Theoretically, offering financial products and services through channels other than the branch would solve a major efficiency dilemma for banks. The branch could be reserved for selling, while transaction volume moves to a lower-cost form of delivery. But a group of experts involved in a roundtable discussion in Orlando recently felt that the industry's current concentration on developing new delivery channels may be getting the cart before the horse. Indeed, these experts, who spoke before those attending Olivetti North America Inc.'s annual user conference, feel that there is a more fundamental issue involved.

Before bankers decide what new delivery channels to offer, they must get a firm grip on what their customers want. Ultimately, the success of a re-tooled banking industry depends on knowing who the customers are, what they want, and how they want it delivered.

Debating these issues were: Carl Lashua, senior vice president/project and procedure management, Marine Midland Bank; Michael Mazzariello, vice president/director of branch re-engineering, Midlantic Bank; Dr. James Moore, president, Mentis Corp.; Tom Oxendine, executive vice president/systems, Olivetti North America; and Henry Roberts, executive vice president/systems, ABN-AMRO.

USB: Before you can deliver the right products and services, you have to know who your customers are and what they want. How are banks determining that today?

Dr. Moore: I think traditionally banks have known their customers from a very product-centric orientation. They've defined them in terms of the accounts they hold and the services they acquire, and perhaps some demographic information that they might have picked up along the way. In the future, banks are going to know their customers in terms of the type of channels they use, the frequency of access, the type of transactions that they're generating--in other words, their behavior, or how they go about managing the business of their business. And that's how banks are going to segment and cross-sell the customer.

USB: How does a bank do this now?

Mr. Roberts: I think we do a very poor job, frankly. We have an awful lot of information about our customers, but we really don't know who our customers are. We have databases, such as a mortgage system, that tells their salaries, their birth dates, how much they make; and yet we don't have that anywhere else other than in the mortgage system itself. To remedy this, we are putting forth a major effort to know better who our customers are, what their needs are, and try to meet them proactively, rather than wait for them to walk into the branch.

USB: Is the ability to do this purely a technology issue?

Mr. Roberts: Yes, it's technology, but it's also organization. And it's some politics, because certain segments of the business don't want to share the information. Technology is the facilitator to make it happen.

Mr. Oxendine: For banks, the challenge is not only knowing who your customer is but also knowing about your customer and the relationship he or she may have with the bank, the customer's preferences, and what products your customer may want. And when I speak of customer, I'm moving this from a single-person customer to a household, because the problem is one of being able to understand the customer's full relationship and then adding value to that relationship.

Banks have a great deal of information--all kinds of information--but putting that information together and supplementing it with other kinds of behavioral information is something that hasn't been done. It's one of the strategies that banks are now having to implement.

Mr. Lashua: Marine Midland embarked on a central information file for all our customer and household data, going back to 1989, 1990. It has been a very arduous process to reach agreement among the various business owners to include not only their particular products but also reach agreement on standardization in terms of the type of information that we would like to keep on our customers so that we could deliver it out to the branches. I think it's important before embarking on the next generation of "branch automation equipment" that each of the banks choose to deal with the customer as a relationship, not as a product purchaser.

Mr. Roberts: There's one other issue that we wrestle with, as a bank, and that is: "What's the profitability of our customer?" We've got lots of customers and we've got lots of transactions, and some are far more profitable than others. So we are really struggling with trying to determine, rather than just using a plug number, what it really costs us to service a particular customer, and how much do we really make?

Mr. Mazzariello: Maybe the market that we are actually targeting isn't the correct market. We've got an awful lot of information in a lot of different places, and it is of critical importance to be able to put that information together with a strong campaign that will allow us to sell to targeted customers. Then we define what channels it's on.

USB: How are the demands of your customers changing?

Mr. Oxendine: In speaking to these panelists and other banks, we see them changing in a great deal of ways. The customer is very much a shopper nowadays. The loyalty to the bank isn't the same as it used to be. A lot of customers don't get their mutual funds or capital markets products at banks. Yet those are the strategic kinds of products that banks do need to offer in today's marketplace. Customers know how to analyze things, and they know how to evaluate what's best for their needs.

Mr. Mazzariello: And we've found that many of them are technically literate, and as a result, they're looking for alternative ways to deal with our bank, rather than just going to a branch. So whether it's over the phone or another kind of interactive device, they're asking us for various ways because they want to bank anytime, anywhere.

USB: How does the bank decide where to put its capital dollars to meet that broad base of needs by customers? The banking industry is facing right now decisions on how to allocate capital in an increasingly complicated technology environment.

