ORLANDO - The Bank Administration Institute and Boston Consulting Group, in a study released Wednesday, are urging bankers to get involved in interactive electronic services before nonbank companies lock in a permanent competitive advantage.
In a report designed as a wake-up call to senior banking executives and strategic planners, the Chicago-based education group and its management consulting partner said banks can turn their customer relationships and trust to their advantage as they begin to explore business opportunities on the Internet and other on-line computer networks.
But the study warns that if banks spend too much more time "on the periphery of information superhighway changes ... new competitors can enter and take market share away from the banking industry.
"Banks must respond now," said the 58-page report, The Information Superhighway and Retail Banking," the first of two volumes from a yearlong research project that the institute and Boston Consulting Group launched last fall.
The report, aimed at high-level executives who may not be familiar with the intricacies of interactive information services, alerts them to such advanced concepts as digital convergence, broadband communications, and the distinctions between service platforms and information content.
Much of the report argues that it is not enough for banks to be passive providers of today's services - their "content" - on networks or platforms that others control. Though their content can help them in this early shakeout period, banks should quickly stake out positions as "program navigators" to provide more assistance to customers and thereby deepen the relationships via personal computers and similar devices.
"The time to act is now," William S. Haraf, senior vice president of BankAmerica Corp. and chairman of institute's Center for Banking Issues and Strategies, wrote in a foreword to the report. "We will need to leverage our customer and transactional information and to position ourselves to play the role of navigator.
"Finally, we must both protect and enhance our content and integrate our distribution channels with on-line delivery."
The underlying message, implicit in Mr. Haraf's words and repeated often at a Bank Administration Institute seminar in Orlando where the report was unveiled, is that computer and communications advances are of critical strategic importance to bankers, and bankers ignore them at their peril.
The report tells bankers to reject any assumption that they can afford to wait. For example, it says that even though telecommunications companies have been slow to complete the fiber-optic and other network advances known as broadband, most of the two-way, high-speed capabilities of broadband are already available using existing technologies.
Even conservative scenarios see a doubling of Internet and commercial on-line service users, to 15 million U.S. households, by 2000.
Other consultants and studies have issued similar conclusions and clarion calls, but the message is especially emphatic coming from a mainstream, bank-owned group like the Bank Administration Institute. Its document concludes that nonbanks - in financial services and other industries - are moving faster than banks, and the latter must become more aggressive if they hope to preserve their market shares let alone capitalize on new growth opportunities.
Without paying attention to both navigation and content - central to the initiatives of AT&T Corp., Microsoft Corp., regional telephone companies, and other technology-savvy outsiders - banks will be unable to develop the comprehensive remote banking strategies they will need to compete, said the report, prepared by a team led by Boston Consulting Group vice presidents Bobby Mehta and Thomas Wurster.
"The creation of navigation tools, the reformulation of content, and the integration of navigation and content are three areas where nonbank players are investing," the study says. "Parallel development by banks is critical if banks are to offer customer-friendly and valuable on-line products and services."
Mr. Mehta said Wednesday that bank statements are an example of the "static packaging of content...that will become obsolete. In an on-line environment, customers will be able to navigate and see information in a dynamic way, packaged any way they want it."
Mr. Mehta said new battles will be shaping up over control of and access to customer information. He told bankers to be aware of competition from new players and not just traditional rivals in banking and financial services.
To be focusing only on content is to miss the essential, big picture, said David Van L. Taylor, executive vice president at institute. He made his point in an interview by citing the abortive Microsoft-Intuit Corp. merger, which would have combined the platform, the navigation, and the financial program content under one corporate umbrella, with potentially disastrous consequences for banking institutions unable to muscle their way onto the net as defined by Microsoft.
"Banks then might have lined up only as passive content providers," Mr. Taylor said.
But as navigators, banks can presumably hold their own alongside other types of companies - entertainment, media, retailing - that might be delivering services, or providing other linkages, to customers via on-line networks.
Mr. Taylor pointed out that Microsoft, despite its inability to acquire Intuit and its popular Quicken financial planning software, is staking out a very powerful position through its forthcoming on-line network. It already has signed scores of content providers - ranging from retailers to news organizations - in what is sure to pose a major challenge to the longer established America Online, Compuserve, and Prodigy.
Banks need to emulate the model of being "both navigator and content provider" if they want to stay in the game, Mr. Taylor said. But they have little hope of dominating a field in which Microsoft and others like it loom so large.
Other bankers at the Orlando meeting said the navigator-plus-content recommendation was on target.
"Just our (one-month) experience with a home page on the Internet tells me that people need help finding things, and that's what navigation means," said Joseph S. Pendleton 3d, senior vice president of Meridian Bancorp, Reading, Pa.
Mr. Pendleton said he sees the Internet, or commercial services like the Microsoft Network in conjunction with the Internet, as a means of creating "virtual" business communities that can be tied together by a bank with a home page.
Without the visibility gained through the navigator role, "we can get lost," Mr. Pendleton said.
Robert B. Hedges, executive vice president of Shawmut National Corp., said the navigator role gives banks a way to build and maintain the "brand equity" that will be essential to competing on-line. He pointed out that Microsoft has already accumulated brand power that many banks will find difficult to match.
Mr. Hedges also said banks need changes in the Bank Holding Company Act to realize all of their on-line potential. He said the law puts too many restrictions or compliance burdens on banks' entering any business that is not defined as closely related to banking.
