Virtual Banking for Real People

Head Table Guests

Alex Squires, Managing Partner, Brant Securities Limited and a Director, The Empire Club of Canada; Ben Moull, Honour Student, Forest Hill Collegiate Institute; Rev. Philip Briston, Associate Priest, St. Paul's Anglican Church, Bloor Street; C. Warren Goldring, Chairman and CEO, AGF Management and a Director, The Empire Club Foundation; Bahadur Madhani, Chairman, Board of Trustees, United Way of Greater Toronto; Don Tapscott, Author--"Paradigm Shift," "The Digital Economy," and "Growing up Digital"; John A. MacNaughton, President and CEO, Nesbitt Burns Inc.; John Hayter, Chairman and CEO, Vickers & Benson; and Anne Libby, Owner, Libby's of Toronto and a Director, The Empire Club of Canada.

Introduction by Gareth Seltzer

Having recently watched a fascinating programme on Jobs and Wosniak, the founders of Apple Computer, and being reminded of how recent that "invention" was, I am still astounded that we can send a fax, let alone do our banking on a terminal in our home. The development of virtual banking has provided a means for everyone to access their personal affairs regardless of where they live, how they live or whatever restrictions they have in terms of physical handicap.

mbanx calls itself Canada's first virtual bank and I took a ride on it on the Internet this morning. I found ways to apply for mortgages, pay bills, download personal account information to Quicken software and several glowing biographies of Mr. Chisholm.

We have come a long way since the initial concept of interactive TV. I am reminded of a saying from Alice Kahn who swears she was on the telephone and the electronic answer system said: "For a list of all the ways technology has failed to improve the quality of life, please press three."

I think we can safely say that the concept of electronic virtual banking is an extraordinary step towards improving the manner in which we interact with banks and provide customers with alternative ways of interacting--ways that suit them. One might think that this would be more expensive. It has been said that dealing with bank charges is like being nibbled to death by ducks. The mbanx virtual bank is the opposite. You know what it costs, there are no limits on essentially all the services available to you and they have endorsed the concept that you are not a client of mbanx, but a member. And the membership services manager is our guest today, Mr. Jeffrey S. Chisholm.

Mr. Chisholm was born in Erie, Pennsylvania and, after studying business administration, joined Chicago-based Harris Trust and Savings Bank where he earned a stellar reputation as part of the international banking and treasury group. He moved to Toronto in 1984 when Harris Bank was acquired by the Bank of Montreal and has since enjoyed a very successful career. Mr. Chisholm is active as a director and committee member of numerous professional, academic and charitable organisations and I ask you now to give a warm Empire Club welcome to the President of mbanx, Mr. Jeffrey Chisholm.

Jeffrey Chisholm

Thank you, Gareth, and good afternoon.

It is an honour to be asked to join the long list of distinguished men and women who have addressed the Empire Club of Canada And for me it is a special privilege to speak to the Club about something in which I am deeply interested as well as professionally involved--something which can, I believe, in some measure change the life of every one of us.

I have spent my adult life as a corporate banker but just over a year ago I became a retail banker and what is more, as President of mbanx I became a virtual banker. I should like to spend the better part of my time today saying what that means and why I think virtual banking will be a better kind of banking for us all. And I am going to end with a word of caution about one way in which that promise might be unnecessarily delayed.

Let me begin with this word "virtual," which has become one of the key words of our time. Virtual, in its new sense, is defined as "having the effect but not the actual form" of something. That's especially accurate as it applies to virtual banking. Because it works like banking, it has the same effects as banking, but it clearly does not have the form of the familiar branch on the corner.

To most people most of the time, I suspect "virtual" means something like "totally super-high-tech." It suggests a world free of people; a world which, at best, is like the Holodeck on the Starship "Enterprise," and at worst, is like being trapped inside your own PC. And for me that's emphatically not what virtual banking is all about. I believe that virtual banking is a paradox. It is a creation of technology. It depends completely on technology. But it's not about technology. It's about people. Virtual banking brings the skills and motivation of one set of people--our employees--together with technology to give another set of people--our clients--a level of service perhaps never seen before in the retail banking market.

