions that want to establish a site directly on the Internet. Among these are an Internet server product available in the fourth quarter of 1995, code-named "Gibraltar," a scalable, secure solution for publishing information on the World Wide Web; The Microsoft Internet Explorer, used for browsing the Internet; and a multimedia authoring tool, code named "Blackbird," which enables a bank to create and deliver services and information on the Internet, with full control over extending the bank's brand online. Using Blackbird, a bank can create graphically rich, interactive applications that include features like three-dimensional graphs in full color. Blackbird also can incorporate software components developed with other tools, as it fully supports Microsoft's OLE technology.

Since security is a primary concern in conducting financial transactions across the Internet, Microsoft has helped create security protocols to address this concern and serve as the underlying infrastructure for electronic commerce. These protocols, which will be part of Microsoft Web-related products, are designed to work within the banking system and support the existing relationships banks have with their customers.

THE MICROSOFT NETWORK

Personal computer users have been relatively wary of commercial online services. When they explore the Internet, they frequently find it to be a bewildering place. What computer users have asked for is compelling content and superb navigation tools that make information easy to find online. They want a service that erases the barriers between traditional online content and the Internet, and that erases the barriers between the desktop and the online world beyond.

To meet these needs, Microsoft created MSN, The Microsoft Network online service. MSN removes the primary barriers to online service use, which have included high price, difficult user interface and hard-to-use Internet access. The Microsoft Network makes it easy for users to get the information they want, regardless of whether it can be found on MSN or the Internet. And the unique integration of content from Microsoft, independent content providers and the Internet provides a compelling environment for the broadest range of PC users.

Banks that link their World Wide Web sites into MSN gain access to a new group of potential customers. Users can find the bank's online presence quickly and easily, rather than "surfing around" the Internet, trying to locate the bank. While other online services limit the way content providers can present their information and services to users, Microsoft provides tools to make it easier for companies to reach their potential markets, with full control over the bank brand as well as the user experience the bank delivers online.

MICROSOFT MONEY

Since the early 1980s, many large banks have offered consumers PC based home banking services. These offerings have lacked wide appeal for a number of reasons. The penetration of PCs into the home was relatively low up until the last two to three years. Many of the original offerings provided narrow functionality and did little to help the consumer manage their finances. Often, a difficult to use, non-graphical interface was employed. The value proposition of these offerings was not well understood by consumers.

While managing finances across a myriad of existing relationships has consistently been rated one of the primary motivations for consumer PC purchases, the percentage of PC owners that diligently use personal finance software has hovered below 30 percent. This has been due chiefly to the intensive data entry requirements placed upon the user by this software, as well as limitations in terms of ease-of-use.

To address both sets of issues, Microsoft and leading financial institutions began working together two years ago to enhance Microsoft Money, a leading personal finance management program, into a valuable home banking delivery tool.

This marriage of personal finance software with banking functionality has proven so successful with consumers that it prompted 19 of the leading U.S. financial institutions to launch home banking services this fall based on Money for Windows 95.These 19 institutions service approximately 15 percent of the U.S. population.

Through a bank-branded interface in Money, institutions are delivering consumer services such as electronic bill payment, electronic mail, statement retrieval, account balances and funds transfers. The bank-branded offerings are priced, delivered and supported by the institutions.

The banks who are building these services based on Money receive a number of benefits, including:

Ease of Use and Acceptance by Bank's Customers: By using Money as the base application for both online banking and personal financial management, banks do not have to build sophisticated client software to meet the needs of demanding consumers. While developing Money Microsoft spent thousands of hours observing how people accomplished financial tasks with and without a computer the results of this research are built into Money to deliver consumers a valuable tool to manage their household finances.

Additional Distribution Channels: Beyond the banks own distribution channels, Microsoft distributes Money through thousands of retail outlets and has agreements with major PC manufacturers to have the product bundled with millions of PCs sold to consumers. This added distribution benefits banks by acting as a large sales channel. Reduced Product Support: Supporting customers' PC problems can be very costly. Microsoft provides full product support to consumers who use Money. This enables the barks to focus on delivering quality customer support for the services, without having to staff up to provide PC support for consumers.

During this process, Microsoft has spent considerable time and effort listening to banks and trying to understand how we can make this delivery partnership even more appealing and successful. Most urgent among this feedback was ways for banks to incorporate more branding and enable interactive marketing of new products and services.

Today, Microsoft Money allows each bank to create its own branded area within the Money product. Whenever a customer is working with online banking functionality, their bank brand is present. E-mail communications links are also included, so that a customer may receive or send messages.

Microsoft recognizes that there are a proliferation of proprietary home banking applications developed in-house by financial institutions or by solution providers. There are also institutions who would like to deliver a completely branded capability direct to their consumers' PCs. To address these requirements, the next version of Microsoft Money will allow a consumer to seamlessly import specific bank information through an open standard.

For those institutions who would like to continue to use Microsoft Money as a delivery vehicle for core services but would also like to market new products and services, Microsoft will enable hot linking from the bank's branded area in Microsoft Money directly to the bank's Internet site. These banks can also link their sites to MSN as a means for driving higher usage. Doing so will open up incremental online advertising opportunities as well.

Once a consumer has evaluated information from a financial institution and is interested in moving forward on purchasing a product or service, a customized electronic application form developed by the financial institution can be made accessible to the consumer through the Universal InBox feature of Windows 95. This form can be filled out, secured and sent back to the bank for processing.

Because an electronic mail client that incorporates these capabilities is included with Windows 95, an infrastructure is already in place. By using the Microsoft Exchange Server for Windows NT (an integral part of the Microsoft BackOffice) to process these requests, the bank can track and respond to the customer very efficiently while incorporating this new source of "leads" into existing business processes and existing systems.

Microsoft is committed to helping banks use Money to forge deep, rich relationships with their customers while reducing the costs associated with traditional delivery channels. Future versions of Microsoft Money will expand the online services that a bank can provide and will enable alternative processing options.

CONCLUSIONS

Microsoft is committed to working with banks as a technology supplier and partner to help them forge closer relationships with their customers, irrespective of the delivery channel. Our strategy is based on one single software architecture, which addresses specific IT requirements today and is well positioned to help banks extend themselves over the information superhighway going forward.

This strategy would be incomplete without Microsoft Solution Providers. Microsoft is constantly working with companies who develop, integrate and support Windows-based systems, and the companies that are building Windows-based banking software in retail delivery include many of the most popular providers. Microsoft also provides these Solution Providers with information, technology, products and tools to help create successful applications based on Microsoft technology.

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