ATLANTA - Old-style banking clashed with the emerging culture of cyberspace here last week, and banking took most of the battering.

The occasion was the annual retail delivery systems conference. It has grown into one of the industry's biggest and most influential conventions - and a microcosm of what electronic banking advocates have long been predicting but what many senior executives only recently began to wake up to.

The conference, sponsored by the Bank Administration Institute, attracted a record crowd of 6,000 and was so dominated by technology and technologists that it seemed more like one of the festive and chaotic computer industry gatherings such as Comdex or Internet World.

In common with Comdex, even the fabled chairman of Microsoft Corp., William H. Gates 3d, was there. His speech last Tuesday morning was the talk of the electronic banking business for weeks in anticipation, and he stole the show.

His multimedia presentation on Microsoft and its desire to be a partner of banks on the information highway also seemed to disarm some of the banker-critics who refused to forget a July 1994 magazine article in which Mr. Gates used the word "dinosaurs" in describing their industry.

Mr. Gates said he was actually referring to banks' systems, not bankers themselves.

He lightheartedly said his dinosaur quote "must have been one of the most famous of all time ... People who love dinosaurs didn't like it."


Twenty-four hours before Mr. Gates appeared, Hugh L. McColl Jr., chairman of NationsBank Corp., gave a keynote speech that at a conventional banking conference might have gotten the attention Mr. Gates' did. Yet Mr. McColl, no shrinking violet on any stage, was forced to acknowledge that "I may be playing second fiddle here.

"There's this other fellow whose picture is on the opposite page of the program," Mr. McColl continued. "It's a familiar face, because it seems like I've seen him in just about every major news magazine and talk show in the last couple of weeks. Just last week he was the answer on Final Jeopardy."

Mr. McColl went on to say he has the same "great deal of respect" for Mr. Gates that he reserves for "all of my most capable competitors." The NationsBank chief conceded there may be some truth in the dinosaur analogy, "if the banking industry doesn't listen (to Mr. Gates) ... if we don't get beyond his words to the reality behind them ... if we don't heed his words and wake up."


Mr. McColl warned that bank executives in their 50s and 60s who are unfamiliar with computers may be ill-prepared for the changes ahead.

"As many as 95% of all homes could be banking in cyberspace within 15 years," he said, adding that he is besieged by technology purveyors who "all profess to have the answer (and) swear they don't intend to become banks.

"But they won't have to," Mr. McColl said. "With control of the medium, they ultimately get the chance to own our customer relationships. And you don't have to be a futurist to guess what role banks will play in that vision of the future."

He closed by saying, "When you see Mr. Gates tomorrow, thank him for the wake-up call."


Also taking second-billing to Mr. Gates, no doubt reluctantly, was Scott Cook, chairman and chief executive of Intuit Inc., maker of the popular Quicken software.

While Mr. Gates had historically kept his distance from bankers and never spoken before at a major conference, Mr. Cook was more open and accessible. In words reminiscent of Mr. Gates' about Microsoft, Mr. Cook pledged that Intuit will "be the best electronic channel for financial institutions."

Again like Mr. Gates, Mr. Cook used video and on-line media to spice up his presentation. It included several testimonials from partner banks.

Mr. Cook, Mr. Gates, and other speakers from the computer world were blatantly self-promotional - another sign of a changing industry. Such hucksterism is the norm at Comdex and other high-tech shows, in stark contrast to the gentility and statesmanship that used to prevail at banking industry events.

At the end of Mr. Cook's talk, one banker was overheard saying, "Nice commercial, Scott."


The people behind Security First Network Bank were out in force, promoting themselves - the firm is billed as the first bank on the Internet - and the notion of collaboration on some technical standards.

James S. "Chip" Mahan and Michael McChesney, his brother-in-law and business partner, gave an overview of their totally "virtual" bank for personal computers. Mr. Mahan is chairman of Cardinal Bancshares, the Lexington, Ky.-based parent of Security First, and Mr. McChesney is chief executive of Five Paces Software.