Dr. Moore: Our research has shown that an increasing proportion of IT expenditures is being driven into external professional services. So banks are spending more with their vendor partners to create solutions. The actual decision process appears to be at an executive-committee level, a committee made up of IT executives and business-unit executives who identify which of the channels and which of the areas of investment are most strategically important for the bank. Then they allocate their capital accordingly. We see most of the investments today being focused on information management, as opposed to building the delivery channels, which are likely to be owned and operated by partners other than banks in the future.

USB: Do you think that's appropriate?

Dr. Moore: Well, it's the state of nature. Banks, I think, are becoming disenfranchised from their delivery channels as the channels become electronic, public-domain avenues through which they sell and service customers. You can see this in the ATM environment, in the PC environment that accesses through a VAN [value-added network], in the telephone environment that is provided through a telephone company. Banks are going to be in the business of managing information, and they'll partner with others who then disseminate it through channels that these other partners own and operate.

Mr. Roberts: I agree very much that partnering is the way we're going, but we're very concerned about what that partnering is going to do to our revenue. We're concerned about what Bill Gates is going to do as he continues in this business. We're concerned about the services that the VANS are beginning to put onto the business. So we are now going to have to develop service, fee-generating businesses where we're going to get the revenue. We have to get in those businesses; otherwise, all we're going to do is get the tail-end of the transaction and the financial settlement, and the major portions of the dollars are going away. So, we're really concerned about that. We're picking our vendors very selectively and very carefully.

Mr. Mazzariello: You want to partner, but you also want to differentiate yourself from your competition as well. It's very difficult to separate yourself from your competition, and that's a key issue as well that we have to deal with.

Mr. Oxendine: This subject kind of bridges onto the transformation of what the bank is becoming and how the bank is going to make money, and that's by moving from this transaction-processing model to one of being a financial services consultant. There's no way you make that transformation without having a lot of information, because that's your really valuable asset about your customer. And then you marry that with a set of tools that allow you to present a value-added offer to the customer, something that makes sense to the customer. So the real trick, to me, is managing the data warehouse.

Mr. Lashua: I agree that partnerships are a key, in particular to the commodity-transaction business. However, I feel you must be very cautious in terms of strategic partners on those things in which you can differentiate yourselves from the competition, and in particular, your service-delivery vehicles, your people-to-people kind of branch services. You need to invest dollars in product packaging, so that the bank itself doesn't become a commodity.

Mr. Roberts: I'm picking up on that same stuff. We're in a fight right now for dollars, and we've got a tremendous advantage with relationships. We need to leverage the fact that people still value and trust bankers for the most part. The information isn't just about how to sell them new products but to let them know that by dealing with us, they are dealing with somebody who cares a little bit about them and is concerned about them.

Mr. Mazzariello: And the best way to do that is to deliver a consistent message, no matter where and how the customer banks. It should be very personal to that individual.

USB: So why aren't banks doing it better? Why do so many dollars continue to flow out of the banking industry and banks' market share continues to get smaller and smaller in what have been their core businesses?

Dr. Moore: Banks don't have the technology and the capability now to do what we're talking about. We're evolving quickly toward that point. Banks have also been constrained for a very long time in the type of product and service that they're capable of offering. They've been shackled to a legacy distribution system and IT structures that they're evolving out of now in response to changing customer demand and the availability of new products and services.

I think that they are being responsive to that challenge, and we can see every indication that the top 100 banks are moving aggressively to manage effectively the information assets they have, package competitive and compelling products that create differentiation down whatever channel they choose to disseminate those products and services. We're not there yet. The question is: Will banking be able to compete with insurance companies and mutual funds and an array of new competitors who are coming at the consumer with different distribution systems, different packaging and different strategies?

Mr. Roberts: Unfortunately, there are things that we cannot do at this point. I use the term "data silos" instead of data warehouses. All of our systems have grown up. They each have their own little bit of database. If I could just start from zero and put it all in a big data warehouse, that would be great. But it would take a "gazillion" dollars and forever. We've got to begin to patch these silos together and create these logical warehouses, but, physically, there are still all these different data silos. All of the technology is there to put the information together, but the cost is astronomical.

Mr. Mazzariello: Does the technology exist? I think so. But bankers are not sure which ones are actually going to work. So what you're finding is that banks are doing a lot of proof-of-concepts and pilots, but they're really not implementing any. They're trying a lot of things to see which ones are going to help them better serve their customers, and which ones will differentiate them from the competition.

