The new technology in banking is not just another set of advancements that add functionality to existing systems and models. It represents a paradigm shift that has the power to fundamentally alter the business, the organization offinancial institutions, and their profitability.

Two major technology waves have transformed banking. And the second wave is building on the first with unparalleled energy.

The initial wave of change happened with the installation of large-scale mainframe computers to process and track customer transactions. These systems demanded a centralized and distributive model for information processing. That is, items were processed in a limited number of regional data centers, and the records related to those transactions were distributed to the branches for account verification and customer support.

In that environment, banks' business was largely account driven and transaction focused. These large-scale systems were either custom built or relied on proprietary applications, and were principally related to operations rather than strategic and executive management support.

Because data were operationally based and distributed to dumb terminals in branch locations, a bank's physical proximity to the customer was a prime factor in its success, and the customer convenience inherent in well-placed branches was critical.

Expensive Retrofitting

The power of these "legacy systems" should not be underestimated. They represented a quantum leap in the way banks functioned, and offered a new range of products and services to increasingly sophisticated customers.

However, the current cost of retrofitting legacy systems to integrate information, modify existing systems to handle new products, or build better customer relationships has become unprofitable.

Often, banks have multiple legacy systems operating on different platforms that are centered on accounts rather than relationships. Simply put, these holdover systems are being asked to perform functions for which they were not designed.

We know far too well the result of this computing heritage -- the development cycle for system changes becomes increasingly longer, more costly, and more subject to failure; proprietary systems are no longer supported; software tools once supported become nearly impossible to staff.

Automated teller machines were the epitome first-wave technology. They made hundreds of thousands of locations available to everyone, seven days a week, 24 hours a day, with minimal staff costs associated with the transactions.

Clearly, the ATM is the ultimate transaction processor for use by customers. It was a pinnacle product of an industry aimed at increasing the efficiency of its transaction processing.

It symbolizes the data paradigm of first-wave technology -- customers work with a dumb terminal, ask for information from a limited and predefined menu of options designed and controlled by the data center, and complete simple transactions.

The Second Wave

Unlike the First Wave, newer technologies like client-server architecture will redefine the nature of banks' relationships with customers, the range and types of services offered, and the way in which deliver those products are delivered to customers.

Second-wave technology changes people's relationship to data, and empowers them to design queries for the information they want.

By putting more flexible computing power in the hands of the user -- whether those users are staff or customers -- the longstanding hegemony of the data center will end. New systems allow people to combine information from disparate systems to help them make decisions.

Emerging technologies provide a new platform of options for customers and staff. Well-designed and -implemented clientserver systems allow customers to do more than take their own orders, process simple transactions, or select from a predefined menu.

Empowering Customers

The personal computer allows customers to model financial options, review investments, download stock and bond information directly from on-line services, and initiate new levels of virtual relationships with the organization from any location.

The nature of the customer contact has shifted from one of processing a data transaction record to one of allowing the user to combine data in new ways and create real-time, meaningful information.

Financial institutions that best empower their customers and their staff with this technology will stabilize customer relationships based on a new information partnership.

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