If that seems a little unplausible, I'd like to ask you to think for a moment about the recent evolution of the financial services marketplace. In the days before 1980, the physical branch was the focal point of our relationship with clients. It was low-tech, if you like, but it was "high-touch." During the 80s and the first half of the 90s, bankers developed a multiplicity of add-on channels like telephones, ABMs and computers--channels that were hi-tech but which isolated the client in a low-touch relationship. Today we are entering a third stage, when high tech is being used more and more to provide high touch in the relationship between the bank and its clients.

I'd like to draw on the example of mbanx, our virtual banking division at Bank of Montreal, to show you something of what this new union of high tech and high touch will mean in practice. In the first place a virtual bank is designed for a particular market segment--time pressed clients, who are comfortable with new ways to access their bank, like computers or the telephone. That is a rapidly growing segment. Perhaps it will soon be the largest segment, when all the ten-year-olds who are now explaining the Internet to their parents grow up and need a bank. But it is the concept of tailoring the service to one part of the market that is truly new and it's a concept that makes possible new levels of service, because we are no longer constrained by having to make one size fit all. Please don't misunderstand this point. I am not here to announce the death of the branch bank. Branches will always be a vital part of banking. However, they are already rapidly ceasing to be transaction centres and are becoming financial services offices comparable to other professional offices--a place where you go monthly or as occasion demands rather than every week.

Second, a virtual bank is open 24 hours a day, every day of the year--a massive change, which we've dubbed "anytime, anywhere, anyhow banking." This is possible because virtual banking is not available just through the Internet as is sometimes thought. It is delivered through banking machines, telephones, the Internet, PC, fax, email, snail-mail (when it's available!) or, yes, even through the branch on the corner. And customers will be able to mix and match in the way that best suits them because, while virtual banking is about accessibility, it is also about choice. Again a virtual bank is a bank for real people who need assistance, seek advice or who even make mistakes and who sometimes need to talk to a financial manager. Virtual banking makes this possible anytime and anywhere which is surely a long step toward "high touch" and the customising of retail banking.

Finally, the electronic technology that makes virtual banking possible also means we can create a system that rewards our clients for the amount of business they do with us each month and thereby makes it worthwhile for them to bring all their business to the bank. Many, perhaps most of you, can appreciate what a huge change that is from the not-too-distant days when the people who handled your mortgage had no idea where you might be buying your mutual funds and did not have the full picture of your financial condition. Again, technology is making it possible but it is people who will make it happen.

mbanx is only one virtual bank, of course, and the field is rapidly growing. Others can and will do things differently but I am confident all of them will try to do at least some of the things we are doing.

But, you may ask, just why is Bank of Montreal doing this? You already have a large branch network. You already have millions of customers. Why rock the boat? Why change a business that has worked well for 180 years? Above all, why compete with yourselves?

The answer is simple. We don't believe that the old ways will allow us to prosper or even survive in an environment where major drivers of change are transforming our industry. Everywhere we look we see boundaries eroding under the impact of information and communication technologies--between nations, organisations, and channels of communication. Electronic information technology has created a rising spiral of expectations as customers imagine their banks can and should give them steadily more speed, convenience and quality.

I've already suggested how social changes mean that more and more people have trouble fitting the demands of work and family into a 24-hour day and this is happening just as the financial needs of many families are becoming not only more complex but also more important to their peace of mind and future security.

And these forces go far to explain another driver--the accelerating pace of restructuring in the North American financial services industry. Open the financial pages almost any week and you will read about another mega-merger or about the powerful niche players in the U.S. who increasingly dominate lines of business like credit cards or mortgages and who will soon be joining us here in Canada.