Joined by a dozen vendors and associates, the pair also announced the formation of an Open Banking Consortium to promote open standards for PC- based access. The group included Microsoft, foreshadowing Mr. Gates' announcement later in the week of the company's revamped Internet strategy.


Robert B. Hedges Jr., executive vice president of Fleet Financial Group, said, "I'm less worried about Bill Gates than I am about Wall Street."

Noting that the banking industry spends more on carpeting and paint for branches than it does in supporting on-line access and home banking, Mr. Hedges criticized an investment climate that fails to reward "non-dinosaur- like behavior."

While Intuit Inc. recently reported a $50 million quarterly loss and "no one seems to be worried," he said, a bank might risk security analysts' wrath for spending $500,000 to put up an Internet Web server and home page.


Three stock analysts who spoke last Wednesday acknowledged the larger role technology must play in improving shareholder value.

Thomas Brown, a vice president at Donaldson, Lufkin & Jenrette, said technology will play an important role in the valuation of banks because it is crucial to banks' ability to tailor their services to "segments of one."

Nancy Bush of Brown Brothers Harriman & Co., said banks must clearly define the role technology plays. She urged bankers who complained about nonbank forays into traditional lines of banking to "ditch the dinosaur. Drop the fatalistic mentality."

Continuing to play on Bill Gates' famous comment, she noted the theory that dinosaurs were killed when a two-mile wide asteroid collided with the earth. If this were to occur again, she said, banks would be wiped out - but so would American Express, Charles Schwab, and even Microsoft.

James McDermott, president of Keefe, Bruyette & Woods, seconded many of Ms. Bush's sentiments and added, "All of us must think newer and bolder thoughts."

"In 1995, the strong market has been like a rising tide. It's lifted all boats," he said, warning that this may not continue into 1996.


Others on a panel with Mr. Hedges of Fleet last Monday - Edmund P. Jensen, chief executive of Visa International; Edward A. Bennett, chief executive officer of Prodigy Services Co.; and Peter Kight, chief executive officer of Checkfree Corp. - agreed that banks must invest more effectively in a higher-tech future.

"I can't understand why any bank wouldn't want to be on-line now," Mr. Bennett said. "It seems to make basic business sense."

The panel moderator, Cable News Network business anchor Lou Dobbs, reacted in mock but perhaps shared horror to the keynote address: "I'm not a banker and I'm scared to death after listening to Hugh McColl. I feel like I should be doing something and I don't know what."


"How many of you have an R&D line in your budget?" asked Alvin Sale, executive vice president of First Union National Bank, Charlotte, N.C.

No one raised their hands in response to his question during a panel discussion on "differentiating value propositions."

Mr. Sale said his company devotes more than $25 million to experimentation and research and wondered why banking, as compared with almost every other industry, spends so little.

"I encourage you to stop acting like lemmings and take more risks as an industry and as individual participants in the industry," said Jim Greene, an Andersen Consulting partner and moderator of that panel.

Stephen A. Cone, executive vice president of Keycorp, used the opportunity to rail against the limited creativity of most bankers.

"We need to stop calling ourselves banks, because it doesn't adequately reflect where we want to be," said Mr. Cone, a marketing luminary who once said that banking's last great technology advance was the introduction of electricity. He also suggested that marketers start emulating television evangelists to get their message out.

"What they do best is create excitement, create news, depict a personality," he said. "That's the three things we as an industry should do."


Trying to repeat one of its hits of the 1994 conference, the Bank Administration Institute enlisted Harvard University law professor Arthur Miller to lead a panel discussion on opportunities for revenue and earnings growth.

Mr. Miller applied the Socratic techniques that he has used on television programs about complex constitutional issues. Supreme Court justices have been known to squirm under Mr. Miller's pointed questioning.

