While bankers are retooling their branch networks to complement the growth in electronic alternatives, they also have to revisit the systems underlying their retail operations.

The systems will have to reach customers wherever they want to do their banking - through a mix of electronic and in-person options - while pushing costs down and delivering the analytical data bankers need to set strategy and gauge profitability.

The early indications about "virtual banking" are encouraging. One of the leading proponents, Huntington Bancshares of Columbus, Ohio, has developed unmanned offices that cut traditional branch costs by 70%, said senior sales manager Elizabeth Minton.

Extending that to the entire U.S. banking delivery system is a tall order, requiring new levels of technology like the two-way video conferencing that is critical to Huntington's approach. Most bankers are taking it one step at a time, with their eyes on revenues as much as costs.

"Our strategy is to get the operational issues out of the branches and into an operations center, and let our folks get out there and sell," said John Joback, executive vice president of First Virginia Banks Inc., Falls Church.

Earlier this year, First Virginia granted a $16 million branch automation contract to International Business Machines Corp. to upgrade 358 offices in Virginia, Maryland, and Tennessee. The branches will run on IBM's OS/2 operating system with software from Broadway & Seymour Inc.

First Virginia's goal is to make the most of face-to-face contact. Its retail automation system will comprise personal computer, multi-task workstations, which Mr. Joback said will give front-line employees the sophistication they need to compete against even the largest banks.

The bank has "really pushed a sales-oriented atmosphere," Mr. Joback said, and has begun adding performance incentives for branch managers and other staff.

Customer servicing takes up about 70% of the branch employees' time. Sales of bank products take up about 20% of a banker's day, and internal administration accounts for the rest, said Bob Landry, an analyst at the Tower Group consulting firm in Wellesley, Mass.

Mr. Landry said sales incentives are small, compared to those in other industries where commissions can contribute 10% to 50% or more of total compensation.

Bank commission incentives "are more like bonuses," Mr. Landry said - generally in the 5% to 10% range and therefore "not significant."

"Some have been successful in bringing the sales culture into the branches," he added, "but it is a very difficult job, and one that automation does not necessarily solve."

Tower Group said branch systems will increasingly make use of object-oriented technology, using strings of reusable computer code - objects - to reduce system development costs in such critical functions as tapping customer data bases.

Branch systems are increasingly helping staff do proactive sales and marketing by identifying customers due for new certificates of deposit or ripe for credit extensions or home equity loans.

Using local area networks, bankers can call into the necessary customer information files and take advantage of their computer units' growing data-mining capability.

Even the most rudimentary of functions, such as document preparation, can help banks save money, Mr. Landry said. Personal computers, coupled with laser printers, can reduce the costs associated with storing paper forms, like loan applications.

"People say they were able to justify their investments in new systems with the savings in forms alone," Mr. Landry said.

Another technology that could play major roles is network computers, or "thin client" devices, which could be much less costly than PCs, said Michael R. Harris, senior vice president of Speer & Associates.

The network computer, an idea pushed by Oracle Corp., Sun Microsystems Inc., and others, has memory and monitors, but no hard drive or other moving parts. It relies for key functions on centralized servers.

"Although it is still new, the NC definitely has potential," Mr. Harris said.

System integration is going to be a major preoccupation, Mr. Landry said. In the credit area, for example, this involves the pulling together of scoring models, origination systems, and accessing third-party credit bureau information to allow for speedy and accurate decisions.

A $10 billion-asset bank seeking to upgrade a 100- to 200-branch network can expect to invest anywhere between $1 million to $5 million, then $1 million in each subsequent year, said Mr. Landry.

Although customer information systems are well advanced in larger financial institutions, Mr. Harris said there is still room for improvement, especially when it comes to the operators of these high-tech systems. Too many banks have failed to train branch personnel adquately.

"You build all these fancy cross-selling systems that the people in the branches, frankly, don't use," Mr. Landry said. And the jury is still out on whether the cross-selling systems and strategies are paying the hoped-for returns.

Patrick J. Harker, professor of operations and information management at the Wharton Financial Institutions Center in Philadelphia, said recently completed studies indicate "absolutely no payoff from these systems unless coupled with fairly fundamental changes in human resource practices.

"Giving people a Ferrari when they don't have a driver's license isn't a good idea," he said.

Focusing on retail financial services, the Wharton School unit gathered information from 150 institutions representing about 80% of U.S. banking industry assets. It found some banks have actually lost money because misguided automation strategies have hindered branch performance and frustrated personnel.

"The problem isn't the platform systems - that's just a piece of software," said Mr. Harker. "The question is, what do you do with it, and who is using it?"

Mr. Joback agreed that too much new technology too fast can be hard to assimilate. That is why First Virginia has moved incrementally to keep its branch automation rollout as simple as possible.

It started with new hardware and local area networks that tied together new desktop PCs. The first major software application was loan documentation preparation, with laser printing hardware.

"We did not have a tremendous issue with training," Mr. Joback said. "We trained people on using the hardware, but kept most applications the same."

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