When computers entered the banking industry, International Business Machines Corp. asserted that computers would never pay for themselves if they merely did faster and with fewer people what grandpa used to do by hand.

IBM advised its bank clients on how to handle transit, proof, and statement preparation with the old vacuum tube 650 computer - yes, vacuum tube - and then with the transistorized 1401. But it soon recognized that the real profit potential lay in using the data mined by computers to make decisions.

This is how cash management came into its own. It may not have helped banks much when customers could determine just when checks paid out would come back and need to be covered with good funds, but it sure was a selling point for the computer vendors.

After IBM realized it could help clients make instantaneous arbitrage decisions and thus glean arbitrage profits that only flowed to the quickest operator, its banking operation alone could have qualified as one of America's 100 largest companies.

Flash forward to the present. The Internet is forcing us to reevaluate bank operations, just as computers did before they evolved into the Internet phenomenon. And as was the case then, exploiting the new technology isn't simply a matter of installing it. Banks are spending huge amounts to establish Web sites and handle transactions through them.

But has the expense paid off? Has online banking really done much more than speed up traditional services - bill paying, account verification, funds transfer, credit card tracking, and applying for loans?

The only services I can think of that banks offer now and couldn't offer before they had the Web are insurance purchases and discount brokerage. And offering those things was restricted more by law than by a lack of convenience that the Internet has overcome.

Thus the same question I discussed with the IBMers asked me decades ago is relevant in 2000: "What are we going to do differently with the Internet than we used to do by phone, direct debit, and mail-in loan applications?"

One answer is, of course, automatic bill presentation along with automatic bill payment, so that "snail mail" can be left out of the payments process.

Another major opportunity was highlighted in an article in the winter issue of Wharton Alumni Magazine. It cited a study by Wharton's Lorin Hitt and Frances X. Frei of Harvard of seven banks with assets of $30 billion to $200 billion. Their research concluded that, while online banking has only attracted about 3% of the customer base, it has been "disproportionately attractive to high-profit customers."

These include those who are affluent, more apt to be married and have a home, are two to six years younger than average bank customers, and have larger asset bases and use more bank services. Banks should use the World Wide Web to better serve and bond with these wealthier customers.

The article also asked - echoing my talks with the IBM people years ago - if computer technology is "a black hole that drains corporate resources, demands ever-rising levels of expensive support staff, and returns only negligible productivity increases."

I would advise community bankers not to let it become a black hole for them. Use the Internet to complement your advantages over big banks. These include investment advice, counseling, and simplifying the customer's financial obligations. Mr. Nadler, an American Banker contributing editor, is professor of finance at Rutgers University Graduate School of Management.

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