NationsBank ATM Glitch Underscores Merger Perils

About 800,000 NationsBank customers in Georgia lost their access to automated teller machines 10 days ago in the latest of a series of technology glitches to befall major retail banks.

Though NationsBank was able to restore service within a little more than 24 hours, its merger-related complication holds cautionary lessons for virtually all banks growing through acquisitions, according to technology experts.

"When you combine large banks, it's very difficult to test ahead of time all the possible things that can occur," said Robert Landry, an analyst with the Tower Group in Wellesley, Mass.

NationsBank Corp., which has had to manage multiple and incompatible systems at its far-flung subsidiaries, is in the midst of a complex effort to unify the infrastructure.

Its Georgia operation had recently converted Bank South Corp., an Atlanta holding company it acquired last year, to the NationsBank system. More than 400,000 Bank South customers were given new ATM cards.

Transaction attempts with those cards - and with those of all other NationsBank customers in Georgia - were denied between about noon on Friday, May 24, and mid-afternoon the next day.

Communications between the bank's computers and the Honor ATM network broke down, said NationsBank spokesman Scott Scredon.

Technology and marketing consultant Anne Moore, president of Synergistics Research Corp. in Atlanta, said such snafus cause more than short-term publicity damage: They lower confidence in all banks' customer service.

She pointed out that NationsBank's problem occurred just as it and two competitors, Atlanta-based units of First Union Corp. and Wachovia Corp., were gearing up to promote a futuristic smart card system tied in with the summer Olympics. "There's a shadow effect on other bank technology," she said.

Mr. Landry of Tower Group said banks' and consumers' growing technology dependence leaves them more vulnerable to large-scale, high-visibility problems than occurred in the era of manual processing.

"But if you look at the magnitude of these conversions - and Bank South is a fairly large bank - in general banks have done pretty well," he said.

NationsBank had another major glitch in December 1992, when a back-office breakdown caused a four-day delay in the posting of deposits and withdrawals for customers in North Carolina and South Carolina. Many customer checks bounced before NationsBank corrected the problem, which was traced to a data processing facility in Texas operated by Perot Systems Corp.

NationsBank ended that outsourcing arrangement last year, retaking control over its computer operations.

Meanwhile, other banks have had to face processing problems that brought unwanted publicity.

Most recently, First Chicago NBD Corp. incorrectly credited $925 million to 800 customer accounts in Chicago. None of this windfall appeared to have been withdrawn by customers before the bank fixed what it described last month as a programming error.

Wachovia Corp.'s automated clearing house operation broke down in February, halting direct deposits in Georgia, North Carolina, and South Carolina for three days.

Chemical Banking Corp., in February 1994, incorrectly debited a total of $15 million from 100,000 customer accounts in New York when a software error caused ATM withdrawals to be recorded twice. A month later, Chemical discovered another computer error that caused erroneous service fees to be charged to 20,000 small-business customers over an eight-month period.

"The net of all these incidents is typically that consumers do not lose money," Mr. Landry said. But banks must "strive to provide more fail-proof methods to minimize these kinds of failures."

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