The banking industry is increasing its spending on operations and technology by 5.2% in 1996, outpacing the general inflation rate for the fourth straight year.

But when it comes to understanding banks and technology, averages don't tell the story.

While it may be interesting, even meaningful, to know that the industry expects to lay out $18.3 billion on systems and information technology, individual spending patterns diverge widely, the 1996 American Banker technology survey indicated.

Four out of five banks reported higher technology budgets this year versus last year, according to the survey conducted by Payment Systems Inc. of Tampa.

At those budget-boosting banks, spending targets rose an average 20%, unadjusted for mergers.

At the same time, capital allocations for technology-related equipment fell at 9% of the largest 100 banking companies, the survey said.

The results indicate clearly that banks are not moving in lockstep. Through streamlining operations, some have cut spending. Many more are increasing investments in newer technologies, notably client/server systems and so-called data warehouses, which draw customer information from many sources and systems to aid marketing efforts.

The American Banker/PSI survey, conducted in June and July, found that in 1996 commercial banks launched hardware, software, and networking projects that will cost $10 billion over the next several years. Two-thirds of banks estimated technology costs would rise 12% next year.

"Many larger to midsize regional banks are in the midst of a technology transition from customized legacy systems to a combination of plain-vanilla core systems and client/server" technology, said Paul Allen, chairman of Aston Associates, a bank investment and consulting firm. "The level of spending to make that transition is extremely high."

Banc One Corp. is in such a transition. Once a confederation of 67 relatively autonomous banks, the Columbus, Ohio-based holding company is reducing its number of bank charters, consolidating processing facilities, and moving toward standardization. By creating national lines of business, as opposed to being organized geographically, Banc One hopes to be more nimble in bringing products to market.

"Other people have done the same things that we are doing, but we are compacting so much into an 18-month period," said Dale Terrell, president of the Information Services Co. unit of Banc One Services Corp. in Columbus. "The pace and the interdependency complexity is significant."

So is the budget. Mr. Terrell said Banc One Services' spending - representing the lion's share of the bank's systems dollars - will rise about 15% this year.

Among the faster-growing budget lines are telecommunications and local- and wide-area networks (see related article on Page 14A). Those initiatives are enabling Banc One to deploy common systems throughout the 12 states where it operates.

Also significant is Banc One's continuing investment in retail banking software. By the end of next year, all deposit accounts will be processed by the Strategic Banking System, culminating a long-term effort with Electronic Data Systems Corp. on a sophisticated core banking system. The bank has already installed the system's customer information file.

Spending big on systems is not unusual for Banc One, which through the early 1990s was regarded as one of the most technologically advanced and adventurous banks. Its reputation as a technology leader subsequently suffered, though recently it has attracted notice for home banking and Internet developments - a sign of how rapidly the bank technology landscape can change.

"I don't believe anything is different today than it was five or 10 years ago relative to our currency, or whether we're an early adopter of technology," said Mr. Terrell. "The difference is that back then, there was a focus in selected areas. We were recognized as being on the leading edge and groundbreaking relative to ATMs.

"Today, there are fewer opportunities for that. The spectrum is pretty well covered," he said.

But one area where Banc One hopes to excel is in using information technology to market profitable products to promising customers.

"We are housing and maintaining more data elements on the customer than we could ever do before," said Mr. Terrell. "We've done a lot to understand our customers, their preferences, and their patterns. That will allow us to better match up the right product with the right customer."

Banc One is not alone in data warehousing and other such development initiatives. The American Banker survey indicated 20% of retail technology dollars went for projects like data warehouses, groupware, and imaging. There was almost no difference between big and small banks at that rate of spending.

While half of all respondents said they increased their capital spending on technology, another 28% held the line and the remaining 22% reduced capital investments.

Still, 88% of the 91 respondents expect their technology budgets to grow an average 12% until the year 2000. Just 11% felt technology spending could remain flat over that time.

The biggest banks were most likely to foresee spending growth. The survey indicated 95% of the 100 largest banking organizations are anticipating higher spending levels at the turn of the century; the same was true of 81% of community banks - those with $100 million to $500 million of assets.

Some 15% of the small banks said they could keep a lid on budget increases.

Donald R. Mengedoth, chief executive of Community First Bankshares in Fargo, N.D., expects double-digit growth in technology spending at least through next year.

"We've experienced significant growth through acquisition that has involved some further investment both for organization support resources as well as hardware in our central systems," he said.

In the past year, $2.3 billion-asset Community First has introduced telephone banking, linked operations in seven states with a wide area network, and begun to purchase personal computers powered with Pentium chips. Other budgeted items include a new marketing customer information file and upgrades for corporate cash management services.

The investments are aimed at producing both efficiencies and new revenue sources. But while spending on infrastructure and systems is expected to pay dividends for years to come, Mr. Mengedoth sees a need to boost spending on technology training and marketing.

The survey reflects a persistent strain of optimism about the ability to manage and benefit from technology. As in previous studies, bankers said they expect the growth rate of technology spending to decline in the future, although it is accelerating now.

Banks that increased spending an average 20% this year, for example, anticipate just a 12% rate through 2000, presumably because they have finished critical projects and can take a breather.

The survey provided no assurance that it will work that way. The popularity of telephone banking, for example, has contributed to explosive growth in telecommunications costs. And while bankers have embraced client/server computing as a more flexible and manageable alternative to older mainframe systems, only 12% of the 100 largest banks have succeeded at displacing mainframes.

Rodney D. Chard, senior vice president of operations at Whitney Holding Corp. in New Orleans, conceded the point. But he insisted that concentrated spending now doesn't preclude reductions down the line.

"Does that establish a new appetite for spending on technology? In our case, I don't believe it will," he said. "It's certainly not what we have been talking about. We are talking about getting it right and doing it quickly."

Whitney recently moved its operations to a new $9 million data center, the source of a "double-digit investment" this year, Mr. Chard said. "Going forward, partly this year and wrapping up next year, is another, similar big-ticket investment in our branch automation program."

The current retail platform system, installed in 1988, uses technology introduced in the early 1980s. The new investments, said Mr. Chard, will pay for themselves through improved efficiency and productivity.

Mr. Allen, the Aston consultant, said a key measure of banks' progress is how much they are spending in areas other than mainframe maintenance. Some banks, he said, have already simplified the legacy systems' computer code, making it easier to assimilate acquisitions or mine information for marketing purposes. But many regional and superregional banks are still in that transition phase, he said.

For Banc One, the key technology elements are in the works. Mr. Terrell said he expects spending increases to level off in two years.

"There will definitely be what I would call a coming back to normalization in the 1998 time frame," he said. "We don't know yet whether that means we will see it declining."

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