InformationWeek
Defining The Business Value Of Technology
September 14, 1998
'Shared Vision' Makes IT Pay Off
Banks increasingly rely on IT for customer service and in-company communications-so planning is key
By Beth Davis
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Expand the business. Win customers. Make money. IT units in banks are getting these directives from corporate offices. To meet these goals, banks are investing in Internet technologies, data warehouses, data mining software, and call centers, while tightening relationships between IT and the business units."Technology issues today ironically don't involve technology," says Allan Woods, CIO at Mellon Bank Corp., an InformationWeek 500 member. "The issues really involve business, and the attempt to show a very tangible, measurable relationship between technology and successful business strategy. A lot of processes are being developed and implemented to ensure that companies have a shared vision for technology and that they can prove that technology is a strategic enabler."
A year ago, Mellon established the Executive Technology Council, a group that includes the bank's chairman, president, and CEO, and the top executives of each of Mellon's lines of business. They meet with Woods to discuss the strategic roles that IT plays in Mellon's core businesses.
"These are tough meetings because there aren't black and white questions and answers," Woods says. "But when you walk out, there is a shared vision and a very strong linkage between technology and business."
That shared vision has already produced a sales-force automation system that's being deployed across the company. The technology council was instrumental in identifying standardization in this area as critical to increasing revenue, Woods says.
Increasing revenue isn't the only focus, however. Banks are spending money on IT, too, says Ernst & Young, which this month releases its annual report on technology in banking and financial services. IT budgets will jump nearly 30% compared with 1997's budgets at these companies, says Phil Lawrence, an Ernst & Young partner who worked on the report, which surveyed chief technology officers and senior business managers at more than 100 institutions in 26 countries.
A large portion of that money is being spent on customer sales and services. Of the U.S. institutions surveyed, three-quarters said the top reason for technology investments is to increase revenue. "Executives have become increasingly concerned with payback on their technical investments," says Lawrence. "You have to look at the business justification for each project. All projects have to be hooked to a market impact."
Investments in automated teller machines will account for one-fifth of total IT budgets by the year 2000, Ernst & Young says. Year 2000 projects will continue to use resources, as will investment in Internet projects, which will get more than half of the total budget by 2000. "You're seeing a transfer of money from these other channels to get the Internet going," Lawrence says.
In the last few years, banks have used the Internet as a delivery channel to create business opportunities, including home banking, financial planning, asset management, bill payment, and a host of tailored customer services. Many of the large banks that have offered online services over private networks are now extending those services to the Internet.
Link To Business
BankBoston Corp. two months ago launched its Internet banking services: OfficeLink for small and midsize businesses, a new version of its home-banking service called HomeLink, and Online Account Opening. Customers can open accounts, check balances, transfer funds, and pay bills at BankBoston's Web site. The services use 128-bit encryption and members must type in a BankBoston card number and PIN to log on.
BankBoston is also linking Internet technologies to its call centers. Early this year, the InformationWeek 500 bank rolled out its Call Now service, which lets customers visiting the bank's Web site connect with a salesperson in its 24-hour telebanking center. The service uses AT&T's interactive Answer Service, a network-based technology that integrates call-center operations with the Internet. This creates a connection between BankBoston's Web site and the bank's toll-free customer service number.
BankBoston wants to use technology to serve customers over multiple, seamlessly integrated delivery channels, says Kevin Roden, executive director of U.S. technology at BankBoston. "The business proposal is to know all the different relationships the customer brings to us," Roden says. "We want to offer a multichannel integrated service. If the customer is at an ATM, or on the phone, or at a Web site, the service needs to be the same."
To do that, BankBoston is building a multitiered IT infrastructure with object-oriented middleware.
Banc One Corp. is also well into its online effort, says Bruce Luecke, general manager of interactive delivery service at the bank, which is in the middle of a $28.9 billion merger with First Chicago. The bank expects to finish the year with 200,000 online customers, Luecke says.
Banc One, too, plans to leverage Internet technologies in its branches and call centers. Not only does the Internet provide a common infrastructure for all applications, it's also less expensive, cutting costs for telecommunications, software, and technical support on the front end, Luecke says. Those costs are all borne by the Internet service provider.