But in Alex W. Hart, chief executive officer of Advanta Corp., Mr. Miller met his match, his interrogatory skills stymied by competitive intensity. The exchange:

Hart: The revenue opportunities are limitless.

Miller: Limitless? Would you like to name five?

Hart: Not the five we are thinking about.

Later, an audience member rose and threatened to ask for his money back because the panelists - others included Richard Hartnack, vice chairman of Union Bank in California; P. Sue Perrotty, executive vice president of Meridian Bancorp in Pennsylvania; and Roger Peirce, president of First Data Corp.'s electronic funds services division - did not provide concrete revenue-enhancing ideas.

Jonathan Palmer, the chief retail and technology officer at Barnett Banks Inc., and Joseph Stiglich, executive vice president of Wells Fargo Bank, preferred to steer the conversation toward unrealized cost-cutting opportunities.

Mr. Palmer said bankers could learn a few lessons from the retailing community and its "reinvention of the store," as described in a recent Business Week cover story. He said the best retailers are minimizing distribution costs - Wal-Mart has them down to 15% of revenue - and asked, "How many of us even know our distribution costs as a percentage of revenue?"

"There is a lot of talk about new revenue sources," Mr. Stiglich said. "It is tough to cut into the cost structure while keeping customers and improving convenience, but there is so much cost tied up in our branch systems that (these earnings opportunities) are hard to ignore."


One of the most crowded breakout sessions was on smart cards. Chairs were placed so closely together that one person complained, "I get more leg room on an airplane - and I'm talking about coach." Still, it was standing room only.

Based on the question-and-answer period, the crowd seemed most concerned about establishing brand identities on cards that might combine multiple applications such as banking, frequent flier, and store loyalty programs.

The panelists - representatives from Citicorp, National Westminster Bank's Mondex system, the Banksys program in Belgium, and AT&T Corp. - suggested that the answers will evolve over time.

"Just as cobranding partners today in the credit card world have developed ways to share branding and systems to handle the settlement, I think the systems will evolve to address these issues on smart cards," said Fredrick Honold, vice president of AT&T Smart Cards, Somerset, N.J.

Branding is the only decision that can wait, the panelists warned. A decision to make a move into smart cards cannot be put off, they said.

"The European experience shows that somebody will move into the smart card market and it might be retailers or telephone companies if bankers don't make their move now," said Armand E. Linkens, deputy general manager of Banksys.


While interest may be building in smart cards, speakers on electronic commerce indicated the Internet is already a place where bankers want to be.

In one session about "Selling on the Internet," representatives from Chemical Banking Corp., Bank of Boston Corp., and First Union Corp. described several efforts to provide comprehensive electronic services, integrate them with customer information files and other existing systems, and cooperate where appropriate with other banks.

Indicating the speed at which electronic banking has blossomed, First Union vice president Thomas Kitrick introduced himself by saying that he "runs the Internet marketing group, a job that didn't even exist a year ago."

At another session, developers of electronic cash and other new payment alternatives elaborated on the various and often confusing means of Internet security. The chief executives of Cybercash, Digicash, and First Virtual Holdings and an official from Microsoft explained how their respective programs can lead the way from home banking into the broader and more profitable realm of on-line commerce.

Having learned some hard lessons with earlier forays into home banking, bankers are exercising caution as the stakes get higher. Pointing to the breakdown in talks between the card associations over security standards, William Melton of Cybercash said that "behind the politics," the issue of who will set standards remains critical.

"I would ask you, the banking industry, to be wary of any system that would get between you and your customer," Mr. Melton said.

Ironically, each of the speakers had technical problems with their laptop computers. Lee Stein of First Virtual had to forgo using his laptop for his presentation.

Since glitches like these could seriously affect on-line payments, Mr. Stein said, "this is a good example of what should be worrying you."

This article was written by Matt Barthel, Karen Epper, Jeffrey Kutler, and Beth Piskora.

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