Banks' recent forays into PC and Internet banking are bringing out the worst in technology investment decision-making, according to a study unveiled last week at the Bank Administration Institute's Retail Delivery Conference.

The study of seven banks found that most lacked a business case for PC or Internet banking, a clear idea of who owns the initiative, and a clear strategic vision of what they are trying to accomplish.

The study sought to isolate the components of technology investment decisions and assess how banks fared compared with best practices. It was sponsored by the BAI, Furash & Co., and Wharton Financial Institutions Center.

It gave banks high marks for generating ideas, installing approval processes, and managing projects for results and efficiency. But it found banks were not as good at more rigorous parts of the investment process, including evaluating investment decisions, allocating resources among competing projects, and measuring performance during and after projects.

With as much as 50% of noninterest expense going to technology investments, improving those techniques is seen as critical.

Technology is moving from being a "discretionary investment" to "fundamentally defining one of the future businesses of banking," Robert B. Hedges Jr., managing director of retail banking at Fleet Financial Group, had already told the conference.

The BAI study group found that banks did not fully exploit revenue opportunities in PC and Internet banking because of the way they had initially evaluated the projects.

"Most banks focused on the wrong question," said Kathleen C. McClave, president and chief executive officer of Furash & Co.

Most of the banks in the study thought revenues would be the biggest benefit, but they found it difficult to create PC or Web services that would justify big fees; the services were deemed commodities. Nor could they generate fees in a market that demands free or nearly free services.

Cost-saving opportunities also proved to be illusory. Banks were found to be unable to move customers from expensive channels to the lower-cost options, as they expected. Nor did they attract market share, which would let them spread fixed costs over a larger customer base.

In retrospect, the real value of PC and Internet banking has proven to be customer retention, Ms. McClave said. These customers tended to be more profitable and more loyal.

Unprepared for that outcome, banks "have not really exploited the economic benefits," she said.

A reliance on simple investment analyses-mostly of net present value- obscured some opportunities, said Patrick T. Harker, professor and senior fellow at Wharton's Financial Institutions Center. Such assumptions work best when outcomes are well defined, he said.

In projects, such as PC and Internet banking, in which the future is unclear, more complex tools are recommended. Banks should include in their analyses the value of intangible or soft benefits, such as customer service, Mr. Harker said.

They should anticipate the actions of their competitors and use decision trees to test the spectrum of outcomes, Mr. Harker added.

Besides better analytics, he said, banks need "a strong, well organized, politically powerful group" to make decisions and must "be willing to say no."

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