Over the next few years, wholesale bankers plan on substantial investments in technology to develop new products and expand customer information files, according to a study of the top 150 bank holding companies.

The study, a survey of technology trends, issues, and investment plans in the banking industry, was conducted by Andersen Consulting, American Banker, and the Tower Group.

Results found wholesale bankers .anticipating significant investments in new products such as swaps and currency options over the next few years, a reflection of bankers' concentrating more on productivity in trading rooms.

In terms of dollar value, the survey found that 13% of banks plan on investing more than $100 million on developing new wholesale banking products or new features for existing products through 1997.

Wholesale technology spending in other areas - like improving delivery channels, managing the back office, or improving risk management capabilities - is expected to be much smaller.

Survey respondents predicted that technology investment in those areas would, on average, be less than $25 million a project.

"The difference in the numbers is that big banks are talking about putting in new trading rooms and investing significant sums in the capital markets activities," explained Patricia McGinnis, an analyst with the Wellesley, Mass.-based Tower Group.

Survey responses also identified a number of other hot technologies: on-line paperless deal tickets, digital data distribution, and RISC-based workstations.

RISC, which stands for Reduced Instruction Set Computer, is a high-speed processing technology that uses a simple set of commands and is used to trace securities quickly and more accurately, especially complex derivatives.

Significant investments are planned for on-line paperless deal tickets for traders. Fully 58% of wholesale bankers predicted this technology would grow at rates of 500% or better through 1997.

Diogo Teixeira, president of the Tower Group, said while the top banks were already in a paperless environment, there were still many banks that dealt with paper. He said the potential "risk of errors is high."

"It's cryptic dialogue," was the way Mr. Teixeira characterized trader's dealings with counterparties. "Once they have an agreement, they both have to write it out on paper. That takes time, and errors may be introduced later when put into the system."

Another technology predicted to experience dramatic growth is digital data distribution.

Most bankers said it too will grow by over 500% as more banks go from analog to digital price feeds in their trading roomS.

"Price feeds used to be distributed by video," Mr. Teixeira said. "Digital form allows trading operations to son out what they want. The technology is 10 years old, but only in the last couple of years has it been used more."

Another area where banks planned significant investments was improving their unified customer information files, a subject that typically has been an important area of investment for banks, but, for Judge W. Fowler, director of systems development with First Union Corp., Charlotte, N.C., was "the single biggest thing" in bank technology.

"I think you will see banks expanding the number of information files that are retained on customers," Mr. Fowler said. "There will be an expansion in that area so they can effectively customize products to smaller and smaller customer segments."

The survey's results indicated that approximately 22% of banks see customer information files growing at rates exceeding 500%, while 56% of the banks predicted 100% growth.

In the "not so hot" category, survey respondents cited artificial intelligence.

This finding was somewhat surprising, considering that many bank technology officers once had very high hopes for artificial intelligence applications in banking.

The study found that less than 20% of wholesale bankers predict major growth in the field, while the majority forecast only moderate, or no growth.

"These systems can't do it any better than people can," Mr. Teixeira said. "They wanted it to be a success, but haven't figured out yet how to implement it even 'though its been around for a while."

But that's not to say there is a lack of interest in expert systems among bankers.

Mr. Fowler said First Union used artificial intelligence in credit analysis.

The other technology not slated for growth was full-motion video.

Nearly 40% of bankers said that it would experience no growth, while over 40% said it would experience moderate rise in investments. The problem, said bankers, is that effective banking-specific applications have yet to be found.

Although bankers say this is the case, many banks such as Huntington and Chase, have made use of two-way and one-way motion video at automated teller machine sites to create full-service banking kiosks, which operate like remote branches.


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