USB: It's very hard, in most cases, to make a business case for emerging technology. How do you make such a business case to that executive-committee level we talked about earlier?

Mr. Lashua: I believe that the proof-of-concepts and pilots are much more prevalent now than they were five years ago. The price performance is clearly there to allow us to start migrating toward a client-server intelligent workstation kind of environment. I think the dollars that were spent in the '80s were basically for automating manual tasks. I don't think they were strategic in nature. What I'm seeing now is, our marketing teams are working across product lines and with technology; and it's starting to come together.

I think the role of technology is to put some standard platforms out there that would allow some options that, quite frankly, the business didn't have five years ago, because of proprietary solutions. I'm optimistic. I think companies like Olivetti can help us achieve our goals by showing us the way and helping us experiment. We're in the middle of a kiosk experiment at Marine Midland to try to market our educational loan products and our investment-services products. If you're not already doing some experimentation, it's probably time to start.

Mr. Oxendine: In all of the evaluations that we've been part of for at least one year, maybe longer, the evaluations are no longer branch-automation-only evaluations. They're very much retail-delivery-channel evaluations. The questions being asked are centered around how the supplier's products and strategies apply to the entire problem of retail delivery. There are several experimental programs that began as part of these evaluations. But as to why isn't all this being implemented, it's because it's very much a large-cost problem. There are a whole lot of dollars needed for investment in technologies to solve the entire problem we're talking about. These things need to be prioritized.

Mr. Mazzariello: Once you figure out what that technology is, you still have to deal with the issues of integrating that technology with other technologies in the bank that typically are older technologies. Integration is a key ingredient as well.

USB: Where do you see the money going now, the capital expenditures? What areas are banks concentrating on?

Dr. Moore: Our research shows the greatest growth rate in retail delivery systems, unquestionably. In some of those channels, the money has moved from hardware-specific investments on to the software, and I think is evolving very quickly into the network integration expenditures area. Also, I think as time goes on fewer dollars will be spent on channel development; more of the dollars will be spent on crafting data warehouses, integrating channels, developing network management support, evolving the information infrastructure that a bank has for managing the data about a customer and less on the distribution of it. That distribution process will increasingly be picked up and provided by non-bank channel owners.

Mr. Roberts: I agree that we are spending more and more of our money, time and effort on the retail delivery systems, and that's an area of continuing emphasis for us. But our real purpose, frankly, is to be profitable. Consequently, I know my CEO will listen to any pitch I make, and he'll be very compassionate and understanding, but when I get finished he's going to say, "How much will I make this year if I do this, or next year, or in five years?" We have moved over the last few years from a strictly ROI-based environment to understanding that there are certain strategic decisions that we must make. And we set priorities based on what dollars we can put into the strategic pool, even though I can't make a business case for it.

Mr. Mazzariello: We can look at some of the alternative delivery channels that our customers are beginning to use, such as call centers. That's an example of where, if we do it right, we can develop a sales system on a workstation that we can roll out to several hundred back-office call center sales employees. By moving to a standard, open architecture, we would be able to deploy that throughout our branches and replace some of the proprietary systems we have out there today. I don't think we would necessarily want to replace all our branch systems tomorrow, but there's enough change going on that we can target the deployment of new technology and get some buy-in at the top.

Mr. Oxendine: The real question that we're speaking of is one that deals with the application software. What we're hearing is that our customers want to develop applications they can use across all the delivery channels. The customer has a certain profile; there's a certain household inset of information about this customer. What we're being asked to do is develop our products, applications and components so that they can be used in the branch, the call center, or they can be put on portable lap-tops that can be taken to the customer's office or home or wherever. Banks want to take applications and reuse them across delivery channels because it's the same kind of decision process that needs to be made behind the data.

USB: How does industry consolidation fit into this picture? How do you go to your CEO and make a case for investing in these technologies in light of the fact that he or she may be considering selling the bank tomorrow? Will consolidation slow development?

Dr. Moore: I think it will accelerate development. I also think it will change the nature of how technology is managed in this industry. Banks will have to reach outside themselves to the vendor-partners that have heretofore provided them with hardware and software and now have to provide them with a rich array of professional services to drive their strategic initiatives forward.

USB: Some of you on the panel have been pretty directly affected by the whole consolidation movement. Did it cause any blips in your IT program?

