Banks are witnessing a dramatic, not incremental, change in their business.

For many years we've offered undifferentiated products and services at undifferentiated prices. Our competitors, particularly the monoline companies, have done exceptionally well with clear business lines and strategies that work.

As a result, they have been stripping the banks of their valued customers, to the point that some industry observers are concerned that banks are about to become money mortuaries - depositories of transaction accounts only and at a competitive disadvantage in offering other, more profitable products.

Nonbanks have known for a long time that different strokes work for different folks. Consequently, they have differentiated their product lines to add value to specific customer segments. Retailers recognized that long ago.

Levi's jeans, for example, don't have just one cut for all women. Each Levi's store has a display explaining which of the various cuts available would fit which woman best. This is called mass customization. American Express has learned that well and offers to its platinum card customers highly specialized programs tailored specifically to each customer's lifestyle preferences, another example of mass customization.

I believe that the winners in our business in the future will be those able to bring value to customers by recognizing that value means different things to different people.

Since the industry already has to contend with so many uncontrollable factors that affect our business, we should focus on the controllable factors, such as cost, product differentiation, and service and delivery differentiation to win the war for the customer.

Some banks, and many super community banks, have already recognized that they cannot compete on a product basis with monoline companies unless they develop a business specialty themselves and treat the business as a separate entity.

For example, one cannot dabble in indirect auto loans and compete with major players such as Olympic Financial and Oxford. In order to be an effective player in the business, one has to develop a line-of-business attitude like these two companies have. Similarly, a bank cannot be a little bit into the credit card business and expect to make any money at it. Like the credit card companies, the only way a bank can have a major impact on credit cards is by treating it as a separate business, committing the necessary investment and focused strategy.

By and large, banks have a competitive advantage in being relationship- oriented. They already have a physical distribution network in place and are in a position to rejuvenate the branch from a transaction center into a store. But they need to build on this.

Banks must develop other delivery channels to meet the needs of customers that require them. At Bank One, for example, over 70% of all electronic banking customers expressed satisfaction with the service, while only 37% of branch customers did. At First Bank System, 59% of all loans were originated through direct methods such as phone marketing. Customers require a variety of access channels, and banks need to respond to their preferences.

Banks should start measuring their production effectiveness through alternative delivery channels and learn how to build relationships at a distance.

If banks fail to pay attention to these areas - product differentiation, service superiority, mass customization, and delivery system diversification - they will indeed become money mortuaries.

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In my Jan. 31 column, I mentioned the change I perceived in First Manhattan Consulting Group's prediction of the future of the branch, and pointed out that a requiem for the branch was sung prematurely.

My friend Jim McCormick, president of First Manhattan, pointed out to me that the firm's 1993 study did not say, as I did, that 40% of bank customers use branches. Rather, it said that 44% of bank customers were "branch-oriented," while 37% were self-service oriented, and 19% were mixed-channel users.

The study also noted that 90% of customers still occasionally use branches, a percentage First Manhattan predicted would markedly decline in 1993.

Ms. Bird is chief operating officer of Roosevelt Financial Group, St. Louis.

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