You know what industry players are saying will reap them the greatest rewards in banking's new age? Direct banking, and many believe it's as easy to execute as plugging in the new technology that makes it possible.

Forget it.

There's far more to direct banking than new technology and jargon like "value proposition," says Ron Braco, svp of electronic commerce at Chase Manhattan Bank and director of the $300 billion-asset institution's direct banking activities.

He's not under any illusions about retail banking's on-going transition to transactions that occur anytime, anywhere, anyplace-except, that is, in branches. Direct banking nirvana is a win-win scenario in which banks deliver basic services via alternative delivery channels, keeping branch involvement to a minimum, while customers receive those services in a 24-by-seven manner.

The difficult challenge of direct banking is learning to really understand what motivates a customer, not just looking at demographics. It's also about encouraging direct bankers to learn from and co-exist-not compete-with traditional branch bankers.

Indeed, direct banking could outright flop if banks rush into it as a solution in and of itself. The concept, while a good one, can't exist in a vacuum. Braco contends that direct bankers gain more by sticking around their traditional cohorts: "There are a lot of synergies. Distribution is something that I don't think you can separate among different entities if you want to be successful. You have to be careful that, as you unbundle those things to offer new products, you understand the relationship-that we've moved out of a physical distribution network into a virtual one. It's good to have that all in one place."

Only then can banks exploit the differences between virtual and traditional banking. Case in point: call centers-at best,they're profitable sales centers capable of pushing routine transactions away from branches into back offices; at worst, money pits. How, asks Braco, can call centers run efficiently if they're separated from the branches they're designed to relieve? "We have to have the right balance between being very efficient in the back office and the ability to be more effective in the branch network."

The same balance holds true for the Internet. It's not enough to slap up a Web site to handle simple transactions; direct banking brings greater value only by incorporating other information to personalize Web sites for the customer, ensuring easy links to deliver the right kind of product, whether marketed by Chase directly, like mortgages, or tangential products, like travel services.

Thus, all direct banking activities must be inextricably linked to data.Thinking has it, for example, that Gen-Xers use the Internet, Baby Boomers use telephones, and older people stick with branches. But Braco cautions that this isn't necessarily so. "Demographics can be very misleading. Just saying that someone is young doesn't mean that they're going to be adopters of the technology," he says. "Many banks look at demographics, but the question is, how sophisticated have they become with behavior and information? How (banks) use that information and model it is what makes the difference."

That means truly understanding behavior-a far more difficult task than simply understanding what proportion of a customer base has a certain net worth or uses PCs. "It's how (customers) make their purchases, how they borrow, how they invest, so we can facilitate ways to (help them), whether through smart cards or sophisticated software."


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