When we looked at these trends, with what we sincerely hope were clear eyes and good data, we came to a conclusion that for a major financial institution, was rather sobering. It became plain to us that if clients' expectations of speed and convenience are met and if they can be assured of appropriate security then a great many of those clients probably won't care where, or with whom, they do their financial transactions. In other words clients are increasingly up for grabs and this was clearly both too great a risk to ignore and too great an opportunity to let slip.

Hence the decision to launch a virtual banking division at Bank of Montreal. And hence the decision to create a new brand which means of course not just promoting the name, but backing it up with a high and reliable standard of quality. Bankers have to learn to think like the packaged goods marketers such as Proctor & Gamble which will be a challenge, no doubt about it, but which will also be good for us and even better for our customers.

And that brings me from the why of virtual banking to the "how"--a trip behind the screens, if you like, and behind the interactive voice responses--to see how high-quality, high-touch service can be provided each and every time.

The first priority is to establish a standard of transaction quality that is near-perfect in principle and consistently attained in practice. This is simply non-negotiable. You can't constantly ask the client to co-engineer with you while you debug your systems. Like a blind date, you pretty well have to get it right the first time you meet. And if you can do that you also free up people to do the things people do best, such as talk to clients.

The next step--still toward the goal of a virtual bank run by and for people--is to "fine-sort" the client base so offerings appropriate for ever-smaller groups can be developed till eventually one can be designed for the "segment of one"--the individual customer. The aim is to reach a level where each customer has full power to choose among services, products or channels of access at any time but his or her normal needs and preferences are built into the system, and are met without the need to choose them every time. A virtual bank should be as comfortable as a favourite chair.

Last, I believe a virtual bank has to develop a new set of management skills--to learn a great deal about the development of people and the performance of human capital and thereby foster a culture of sensitivity and responsiveness.

Of course the creation of the culture starts with recruitment. There is a huge demand today for skilled people to handle the client interface which in turn means virtual bankers not only have to attract the best and the brightest, they need to understand deeply what motivates them to join a virtual bank in the first place and then know intimately what motivates them to perform once they're on the job.

Again, banks know all about branches with a staff of six, but what is the optimal work environment for the people at the centre of a virtual bank full of diverse and highly motivated individuals with a vast array of expertise? One thing is certain: We have to get away from the repetitive, mass-production image of a traditional tele-marketing centre and move toward the model of the trading rooms in which I used to work, not too long ago--high-profile, rewarding both mentally and financially and on the leading edge of change.

Doing these things means answering some difficult questions. How far can we take our search for productivity through automation without disrupting the people-centred culture we're intent on creating? What functions are uniquely and optimally human? Machines can be temperamental for sure, but they can never be empathetic, supportive or sincere.

The way we at Bank of Montreal have approached this complex human resources challenge may surprise you. Instead of the usual vocational screening that banks do, we assessed candidates almost entirely on the alignment of their personal attributes and values with those of mbanx--looking, in other words, for people who want to serve the client above all else. We believe this is the true core of high-touch banking--an indispensable quality--one that's infinitely more difficult to learn than banking products and services.

Putting it simply, we hire the values and teach the skills. We look for people who are personally in tune with the five values we have developed for mbanx and which we believe will give us a unique and sustainable competitive advantage. Let me list them for you.

First, change is good. This means we must constantly innovate. We must recognise creativity. Challenge old assumptions. Be willing to learn from mistakes.

The second is we believe in better. We must learn continuously. Search constantly for ways to improve the quality of clients' financial lives. Provide the resources for our employees to grow.

A promise is a promise. We must have clarity about our commitments, our capabilities and about the timeliness of our commitments with clients and with each other.

Simple rules that work. We want to drive out complexity everywhere in our business--particularly in process, communications and access.

Everyone is important. Everyone without exception, is important. We must treat all others with the respect we would want for ourselves, all the time.

These are the mbanx values. They may not be appropriate for anyone but us. But for us they are the defining difference in building a strong culture--guideposts that enable our employees to use their best judgment when dealing with clients, rather than a complex set of rules.