Mr. Roberts: ABN-AMRO has been very active in acquisitions. We've grown by acquisition from some $2 billion in the late 1980s to about $30 billion, and mostly with smaller acquisitions. The issue for us is to try and get control of the infrastructure, get control of the standards, make sure that we don't inhibit the growth of the bank. We're in a world now where rapid application development is becoming much more formidable. New products in the banking industry are the way we're going to make money, and we've got to get these new products out in a hurry. We need extremely flexible tools.

USB: Interconnectivity of applications is essential to this kind of flexibility, isn't it?

Mr. Mazzariello: As I see it, any decision that we make centers on trying to remain as open as possible--specifically on the hardware platform--because when a merger or an acquisition takes place, hopefully that equipment can be reused. But as far as applications are concerned, you want to make sure again that the platform is open enough so that you can switch applications.

Mr. Oxendine: I can vouch that we haven't sold many proprietary systems in the last couple of years.

USB: What are banks most concerned with being able to do today?

Mr. Oxendine: One of the key things that we're being asked to do is to help manage the information that's available. There's very much an initiative toward information management and data warehousing and these kinds of things, and we are being asked to help put the "silos" together. Banks want to extend the relationship with the customer using tools that make the applications easy to modify, so that new products can get to market quickly.

USB: What do you need most from your vendor?

Mr. Lashua: First, you need a strategy for the bank, and you need a partner that can help you develop that. These silos are primarily results of the culture within an organization. If that doesn't change, replacing your legacy systems with new client-server systems that are nothing but new legacy systems that might do it a little fancier at the front end but inherently have the same problems won't help. There's no silver bullet. You need to have strong systems and network management capabilities in place, or contract out that function if you're not prepared to deal with that. The whole issue of data warehousing needs to be resolved before you start deploying new client-server systems that just create more data.

Mr. Roberts: I constantly tell vendors that I don't want to be sold a product. I want a vendor to come in and understand my business needs, and help me come up with solutions.

Mr. Mazzariello: The vendor can't lose focus of the fact that the most important thing to us is our ability to provide extraordinary customer service.

USB: What do each of you see as the most important issues going forward?

Dr. Moore: If I had to summarize the keystones for success in the future, it would be to develop good data-warehousing capabilities so that the application data--the credits and the debits--could be reorganized into relationships and form the basis of the information products that you're going to package and send down these many delivery channels that are evolving. We need to integrate those channels so that we can collect data up from them and source data down through them, depending on what customer is accessing what channel at what point in time. The software has to be in the midrange of that architecture so it can be distributed down those channels dynamically. Therefore, we need enhanced network and software management capabilities to remotely control the endpoint of the channel where the customer interfaces. All of this going to be driven by a well-articulated set of business objectives and business strategies that create a blueprint for the technology architectures.

Mr. Roberts: The branch is going to be here for a while. So our strategy is to deploy the limited dollars that we do have to the most important areas. We believe our customers need to be able to come to us any time of the day or night, with a phone or screen-phone, a PC, a kiosk, whatever they want. But we're not going to invest many dollars in some of those technologies. We're going to let somebody else provide them, because we don't think they're all going to be big hitters for us. Some will, though. The challenge is leveraging the limited dollars to the biggest impact places.

Mr. Mazzariello: Not only are the branches not going away, the mainframe computer is not going away either. What we need to do is take that information that is in all of those silos, if you will, and gather it together to provide a set of products or services for our customers. And we should use the new technologies as nothing more than a vehicle to get that information to the customers. Don't buy technology for the sake of buying technology, but buy technology only when you need it to provide solutions to your customers.

Mr. Oxendine: We're a very lucky vendor, Olivetti, because we do have a strong set of customers who share with us their visions and strategies and their needs for technology and for professional services. We begin with Mosaic OA, our offering to the banking industry, and we listen, modify and mold those technologies so they'll solve the problems that we're discussing here.

Mr. Lashua: Try to focus on the vital few technologies in your organization. You can't take it all on at once. Try to build on your company's strengths. We have lots of data and lots of good people out in our branches. If you can leverage those two things, you can make people more productive. Our branch systems can evolve much more to a sales culture, while we find the most cost-effective delivery channel for our transaction business. We can move our branches from being a transaction point of customer contact to a value-added product/service point of customer contact.

This roundtable discussion was sponsored by Olivetti North America. For information on Olivetti products and services, contact: Leonard Selvaggio, Olivetti North America 22425 East Appleway Avenue, Liberty Lake, WA 99019-9534 Phone: (509) 927-5815 Fax: (509) 927-5774 email: Web site:

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