Since this Weekly Adviser column for community bankers was inaugurated, I have had requests from readers asking me to summarize my previously presented views on what constitutes state-of-the-art banking.

In a world where obsolescence regularly overtakes last year's latest technology, bankers and their bank directors wonder whether their institution is really offering state-of-the-art banking to the public.

I would answer with a resounding "yes," and that's because banking remains a "people business." Also, any technology that helps make and keep friends for the bank can be considered modern and fresh, no matter what comes out to replace it.

If bankers want to prove this principle to themselves, all they have to do is go to a convention where new bank equipment and software is being displayed.

Selling Similar Products

While vendors stand, proud as peacocks, offering the latest wares, the banker roaming the aisles knows in his heart that one vendor's version of the latest model can't be that much better than every other vendor's offering.

Sure there are differences. But basically one company's hardware and software is not going to perform much better or worse than another's.

So how do we decide what to buy? We turn to the vendor whose attitude and reputation -- both with us and others -- makes us feel that his company will go all out to provide what was promised.

It's Service that Counts

I remembered a bank in Dayton. Ohio, telling me that it bought its data processing equipment from a Milwaukee supplier rather than one right in Dayton. This was because the Milwaukee vendor knew he was at a geographical disadvantage, so he was willing to drive all night when needed to ensure that his service would be as good as or better than the local provider's.

Banking customers feel the same way.

What do they want from their bank? It is not securitization, immunization or interest rate swaps -- the new techniques developed by the so called "rocket scientists" who have infected the banking business with their brainpower and ideas.

Bankers everywhere will tell you that the typical customer wants three things:

* Bank people who know you by name and know your financial story, so you don't have to tell it over and over again to a "revolving door" of platform officers.

* A quick answer to every request. In this regard it is almost universally agreed that a quick "no" is appreciated more than a very slow "yes." An approval that comes slowly may be too late to make a deal possible.

* A bank that corrects errors on the first call to the first contact officer, so that the customer is not given a runaround.

Maybe a better way to explain state-of-the-art banking is the definition bankers at a vendor meeting gave me when I put the question to them.

Get to Know Your Customers

"State-of-the-art banking," one said, "means we know as much about the customer as that customer thinks we do." He explained that his bank once bounced a check on a customer who had overdrawn for the first time in 19 years. When he screamed that the "bank should have known I was good for this check," the bank officer hearing the complaint agreed.

So what then is the technology needed to provide the best in banking?

* Central files are necessary for the bank that wants to have enough knowledge of the customer available in the office or branch to make a quick decision.

This is the community bank's great strength: The CEO often knows his customers so well that when one comes in with a request, the banker can honestly state on shaking hands to start the interview: "The answer is |yes', now, what do you want?" To that bank chief the "central file" is stored in memory.

* State-of-the-art banking involves standardization of techniques so that a customer coming in, say, for a consumer loan, can be handled by the officer in charge of mortgage loans, if the former is not available or if the bank does not have one at that branch.

The procedures for commercial, consumer, and mortgage loans should be similar enough so that the first contact officer can get the procedure underway.

* State-of-the-art banking involves relieving the contact people of routine data handling so they can spend their time in face-to-face contact.

More Authority to the Staff

All this must, of course, be accompanied by a policy of giving the line people authority to utilize the date processing equipment to make decisions. As an analogy, think of the different ways two airlines handle passengers when a flight is cancelled.

At one, the agents must call all over for approval to provide meals, hotel rooms, and alternative flights on other lines, while at the other the first agent contacted has the authority to do the entire job.

What state-of-the-art banking means then is acceptance of the fact that bank operations are becoming more and more automated, impersonal, and combined. Yet the bank should be operating in such a manner that the bank customer doesn't know this.

Banks that have achieved this goal don't have to worry about new technology coming out every year that promises to get the bank's operations into a state approaching heaven. They are already there.

Big, Outside Competitors

I decided to ask two industry leaders whether they agreed with me.

The question I asked was: "How should a bank respond when a large bank in the region buys the competitor across the street?"

The people I asked were Don Ogilvie, executive vice president of the American Bankers Association, and Kenneth A. Guenther, executive vice president of the Independent Bankers Association of America.

From Don Ogilvie, who represents banks of all sizes, came a response that should hearten the community bank:

Beyond Economies of Scale

"Different banks and different categories of banks have varying strengths and weaknesses. Economies of scale and greater financial resources are the two that are most associated with bigger banks.

"But the community bankers who compete against large banks almost without exception say that the personalized service and closeness to the customer that is community banks' hallmark have given them a leg up on large-bank competition.

"If you have a well-run community bank and provide superior personal service, the customers will beat a path to your door."

An Opportunity

From Ken Guenther, whose constituency is mainly community banks, came even stronger corroboration of the community bank's solid place in our environment.

To the question of how to respond to the competitor across the street joining a super regional or money-center bank, Ken Guenther stated:

"View it as an opportunity. The bigger the bank, the less personal the service. It is also quite likely that its definition of a small loan differs from your definition.

"For example, in recent congressional testimony, a large regional banker indicated that $500,000 was their cutoff. There is a vast universe of good small-business loans to be made under this figure.

Room for Smaller Players

"The centralized control of some larger banks operating interstate can work to a community bank's advantage. The bigger the competitor bank, the bigger the niche for the competing community bank.

"In the community bank meetings I have attended, I have often heard the community bank prayer: |May the bank that buys the S&L across the street be a large out-of-state regional."

I feel good finding my views are similar to those of two such important banking authorities on the issue of the community bank's future in a state-of-the-art environment.

Mr. Nadler is a contributing editor of American Banker and professor of finance at the Rutgers University Graduate School of Management.

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