wlm4 at cornell.edu (Will
04-21-1995, 12:59 AM
Banker's Trust
by Mitch Ratcliffe
Information technology is responsible for the consolidation of the
banking industry that has shrunk the number of independent community
banks by nearly 70 percent in 15 years. Computing power let bankers
manage larger, more diverse loan and customer portfolios from a
central office at the cost of face-to-face contact with small
business customers -- the real engine of a robust economy.
The obvious solution to the digitally-induced distance is to reverse
the flow of information from the corporate headquarters to many
thousands of neighborhood offices or home offices. A recent Wall
Street Journal feature made much of the vanishing community bank's
impact on small business startups and expansion. Even though a
well-placed loan with a local company can result in jobs and expanded
business for a bank, the lack of involvement with Main Street among
regional banks like Chemical Bank and BankAmerica makes these loans
riskier, not just because so many small businesses go under in the
first year or two, but because there is so much less information
about them. The most important kind of information about small
businesses and the stores on Main Street was lost when banking
shifted upscale to regional centers. Personal involvement with the
community is the linchpin to successful banking -- it always has been
-- but technology let bankers forget this simple truth.
We harp on the human element and the customer's participation in
business on the pages of Digital Media. The situation in banking is
an excellent example of how important turning technology on its
intended head will be to a robust electronic economy. According to
Dun & Bradstreet, small business will produce half of the three
million jobs that will be created in 1995. Digital networks, though,
give the Ptolemaic impression to users that they are at the center of
the economic universe, when in fact they are just one small body in a
vast system. Banks have built incredibly tall organizations that can
topple on the performance of remarkably few clients, or the economy
of a single region.
The hoarding of intelligence and assets in technology-rich companies
will eventually constrict the nation's economic potential. If today
the top one-fifth of the economy (households worth $180,000 or more
in assets) controls four-fifths of the wealth of the nation, the
continued concentration of assets will eventually squeeze out the
vast majority of businesses in the U.S., as well as the jobs they
produce.
Banks could avert a disastrous concentration of wealth by setting up
a network of employees who live and work in close contact with their
communities. Automatic teller machines and home banking promise to
off-load most of the day-to-day work in banking. So, take the people
who work those jobs today and set them up in their homes, with access
to a complete view of the financial markets and corporate lending
policies, as well as communications channels to the top of the
decision ladder.
A sound business argument can be made with a few numbers. Let's say
the average bank writes off 1.2 percent of loans as losses. On a
small business loan portfolio of, say $4.6 billion (what BankAmerica
sinks into small businesses), the annual losses will be roughly $55
million. Cut that default rate to one percent and the bank saves
about $10 million. Cut losses to .8 percent and the savings approach
$20 million. Considering that large loans carry lower interest rates,
in general, shifting some portion of a loan portfolio to a more
efficient community banking system promises larger returns on the
banks investments.
Regional banks could and should reassume the mantel of bankers past,
that of pillar of the business community -- a foundation not only of
the regional or global economy, but of Main Street, U.S.A. Day-to-day
experience with the businesses and people in their neighborhoods will
let this new breed of community banker champion the businesses they
feel will break out and become profitable. They can also get
face-to-face with business owners in times of trouble to gain an
accurate measure of management's response to tightening budgets and
economic downturns.
Community bankers are the best kind of marketing for the large
regional banks. For years, ordinary people have known the people who
handled their money. They came to trust people based on whether they
looked them in the eye while talking, or by the firmness of their
handshake. Banks need that kind of contact to convince new and
existing customers that they offer services that are necessary and
rewarding in the information age. It's simply a matter of using
technology to reach people.
How To Subscribe to DMP
and Get Back Issues
If you'd like to receive this free electronic newsletter regularly,
send us email at perspective-request@digmedia.com and we will put you
on the list. The subject line of your messages should read "subscribe
perspective". Please put your full name in the message's body; we
would appreciate it if you would also include your title and
organization in the message.
You can get back issues of Digital Media Perspective by sending email
(subject and contents unimportant) to our back issues server at
perspective-backissues@digmedia.com -- it will respond with
instructions on how to retrieve individual issues. Alternately, back
issues are also available at http://www.digmedia.com/perspective/
Copyright (c) 1995 Digital Media: A Seybold Report. This electronic
newsletter may be freely duplicated, reproduced or retransmitted, but
only in its entirety. Excerpts used for the purposes of quotation
must be attributed explicitly to Digital Media Perspective.
