When David Partridge entered banking in the 1970s, all it took to make money was to show up and unlock the doors every morning.

"It was almost impossible to lose money as a bank then," said Mr. Partridge, who was a senior executive of a California thrift at the time. "It was like drilling for oil in Saudi Arabia."

Today, Mr. Partridge is director of the financial institutions general management practice at Towers Perrin. His job is to help bankers cope with what has become a highly competitive business. His consultants often spend up to two years on a single project, designed to help banks recapture the hearts -- and wallets -- of customers.

Although Towers Perrin is better known for its global benefits consultancy, Mr. Patridge's group has a client list that includes many of the nation's best-known banks, insurance companies, and other financial players.

A West Point graduate with a master's degree in business administration from Harvard, Mr. Partridge says banks must either cater to customers or perish.

While technology is important, the real key is finding the right people to serve customers, he says. Mr. Partridge said that those who do not change risk becoming what he calls a hollowed-out bank: one rich in deposits, with marginally profitable loans and a tiny piece of the financial services pie.

Q.: You spend a lot of your time talking to bankers about how to get bank what has been lost to competitors. What challenges do they face?

PARTRIDGE: The biggest challenge is on the retail side. I would divide the retailer out there into two camps. The first is bank-based retailers who say, "I am my protfolio," and see their value as a human being in the value of their portfolio. It's old-think and it's a smaller number but it's still about one-third of the banks.

The other side is growing and they are the people that if you shine a light in their eyes they will say, "I am the customers that I serve and the ability to capture share of their wallet. Whether I keep any of it on the balance sheet is irrelevant." It is classic retailing.

Q.: Are you seeing different approaches to retail banking?

PARTRIDGE: There are two different kinds of retailers. You have the product-push retailers and then the folks that want to be relationship retailers. I would say -- and this is an uncharitable characterization -- that for every five people who tell you they are a relationship retailer, maybe one knows what they are doing.

Q.: Can you give some examples of what you are talking about?

PARTRIDGE: Guys like Wells Fargo & Co. are the ultimate product push. They will sell you a product whether you want it or not and I know that's being harsh. There's nothing wrong with it, except that Wells is vulnerable to an institution that really figures out how to do relationships.

I wouldn't characterize anybody as having made the transition, but there are those who are making the transition. The other people I'd worry about are AT&T. If you are a banker, I think AT&T is going to be your worst nightmare in another five to 10 years.

Q.: Why?

PARTRIDGE: Where do you want to do your banking? With almost no exceptions the last place I want to do my banking, to take care of my financial services, is to have to stop what I am doing in the middle of the day and go find an (bank) office. I like to do it at work or on the telephone.

Q.: But banks are becoming more responsive.

PARTRIDGE: They are beginning to move, but the place where AT&T has potential power is in your house. They have a Smart Phone and they also have it at the point of sale. When they bought NCR, they bought the technology. The fact is that AT&T can be the bank in your living room tomorrow.

Q.: Is this the end for banks and who will the survivors be?

PARTRIDGE: No, but we have a major concentration coming. Over the next 10 years, and call me then and tell me I was crazy, you are going to see it. We'll have half of them in 10 years.

[The survivors will be] the people who figure out how to dig their heels into the marketplace and become effective retailers. The guys who are going to disapear are the I-am-my-portfolio people. If there was a blood test and you could take it, whoever is sitting still today is not going to be here. They are gone. They are going to get beat to death.

Q.: Is it too late to change?

PARTRIDGE: Basically, yes. It's been nice and I'm sure their mothers love them and their dogs do too, but I think they are in major trouble.

Q.: One of your tenets is that while technology is important, the real key is in finding the right people. Talk about that.

PARTRIDGE: You can buy technology, but strategy execution only happens through people. It is having the right people doing the right thing brilliantly and enthusiastically. The right person is not somebody who gets paid to balance the teller line at the end of the day; that's not a retailing job.

The right person is not a platform salesperson whose biggest concern is what they will be doing on a date tonight. The right person is the one who is interested in and whose personality is appropriate to what we've asked them to do. That presumes we've figured out what the right positions are.

Q.: So what is the most important job going to be?

PARTRIDGE: It's that person who takes care of you and me, the relationship handler.

Q.: How populated are your banking clients with those people?

PARTRIDGE: Less than 10%.

Q.: Beyond people, what do banks need to change?

PARTRIDGE: If you look at a branch system today, 75% of what goes on there is what I would characterize as distributed operations and maybe 25% retailing. We have got to quickly get to at least a 50-50 split.

The operations have got to come out of the bank branches and we are going to have to start incenting customers to do their transactions in a nonteller environment.

Q.: What are the economics of that?

PARTRIDGE: If a teller transaction costs $1.22, a drive-through costs 95 cents and an ATM costs 62 cents, why are we charging people to use ATMs and encouraging them economically to come to the teller window.

Q.: Are banks being short-sighted?

PARTRIDGE: I love fee income, but when I'm getting fee income to pump up this quarter's earnings and I'm training customers to do exactly the wrong thing, I'm incenting them to go the wrong way. There is a reasonable balance to be struck.

Q.: But there are a lot of banks that fit into your one-third of dying banks who will not have to change because they have monopolies. Are they immune from erosion of market share?

PARTRIDGE: There are a lot of guys who will bridge around them. Those companies, as we speak, are having their market share whittled away and it's not in a measurable way like their core deposits.

When they get done at the end of the day, we are going to have hollowed-out banks. You will have a $10 billion [asset] bank and will have all these core deposits and it will have some big business loans where the margin will have shrunk.

And, oh, by the way, the customers who still have all their deposits there have all their other products with another provider and the bank can't get them back. That is death.

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