Technology spending in the banking industry grew 15%, to $18.7 billion, last year, according to an annual survey conducted by Ernst & Young and the American Bankers Association.

The larger budgets funded the usual type of modern retail projects: branch redesigns, automated teller machine enhancements, and development of home banking channels.

More important, however, the study's findings indicate that bankers are thinking more about how to assemble what Ernst & Young refers to as "value networks."

"Large banks, which have become conglomerations of various services, are in the process of transforming themselves from passive transaction houses to relationship managers," said Philip Lawrence, a Boston-based partner with Ernst & Young's financial services consulting practice.

"The future belongs to financial service providers, not traditional banks."

In building new distribution networks, the study said, banks are getting better at defining the roles they want to play in the electronic marketplace.

The report noted, for example, that some banks aim to become orchestrators - those that create a network by bringing together such pieces as distribution, transaction processing, and financial management skills. Others will become suppliers of information services to the network.

Those that become orchestrators, said Mr. Lawrence, will have to decide how much to do themselves, and what to farm out to other companies.

Tapping the resources of outside companies allows banks to acquire competencies quickly so they can bring value to commoditized products and lock up customer relationships more quickly.

One of the best examples of a bank with an organized alternative delivery strategy is Huntington Bancshares, Columbus, Ohio.

The $20 billion-asset banking company is an investor, along with Wachovia Corp., Winston-Salem, N.C., and Cardinal Bancshares, Lexington, Ky., in the first Internet bank.

Huntington also co-owns - along with the Student Loan Marketing Association - a newly created company that will develop and market smart card systems.

In addition, the bank owns equity in a software company, and has a partner for the development of technology to support electronic data interchange.

"Being a supplier or information provider is not attractive. We see ourselves as a network provider," said William Randle, Huntington's director of marketing and strategic planning.

"I see the future as banks allowing others to be information providers on bank-owned networks."

Huntington and others are focusing on moving customer traffic from physical delivery environments to direct access channels.

Nevertheless, all of the banks surveyed said they plan to open new branches in the coming year - the majority of which will be redesigned or relocated facilities.

"There has been a fairly significant decline in full-service branches and an increase in specially designed facilities, such as self-service kiosks and supermarket branches," said Mr. Lawrence.

One of the nation's most branch-intensive banks, Barnett Banks Inc., Jacksonville, Fla., is embracing the idea of alternative-style branches.

It recently opened in-store branches in five Publix markets, the state's largest chain of grocery stores, and it plans to open more.

"We anticipate more delivery points, but they will be very different. There's a movement from traditional branches to smaller sites, with more technology and more of a sales orientation," said Catherine Corby, director of electronic delivery at the $42 billion-asset institution.

As the role of the branch changes, the nature of transactions handled there are becoming more complex. For example, the study found that 94% of banks surveyed plan on making the cross-selling of products - especially mutual funds and insurance - the main function of their branch offices.

Transactions in branches are expected to decline by nearly a third by 1998.

Rather than disappearing, much of the transaction traffic should be rerouted. The study predicts a 50% rise in telephone service center usage, and a 10.7% rise in ATM usage.

Banks will increasingly place ATMs in locations away from bank facilities.

In addition, the expanded functionality of ATMs should support new products and services. The report notes that nearly 75% of respondents envision the machines supporting more sophisticated transactions. Approximately 22% plan to use them to sell mutual funds and insurance.

Other growth areas include PC banking. The number of transactions via personal computer is expected to increase 600% by 1998. The majority of respondents offer or plan to offer services through PCs, and 61% are testing or planning Internet-based services.

In addition, 26% of the banks are testing or plan to test interactive television as a remote banking channel.

The emphasis on new delivery channels is not without cost. By 1998, banks expect to lay out $21.2 billion for technology and related expenses, the survey said.

"In the end, we will have a new set of entities that look like financial services companies," he said.

Ms. Tucker is a freelance writer based in Hazlet, N.J.

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