Better Service
Not only are financial organizations counting on Internet technologies as a delivery channel to reach customers anywhere and at any time, they are also using the Web so their employees can quickly access information to better serve customers.
NationsBank Corp., for example, has deployed a decision support application, called fasTrack, on its intranet so bank representatives can give customers more personalized service, says Alan Losoff, VP and senior systems engineer for Global Finance Technology at NationsBank, which has announced plans to merge with BankAmerica in a deal valued at $62.5 billion. (NationsBank and BankAmerica declined to participate in the InformationWeek 500 survey.)
FasTrack gives NationsBank service representatives instant access via a Web browser to a database that holds customer profiles, call activity reports, and other information, Losoff says. The goal is to help agents quickly serve customers of NationsBank's Global Finance Group-a division that handles banking and other financial services for high-end business customers. Representatives can check on current stock quotes, quickly access the customer's company Web page, and even pinpoint the last time NationsBank talked with the customer. "The information is summarized, organized, and manipulated to make it easier to serve the customer," Losoff says.
NationsBank began implementing the intranet application about a year ago, and it's accessed by about 1,000 employees. The bank is using enCommerce Inc.'s Web-access security tool, getAccess, to improve the intranet's security. The software lets the bank match business functions with user IDs and passwords so the intranet can serve up tailored pages with only the information a particular user is authorized to see.
By the fourth quarter, NationsBank plans to extend fasTrack to an extranet that select clients can access. "Now the customer has to call an associate to get information, and the associate can get that information via fasTrack," Losoff says. "We want to provide that capability directly to customers via an extranet."
Data warehousing and data mining continue to get attention from banks. With such software, banks can cross-sell a variety of services to customers.
For the past six months, Wachovia Corp. has been running a new service, called PRO, that lets its bank associates mine a custom data warehouse for leads on potential and current customers. The system includes an operations database, built on IBM's DB2, that bank branches can log onto every day to update customer information, and a DB2-based warehouse that holds all customers' account and transaction information.
The service is "proactively providing leads for our bankers," says Frank Robb, CIO at Wachovia. "These analytical leads provide tremendous return," he says. The service helps Wachovia retain customers by providing them with the right product at the right time.
BankBoston is building an enterprisewide relational data store and plans to use mining software to push the information into data marts. Then the bank will deliver the information in the data marts to representatives on the front line. "This will allow us to differentiate the service based on who the customer is," says Roden.
What's New
Banks are also pursuing newer technologies-those that are several years away from mainstream adoption. For example, BankBoston and NationsBank are participating in a trial that lets users send electronic checks over the Internet.
The initiative, a result of a three-year collaborative effort among the U.S. government, banks, and technology companies, sets the stage for banking services that will let companies electronically pay bills and receive payments from their suppliers, customers, and business partners. Unlike existing online checking systems, which ultimately result in the issuing of a paper check, this system will be totally online.
The year-long trial, which began in July, could involve as many as 50 government contractors. A full-scale roll out is expected by the year 2000 and will handle around 1,000 payments-representing as much as $1 million-each day. The check payment process will take about two days, compared with a week or more for traditional paper check processes.
Smart cards-plastic cards with embedded computer chips-are another new technology of interest to banks. Mellon Bank is participating in a year-long trial that lets 20,000 Army recruits use smart cards to electronically pay for items they need during basic training at Fort Sill, Okla. The smart card stores a digital representation of the recruit's fingerprint and a set amount of money; a reader verifies the fingerprint and calculates the amount being spent. The system was developed by Mellon under contract to the U.S. Department of Treasury's Financial Management Service.
The project was started to help an existing customer solve a problem, but it also lets Mellon gain experience in a growing technology. "Smart cards are gaining a foothold in this country and we're able to gain some experience," says Linda Brown, VP of network services at Mellon. "It positions us better for the future."
The future is what many banks are designing their IT projects around. For Mellon and other banks, IT must have future business relevance or it won't be relevant to their business.
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