The year 1995 will always be remembered as the time when bankers awoke to the true impact of the digital age.
Like a wildfire, talk of technology has swept across the banking industry: CEOs are now tinkering in their offices with the new personal computers; banks and software companies are hammering out aggressive home banking alliances; institutions large and small are constructing Web pages on the Internet; and bank sales forces are hitting the streets with laptop computers.
As this rapid fire change begins to rattle the brick and mortar of their institutions, bankers are beginning to question how the most traditional technology investment - branch automation - fits into this brave new world.
Bankers may be asking themselves, "Why should we spend millions to upgrade our branch technology if the branch is going away?" While this is a reasonable question, the premise that branches will disappear entirely is untrue.
Whether you believe that there will be 20% fewer branches or 40% fewer by the end of the century, it cannot be denied that somewhere in the neighborhood of 50,000 branches will still be around when we ring in the new millennium.
In any case, bank branches must operate as cost effectively as possible and evolve to play an appropriate strategic role in the bank's future. These objectives cannot be met without investing in technology.
The automation installed in banks during the next five years will look significantly different than the initiatives completed in the past decade.
In fact, the word "automation" may not be a fitting description for the future. Terms like "branch information systems" and "branch communication systems" may better describe where technology will take the traditional banking office.
For those bankers currently adopting or planning to undertake branch automation initiatives, four things are likely to hold true:
Prediction No. 1: The next three to five years will be a bumpy transitional period as branch automation providers move to new technologies.
Prediction No. 2: The primary role of branch systems will evolve rapidly from automating processes to more strategic roles, such as "information gateways" and "knowledge platforms."
Prediction No. 3: Branch technology eventually will blur and conjoin with core processing technology and other nonbranch banking applications.
Prediction No. 4: Traditional vendors will need to alter dramatically their approach to the branch technology market if they are to survive.
To say that banks should proceed cautiously with current branch automation investments is an understatement. The industry is going through a painful transition as it replaces traditional DOS-based products with Windows platforms.
Unfortunately, the transition to Windows has been slower and more difficult than any banker or software developer could have imagined. The move to Windows has been tough for several key reasons.
First, programming in a true client/server environment is significantly more difficult than in traditional programming environments.
Though the benefits of client/server are increased flexibility, adaptability, and user-friendliness, the price of these benefits is paid in increasing complexity for programmers.
And second, integrating these new client/server platforms with legacy- based mainframe and mid-range systems continues to be a nightmarish task.
Though change proliferates in operating systems, networks, programming tools, and communications, branch automation providers still must try to integrate these heterogeneous environments "the old-fashioned way," through countless hours of programming, testing, and error correction.
To date, the Windows interface, running on top of the traditional DOS operating system, has been unreliable and unstable. Branch automation products developed on this platform often perform poorly because traditional Windows cannot give these programs sufficient system resources.
Microsoft Corp. chairman Bill Gates has promised that Windows 95 will "remedy the sins of the past" in the DOS/Windows world.
Though Windows 95 should increase greatly the performance and stability of these new branch automation programs, it will not solve the major issue of integrating these "front-end" systems with a multitude of back-end processing environments.
As bankers navigate through the next few years, it will be important to make sure their systems investments maximize the organization's ability to adopt new technologies.
For many banks, the current branch automation software will only act as a transitional platform that will be discarded once stronger standards have emerged with the new client/server technologies.
As everyone has heard ad nauseam, the future of banking will not be dominated by the traditional branch. Industry pundits estimate that branch transactions will decline to 30% to 45% of current industry totals by the end of the century.
New technology-based channels will give customers faster and more convenient access to information.
At the moment, branch technology's primary role is to expand from simply automating processes to being a broader "information gateway."
Future bank branches must be able to offer access to customer, product, and financial data that exist both within and outside of the banking organization. With more powerful communications and network technology, branches are wiring themselves to be active nodes on the growing financial "information highway."
However, while branches must become highly efficient information gateways, this alone cannot be their long-term role. Compared to the telephone, the PC, the television, or the laptop-equipped banker, the branch will still be a relatively cumbersome channel for information access.
In a fast-paced world of unlimited, free information, the ultimate resource for banks will be knowledge.
Branches that survive will use technology to build "knowledge platforms" that differentiate the bank from its competitors.
Knowledge platforms will not only give powerful information access but also use software to increase and complement the skills of bankers. Activities such as financial counseling, asset allocation, business plan development, investment banking, and professional networking will become more prevalent in the surviving branch environment.