This post transferred from the cdb-l mailing list
by Mitch Ratcliffe
Information technology is responsible for the consolidation of the
banking industry that has shrunk the number of independent community
banks by nearly 70 percent in 15 years. Computing power let bankers
manage larger, more diverse loan and customer portfolios from a
central office at the cost of face-to-face contact with small
business customers -- the real engine of a robust economy.
The obvious solution to the digitally-induced distance is to reverse
the flow of information from the corporate headquarters to many
thousands of neighborhood offices or home offices. A recent Wall
Street Journal feature made much of the vanishing community bank's
impact on small business startups and expansion. Even though a
well-placed loan with a local company can result in jobs and expanded
business for a bank, the lack of involvement with Main Street among
regional banks like Chemical Bank and BankAmerica makes these loans
riskier, not just because so many small businesses go under in the
first year or two, but because there is so much less information
about them. The most important kind of information about small
businesses and the stores on Main Street was lost when banking
shifted upscale to regional centers. Personal involvement with the
community is the linchpin to successful banking -- it always has been
-- but technology let bankers forget this simple truth.
We harp on the human element and the customer's participation in
business on the pages of Digital Media. The situation in banking is
an excellent example of how important turning technology on its
intended head will be to a robust electronic economy. According to
Dun & Bradstreet, small business will produce half of the three
million jobs that will be created in 1995. Digital networks, though,
give the Ptolemaic impression to users that they are at the center of
the economic universe, when in fact they are just one small body in a
vast system. Banks have built incredibly tall organizations that can
topple on the performance of remarkably few clients, or the economy
of a single region.
The hoarding of intelligence and assets in technology-rich companies
will eventually constrict the nation's economic potential. If today
the top one-fifth of the economy (households worth $180,000 or more
in assets) controls four-fifths of the wealth of the nation, the
continued concentration of assets will eventually squeeze out the
vast majority of businesses in the U.S., as well as the jobs they
produce.
Banks could avert a disastrous concentration of wealth by setting up
a network of employees who live and work in close contact with their
communities. Automatic teller machines and home banking promise to
off-load most of the day-to-day work in banking. So, take the people
who work those jobs today and set them up in their homes, with access
to a complete view of the financial markets and corporate lending
policies, as well as communications channels to the top of the
decision ladder.
A sound business argument can be made with a few numbers. Let's say
the average bank writes off 1.2 percent of loans as losses. On a
small business loan portfolio of, say $4.6 billion (what BankAmerica
sinks into small businesses), the annual losses will be roughly $55
million. Cut that default rate to one percent and the bank saves
about $10 million. Cut losses to .8 percent and the savings approach
$20 million. Considering that large loans carry lower interest rates,
in general, shifting some portion of a loan portfolio to a more
efficient community banking system promises larger returns on the
banks investments.
Regional banks could and should reassume the mantel of bankers past,
that of pillar of the business community -- a foundation not only of
the regional or global economy, but of Main Street, U.S.A. Day-to-day
experience with the businesses and people in their neighborhoods will
let this new breed of community banker champion the businesses they
feel will break out and become profitable. They can also get
face-to-face with business owners in times of trouble to gain an
accurate measure of management's response to tightening budgets and
economic downturns.
Community bankers are the best kind of marketing for the large
regional banks. For years, ordinary people have known the people who
handled their money. They came to trust people based on whether they
looked them in the eye while talking, or by the firmness of their
handshake. Banks need that kind of contact to convince new and
existing customers that they offer services that are necessary and
rewarding in the information age. It's simply a matter of using
technology to reach people.
How To Subscribe to DMP
and Get Back Issues
If you'd like to receive this free electronic newsletter regularly,
send us email at perspective-request@digmedia.com and we will put you
on the list. The subject line of your messages should read "subscribe
perspective". Please put your full name in the message's body; we
would appreciate it if you would also include your title and
organization in the message.
You can get back issues of Digital Media Perspective by sending email
(subject and contents unimportant) to our back issues server at
perspective-backissues@digmedia.com -- it will respond with
instructions on how to retrieve individual issues. Alternately, back
issues are also available at http://www.digmedia.com/perspective/
Copyright (c) 1995 Digital Media: A Seybold Report. This electronic
newsletter may be freely duplicated, reproduced or retransmitted, but
only in its entirety. Excerpts used for the purposes of quotation
must be attributed explicitly to Digital Media Perspective.
This post transferred from the cdb-l mailing list