Banks Are Disappointed by Electronic Technology

International banks are disappointed in bottom-line returns on their massive investments in electronic banking but the fault may lie in their approach to technology, a survey of bank executives concludes.

The study, based on a survey of 200 bank executives worldwide by Touche Ross International, management consultant arm of the Big Eight accounting firm, also revealed some surprises.

Although the United States is a leader in automatic- teller machine networks, France, Hong Kong, Norway and Spain are further along in electronic fund transfer and point-of-sale technology and France and Hong Kong have made greater progress with in-home banking.

“The French government has underwritten and is sponsoring development of debit cards with a chip, known as ‘smart cards,’ and France is far and away the leader in that technology,” said John Shaw, Touche Ross partner and national director of strategic-consulting services.

Didn’t Reduce Costs

But the main focus of the survey, the impact of technology on banking, showed that senior bank executives “are generally disappointed by the bottom-line return on their technology investment in terms of achieving lasting competitive advantages and the failure to reduce operating costs,” Shaw said.

Technology has enabled banks to process enormous volumes of transactions and reduce float, for example, but has not reduced employment costs, Shaw said.

“What’s happened is that they’ve replaced all the clerks they can replace,” he said. “Unfortunately, those gains have been offset by an increase in middle management and professional people and the cost of those employees is considerably higher.”

Increasing domination of the technologists also may be one reason some banks have not been able to recoup their costs or gain advantage over their competitors, the Touche Ross study said.

“Those bankers who reported success in the use of technology to improve their competitive position or cost structure have done so by effectively linking technology to marketing strategies,” Shaw said.

Established Control

“The successful market-driven organizations have established control over technological resources,” Shaw added.

“Bank executives are finding that technology has come up with products that customers may not be willing to pay for,” Shaw said. “At the same time the technologists have created tremendous amounts of information and paper work just because computers have made it possible.’

Banks who want to succeed in the technological revolution will have to pay more attention to both the cost effectiveness and marketing opportunities created by technology, Shaw said. “They cannot let the technologists rule their decisions.”

Touche Ross International still expects banks worldwide to increase investment in electronics dramatically between now and 1990.

The firm predicts more banking by non-banking organizations, such as retailers, insurance companies and building societies.

Decrease in Full Service

Full-service banking branches also will decrease over the next five years.

With the exception of France, the shift to home banking will be slower than many expect, the study showed.

In the highly fragmented U.S. market, deregulation and technology have set the stage for and focus on geographic expansion and gaining “long-term ownership” of consumer dollars.

The 100,000 commercial banks, savings and loan associations and savings banks, securities dealers, insurance companies, credit unions, retailers and consumer-finance companies are “aggressively competing for control of consumer assets, both here and abroad,” Shaw said.