Banking revolution;

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The Banking Revolution
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Robert G. Stevens
In a time of rapid change, the banking industry is at
the forefront in experiencing an acceleration of change
that is affecting organization, scope of services, and meth­ods
of bank management. One of the most compelling
factors leading to this revolution is a growing demand for
the elimination and simplification of paper work neces­sary
to complete a business transaction. The adoption of
MICR (Magnetic Ink Character Recognition) by the
banking industry represents a milestone in this trend
toward more efficient ways of conducting business trans­actions.
This is only the beginning of the bank's role in this
great movement. The banks must be involved in this
movement simply because of their unique position in the
community. On the one hand, banks handle the primary
medium of communication between companies — the
check. The volume of checks being processed is staggering
— (about 1,250,000 items per day at one large New
York bank). In the long run this means of communica­tion
of financial transactions must be improved and
new business conventions and laws must evolve in order
to develop new methods of exchanging value acceptable
to the business community. While this exchange function
is vital in and of itself, it is also recognized that any other
function which can be performed during the same han­dling
of this exchange, or during the creation of this
information, provides a further opportunity for the
elimination and simplification of paper work.
The bank also has another unique relationship in that
it often has access to and communication with both par­ticipants
in a business transaction. That is to say, for
example, the banking industry is a servant both to you
as an individual and to your retailer with whom you
make many of your expenditures. Thereby it may be
possible to clear all of your transactions with your retailer
through your bank. Since the bank in order to process
these transactions must go through certain steps which
in turn a customer may also perform, it is in a position to
assert that the duplication can only be eliminated if it
alone performs these steps. This is significantly different
from being a service bureau. A service bureau does not
have these unique relationships or a position of trust
within the community.
At a time when this great technological trend is having
its effect on banking, the banks are also experiencing a
decline in demand deposits as a result of the efforts of
corporate enterprise to keep its resources in some form
of an earning asset. Instead of holding large bank bal­ances,
today's corporate treasurer invests in treasury bills
or other short term governments. Time deposits are grow­ing
and the interest rates paid on them are at a long
term high. A large segment of the potential banking
business has been lost to the savings and loan associations,
finance companies, credit unions, leasing companies, and
other specialized financial institutions because of the
failure of the banking industry to meet the needs served
by these other institutions.
In short, banking is caught up in a movement that is
now changing and will continue for some time to change
its customs and conventional ways of doing business; it is
experiencing new and aggressive competition. It is caught
in the profit squeeze, and to make things interesting, it is
facing the possibility of audited financial statements by
certified public accountants. Today there are action,
dynamics, and excitement in banking.
32 THE QUARTERLY