It comes as no surprise that Regis McKenna, a noted Silicon Valley business strategist, urges the banking industry to invest more heavily in technology.

But Mr. McKenna, who is first and foremost a marketing consultant, takes that admonition a step further: He maintains that banks could benefit from the kind of grassroots marketing that made Main Street phenomena out of companies like Starbucks and Blockbuster.

Mr. McKenna, 59, head of McKenna Group in Palo Alto, Calif., is best known for his work in the 1970s helping to put Apple Computer on the map. He designed its marketing strategy and developed the Apple logo. He has also worked with Microsoft, Intel, Compaq Computer, and others, including banks.

Mr. McKenna has written four books, most recently "Real Time: Preparing for the Age of the Never Satisfied Customer," published in 1997 by Harvard Business School Press.

In this recent interview with American Banker, Mr. McKenna took a contrarian stance on the subjects of branding and mergers and offered some cautions about merger trends and new forms of competition.


You have said that the importance of brands is diminishing. Can you explain that?

I said that choice is a higher value than brand, and price is becoming a higher value. Brand is important, but I think brand, in the past, has been an issue of naming. Just having a name no longer suffices. I believe the new brands are going to be based upon more interactive services, self-help services.

What about the current emphasis on branding in the banking industry? Is it misplaced?

We are hearing about it in all industries. It is happening because of two things. Customers have more choices, and customers are exercising their right to choose. They are saying, "I no longer have to deal with a single bank. I can go where the best service or deal is. And there is no penalty for me to change."

Yes, I think brands are misplaced. I think we are still trying to develop this customer loyalty based upon naming. Everyone has the same ability to give their name out.

Starbucks has no advertising, and yet it became a national brand. They put their locations on every street corner. They went where the people were. They made it convenient and accessible, a neighborhood presence. Blockbuster did the same thing.

And banks now have to think about that same presence in communities.

Yet banks are moving away from brick-and-mortar.

If I were going to spend $100 million on branding, I'd build my presence in the community. I don't expect anybody to pay much attention to that, because we are comfortable with the old way.

Are some banks becoming too large to manage the enormous customer bases they have amassed through mergers and acquisitions?

I always think consolidation leads to small companies. When Saatchi & Saatchi was buying up all the ad agencies, what it actually created was a lot of little boutique agencies. We have seen this happen in investment banking circles.

I suspect you are going to see a deluge of start-ups. Start-ups are going to compete against the big institutions, which are trying to be all things to all people. For the long haul, unless banks invest in technology, they are not going to be able to manage.

Are the banks doing that?

Probably some are doing it. Banks are tradition-bound organizations. They don't change easily.

I was working with a relative start-up in California, and we needed a $50 million line of credit. We got $25 million for capital equipment and $25 million for working capital from a very large computer company at a more equitable deal than that proposed by the banks. There are many, many more ways than there used to be to borrow money.

Banks have a legacy of tradition that they are still milking. The new generations are not going to be bound to that. They are going to look for the best deal and the most accessible way of doing business.

What do you think the future is for virtual banks?

I think it is very good. Look at E-Trade. There are certainly shutdowns and big complaints, buy you know what? People are not stopping using them.

Are E-Trade and its peers going to eat banks' lunches?

Those systems are only going to become more reliable. They will learn. Banks will begin to be marginalized. In other words, insurance, mortgages, car loans, (and) business-to-business banking are all specialty areas where banks are going to see increased competition.

When I was involved in Apple as a start-up, the first bank I took them to was Bank of America. That was before (Apple) had any money, and the bank turned them down. At that time venture capital was a very small amount of accumulated, aggregated dollars.

When you look at it today, that has displaced banks. And the return on those investments is what people ought to look at. Thirty percent is a low return. Banks missed that opportunity.

With whom do you do your banking?

I started doing home banking with Bank of America years ago. They haven't necessarily been the best service bank, but I got used to their software, and they have the most ATMs. I travel a lot. And getting cash easily is extremely important.

What fosters loyalty?

I would say access is what keeps you loyal. It sure has nothing to do with going into the bank, because that experience is horrible.

I do go into the bank, because I am in the venture business and you actually have to get a sign-off to deposit checks. This is a neighborhood bank three blocks from my house, and I don't know anybody and I have been doing business there for 20 years.

Banks' problems are not going to be solved by running a better ad campaign. I'm not against them running ad campaigns and getting their names in the media, but these (service) issues are not going to be addressed that way. And I think the organizations think they will be.

You mentioned in a speech that banks should give away access devices. What sorts of devices?

I'm big on that. I could imagine that banks could give out Palm Pilots for private banking customers to use. Federal Express does this-putting terminals in all of their major customers.

That is on the corporate client level. Isn't that different from the consumer relationship?

I don't think so. First of all, home businesses are growing. Surveys have shown that half of businesses start in homes. These are neighborhood activities that maybe banks ought to pay attention to.

You have said that you don't want make a value judgment on technology- that it just is what it is. But if you had to make one, what would you say?

Each new technology has the potential to provide benefits if applied correctly. Information could be used against people, but it can also be used to cure ills, develop new medications.

Technology should be used for dialogue. It's like a marriage. You get to know each other. Both of you change. Both of you learn.

If, on the other hand, it's one-way, it's not going to work. Customers are that way too. Even though they don't consciously know it, customers have within them ideas about your next service or product.

Every one of the new technologies I have worked with over the last 30 years came from ideas from customers and users.

Do you think privacy issues are holding back new technologies?

No. Security is more of a concern than privacy.

Privacy concerns the consumer's desire for confidentiality. Government and businesses often gain access to personal information-financial or health-care records, credit histories, etc.-largely for the purpose of selling products and services back to the consumer.

Security is about the integrity of the system, so that unwanted or illegal access to information is denied.

There is currently an intense debate between government agencies and private industry over data encryption technology. Financial information must be secure from unwanted access, yet financial institutions may want to use transactional information to customize services for customers.

I think many businesses deserve (the attention privacy is attracting) because they have approached information as a powerful form of manipulation.

We know there is an age of Big Brother. We live in age of access. We live in an age when the customer is much more in control. It is a harder world than we are used to. It was much easier to have a mainframe, collect all this data on your customers, and look at it. Now everything is open.

This is interesting. A great fear of institutions today is hackers. It used to be the great fear was the institution that preyed on the individual. Now we are worried about the individual preying on the corporation.

What do you think about telemarketing as a way to reach current and prospective customers?

It depends on how it is used. It really can be irritating. The problem with telemarketing is that it is all one-way. I never have received a telemarketing call saying, "You just bought something or got a new service from us. How did we do? You have been dealing with us for so long. How are we doing?"

I have never received such a call from a bank. I only recently received such a call from my brokerage firm. Once a dialogue is created, I might be much more receptive to doing business with them. They are obviously concerned about my business, interested in me.

Is there technology you use frequently that still awes you?

The Internet awes me. I'm amazed at how much information I can get without ever leaving my home. The Internet is teaching us a new way to shop. It will replace catalogs. The Internet is a sort of classroom teaching us a new way to gather information.

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