Building such a culture is a lot of effort but we believe the alignment of personal and institutional values creates the single strongest point of competitive differentiation that we can attain. In other words, tomorrow's winners will embody the defining characteristic of virtual--that it has the effect, though not the form, of a one-to-one relationship. That will require flawless execution of transactions, customised offerings delivered through a client's preferred access, channel account managers working electronically with clients via screen, voice and video and a group of employees determined to make a difference in the lives of everyone it interacts with, every time.

When will virtual banking reach this state? For our organisation at least, it could and should happen a lot sooner than you think.

For me, and I hope for all of you, that is a bright promise indeed, Yet at the outset I said I wanted to end these remarks with a word of caution. No speech that touches on technology these days can fail to mention the so-called Year 2000 issue. If we do not recognise its seriousness and take the necessary action right away, realising the promise of virtual banking and of many other forms of technological advance could be seriously delayed.

It was only a few years ago that we began to realise that most of the computers of the world are programmed as if history were 99 years long and will end a little less than 25 months from now. For many years only the last two digits of dates were entered in computer codes so that our computers believe that the year 1999 will be followed by the year 1900 and as the year 2000 draws closer, they could well miscalculate everything from insurance policies to soybean futures and airline schedules.

There is a special irony about the approaching change of millennium. Before the year 1000 of the Common Era, many Europeans were convinced that the end of the world was at hand. Their fears obviously proved groundless but now, before the year 2000, we do not believe the world will end, but we really do have something to worry about. My fear is that we may not be worrying enough.

The good news is that at the Bank of Montreal--and I believe the same thing is true of all our major competitors here in Canada--we have seen this coming for some time. We are doing everything possible to correct our systems and I personally have no doubt that they will be fully corrected, well before December 31, 1999 rolls around. Here you can see in action the advantages of a single national banking system.

Unfortunately I am not at all sure that all of the banks in the rest of the world will be ready and I am totally certain that many of the businesses in Canada that depend on computers for their daily operation will not be ready.

And together both the good news and the bad news add up to some serious consequences--consequences that have happened, are happening and could happen.

In the first place, since there is no "silver bullet" which will magically put the two digits back in the codes, the need to review millions of lines of computer code "line by line" is absorbing immense amounts of money and even more skilled programmer time. These resources are out of play, if you like. They cannot be used to bring people what they imagine technology can do.

The pace of technological innovation is already slowing and it is only realistic to expect that it will continue well below its optimum for several years to come.

Then there is networked computing, so widespread today. No networked company is an island. Such companies rely heavily on their electronic connections to suppliers and customers and if their reliance should prove misplaced, the bell could indeed toll for them through the disruption of their systems and delivery processes. And this means that companies will be increasingly cautious about whom they do business with, which is why the Bank of Montreal has introduced a "Year 2000 Checklist" for assessing new credit facilities or renewals for our commercial customers.

We can expect, in fact, that companies will be very cautious about any new ventures that might tie them to uncorrected legacy systems or client-server networks--mergers or acquisitions being an obvious example.

For much the same reason companies could even be cautious about the things they are already doing. It is rumoured that several major airlines have decided not to accept reservations for flights on January l, 2000, because they are worried that all the ground-based systems they depend on may not be changed in time.

Don't misunderstand me. I am not here to spread alarm and despondency, but simply to call for well-informed and timely action--action like the Canadian banking system is already taking.

Action is imperative because Canada, not to mention the world, faces an utterly serious problem. The costs in money, skills, economic growth foregone and technological advance postponed are already immense and can only grow, even if we are able to escape serious disruptions of our web of information and communications. Everyone in a position of leadership must understand this challenge and accept responsibility for meeting it. And we have only 25 months.

These then are my messages today--the one, a vision of what technology can do and is doing to make banking not merely more convenient but more personal, responsive and humane; the other, a call to action.

Wisely used, technology can greatly enhance our lives; neglected, it can bring us unnecessary disruption and delay. The choice is in our hands.

Thank you.

The appreciation of the meeting was expressed by Alex Squires, Managing Partner, Brant Securities Limited and a Director, The Empire Club of Canada.