By Mel Duvall  |  Posted 2004-11-01 Print this article Print

Bank of America spent $47 billion to acquire FleetBoston to get a stout presence in New England and New York. The bank will spend tens of millions to convert its 1,500 branches onto its Model Bank platform, so it can provide the same services nationwide.


Even if Lewis says "there doesn't seem to be any advantage'' to converting California to Model Bank, Bank of America insists that FleetBoston branches will be converted to the platform by mid-2005.

But when Bank of America talks about Model Bank these days, it is more about a way of doing business than the computer systems behind the accounts, loans and mortgages. When Rourke, the retail distribution executive, talks about developing new products and services such as Internet kiosks and private banking for high-wealth individuals, she refers to products and services that can be rolled out in a uniform way across the country, and marketed and promoted with a single message.

But the applications that power those systems remain part of the Model Bank platform.

Bank of America Base Case

Headquarters: 100 N. Tryon St., Charlotte, NC 28255

Phone: (704) 386-8486

Business: Third-largest bank in the United States, with 5,700 branches and more than 16,000 ATMs. Offers full line of banking, mortgage, investment and corporate treasury services.

Chief Technology Executive: Barbara J. Desoer

Financials in 2003: $38.5 billion in revenue; $10.8 billion in profit; net profit margin of 34%.

Challenges: Complete FleetBoston merger and convert Fleet's branch operations to Bank of America's Model Bank platform in 2005.

Baseline Goals

  • Produce $1.3 billion in annual savings by end of 2005, by eliminating duplication from merged operations.

  • Reduce annual technology spending to $1.5 billion, from $1.7 billion (not counting salaries).

  • Generate $195 million in additional revenue, from cross-selling Fleet and Bank of America services.

  • Increase average number of loans, college savings accounts, credit card plans and other products sold per day per employee at Fleet branches to the Bank of America average of 6.3, from 2.1.

    So the bank has been taking additional steps to ensure the success of these systems–establishing metrics to measure how a technology affects service, customer satisfaction, branch staffing and other factors, and tying the results into savings and profits. The bank found, for instance, that if it deployed video screens above tellers' heads and presented programming such as cable news, "perceived" wait times dropped by as much as 26%.

    But this subjective drop in wait times would have to result in enough business to justify the $22,000 price tag for each high-definition system. The bank turned to its ratings of customer satisfaction to figure this out.

    Each Bank of America branch is rated in customer satisfaction on an index that peaks at 30 points. Stefan Thomke, a Harvard professor who has studied the bank's use of prototype branches, says the bank knows from years of research that every 1 point improvement adds $1.40 in annual revenue per household that the branch serves. A branch with 10,000 households would thus need to increase customer satisfaction by 2 points to boost revenue by $28,000 a year, which would justify the expenditure.

    Tests at technology incubator branches in Atlanta showed, according to Thomke, a 5.9-point increase in customer satisfaction. The payoff: an average revenue gain of $82,600 on an investment of $22,000, a return of 375%. Multiply that by the 5,800 branches in the Bank of America network, and you might be ready to predict the arrival of screens over tellers' heads, from "see" to shining "see."

    That is the justification for Model Bank platforms, and the lesson of Florida was to test first, roll out second. "It isn't that they're just using these [incubator] branches to try new or interesting technologies; it's that they're finding ways to directly measure how it will contribute to revenue and profits," says Thomke, who included Bank of America in a new book, Experimentation Matters: Unlocking the Potential of New Technologies for Innovation.

    That, ultimately, is what will prove the merits of Lewis' high-priced acquisition of Fleet. The bank paid $45 per share for Fleet, a 40% premium.

    If he can grow revenue and profitability in the bank's retail network, investors won't care if Lewis achieves all of the promised $1.3 billion in expense savings at Fleet, or if the Model Bank technology makes it to California.

    Results for the first nine months of the year, ended Sept. 30, indicate Lewis, Oken and colleagues are on track. Product sales at the company's banking centers grew by 21% from a year ago, consumer checking accounts grew by 1.5 million and savings accounts by 1.8 million, on track to beat the company's goals of a combined 4 million new accounts. Most significantly, according to CFO Oken, Bank of America has already added 250,000 checking and savings accounts in the former Fleet branches, dampening competitors' hopes of stealing customers in the wake of the merger.

    But Lewis has said continued success rides on a full integration of the Fleet operations with Bank of America.

    "Savings and efficiency in this merger are critical, but only as a starting point," Lewis told shareholders at the company's annual general meeting in May. "What makes our new company compelling is the opportunity we have to increase and accelerate future growth by bringing our products, services, technology and best practices into the Fleet franchise."

    And if the Model Bank platform can make it in New England, maybe, just maybe, it can make it in California. And at that point, Bank of America could truly be a nationwide bank.

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    Contributing Editor
    Mel Duvall is a veteran business and technology journalist, having written for a variety of daily newspapers and magazines for 17 years. Most recently he was the Business Commerce Editor for Interactive Week, and previously served as a senior business writer for The Financial Post.


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