The bank branch will evolve from a place where transactions are done to a place where more complex face-to-face business is conducted.
This will change not only the sophistication of the systems that will be required but also the skills required of branch employees. And it will pose a significant challenge to most banks, which do not have strong reputations for financial sophistication or knowledge at the branch level.
These high-value activities will not be desired by all customers. Though typical retail customers and retail branches should decline steadily, the upscale, commercial, small-business, professional, and real estate communities will continue to require face-to-face interactions with a banker or some other financial adviser.
As new technology continues to hit the market, the traditional distinction of branch automation will disappear.
When it started, branch automation was one of the few areas in which banks used PCs, but soon PCs will populate every desk in nearly every bank.
Currently, branch automation is one of the few client/server applications being introduced. However, by the turn of the century, many bank applications will be running in this environment. As the mainframe evolves into an "enterprise server" and the IBM AS/400 essentially moves to a Unix platform, the traditional structure of "front-end" branch automation programs interfaced with "back-end" legacy systems will wither away.
Small banks will be the first to realize that moving their entire core systems to a client/server-based product virtually eliminates the need for a stand-alone branch automation product.
With a client/server-based core banking system, the interface is graphical, integrating information is simplified, and process flexibility is the standard. These are all the once unique benefits of traditional branch automation systems.
In addition, we predict that the distinctions among types of bank workstations will blur, initially between platform and teller stations and eventually between other areas of the bank such as customer service, loans, and investments.
Banks will be moving to adopt common interfaces across their organizations - interfaces that provide access anytime, anywhere to all the bank's information.
For providers of branch automation, a Darwinian mandate is pervasive: Evolve or die!
This evolution will require vendors not only to move their current products to client/server architectures but also to question their products' design and conceptualization.
Traditionally, branch automation products have been static programs. They allowed some degree of user customization but were limited by the functionality and interface capabilities that were "hard coded" into the system.
In today's banking environment, however, nothing is static or standard. Like all software providers today, branch automation vendors must develop a more adaptable and flexible product model.
Instead of selling a product that makes every attempt to code user functionality into the system, vendors must develop flexible "toolboxes" that let each bank develop its distinct functionality and interface capabilities from the bottom up.
Several vendors have begun to move their development initiatives to object-oriented design structures.
Eventually, we predict, a significant unbundling of financial applications will let banks customize workstations just as PC users customize their desktop productivity environments.
This toolbox approach will be greatly eased once legacy systems have either been downsized or retooled to allow for simpler access to their information and programs.
For bank executives and technology managers, it is critical to align investments in branch automation with the bank's strategic plan and technological direction. As these important technology initiatives take root, bankers should heed the following advice:
Before making a large investment, ensure that the bank has a clear vision of its future delivery environment and where/how the branch fits into this vision.
Develop a long-term technology plan for your organization to ensure that the architectural elements of a branch automation system are consistent with the bank's systems environment.
Ensure that the products purchased have been developed with a "standards-based" architecture. Examples of "standards-based" elements include a desktop operating system and graphical user interface, such as Windows 95; a data base using accepted standards such as SQL or ODBC to act as the application engine; rapid application development tools, such as PowerBuilder, that will allow flexible customization; and a standard network operating system such as Novell, OS/2, or Windows NT.
When deploying these products during the next few years, banks should keep customization at the programming level to a minimum.
Given the likely future of branch automation, banks should be prepared to throw away their current tools for more advanced products two to four years from now. Intricate customization at the program and interface levels will only make that task more difficult. The safest bet today is to buy a proven product and run it "out of the box" as much as possible.
Understand that the major branch automation investment is not in the software itself but in the PC hardware and network resources required to interconnect branches and use these new tools effectively.
The investment in a wide area network is a good one for any bank. The most important aspect of current branch automation initiatives is that they are a crucial first step toward building an information infrastructure for the organization. The software will be upgraded, thrown away, or replaced down the road by a more flexible toolbox.
Finally, bankers must avoid the "Field of Dreams" attitude toward branch automation. If you build branch automation, customers will not necessarily come. The overall movement away from the branch is a force that will not be stemmed by any amount of technology.
Branch automation must ultimately present a carefully crafted set of tools designed to address customers' primary needs - speed, convenience, and value. Customers care very little about a bank's technology. Therefore, banks must translate their systems investments explicitly into service capabilities that make a difference in the eyes of those who vote with their feet.
