Challenges Greater Than Y2K Await Retail Banking Industry.

NEW YORK--(BUSINESS WIRE)--June 21, 1999--

PricewaterhouseCoopers Research Reveals That No

Major Bank is Fully Prepared for the "Paradigm Quake"

Set to Rock the Banking Industry

Yes, the tremors you are feeling are coming from the banking industry. Not since the 1930s has such a widespread sense of unease swept through retail banks around the globe. PricewaterhouseCoopers and the Economist Intelligence Unit have again teamed-up to analyze the issues facing top retail banks. Most alarmingly, "Creating Tomorrow's Leading Retail Bank" discovered that not one single institution has fully grasped the magnitude of transformation required to become a leading retail bank in the next century.

"Most banks mistakenly see the Internet as just a futuristic delivery channel. After compiling this report, it is our belief that the Internet will revolutionize how banking business models around the world are structured, as well as drastically alter the cost structures to support all this. The Internet will change how banks communicate, both internally and externally, and how they manage employee and customer relationships," says Christopher Formant, Global Banking Consulting Leader, PricewaterhouseCoopers.

"Some of the more progressive banks surveyed agreed with our findings, yet there is no evidence any bank has begun to coordinate their disparate efforts towards transforming their entire enterprise. This isn't just an annoyance like Y2K. What we are talking about is a paradigm quake that we believe will rattle the entire banking industry," says Mr. Formant.

Banks have long been dragged along by technology. In the past, when banks decided they needed to upgrade or install new technology, they simply bought it. In many ways, they were behind the curve as an industry, but that wasn't a major concern. That's not going to work well for banks looking to lead the industry in the next three to five years. The explosion of the Internet and real-time technology, coupled with consumer readiness to utilize these channels, has outpaced the banking industry's delivery capabilities. For the first time ever, technological shortcomings are increasingly costing banks customers in a significant way. As Robert Hedges of Fleet Financial Group says in this report, "All the great work done by banks to build brand value will not be able to offset what search engine technology is about to deliver."

Over the past decades banking technology has preceded a change in customer habits, in many cases solutions preceding demand, like ATMs installed before widespread consumer acceptance. Over time, banking technology has actually disconnected the customer from the bank and impaired the bank's ability to create customer intimacy.

"To paraphrase Walter Shipley, Chairman and CEO of Chase Manhattan, the web allows us the opportunity to re-create the customer relationship and to establish an intimate, personalized association that is based entirely on the customer's terms. From that viewpoint, the Internet is one of the most exciting, positive things that has happened to enhancing customer intimacy in banking history," says Mr. Formant.

Only by raising the level of technology and efficiency in all areas of a banking corporation can institutions achieve a level of "virtual customer intimacy." Virtual customer intimacy will be the goal for which all banks will strive. It will be the key to success in the coming years and enable large banks to beat competitors, both traditional and non-traditional alike.

"When we speak of banking technology, we are talking about a lot more than a customer being able to bank on-line. We are talking about every aspect of client service and product delivery (ATMs, web access, defection protection, call-centers, etc.), the ability to effectively cross-sell other services, the ability to keep favored customers content and allowing the interaction between automated process, the back office and branch employees to work smoothly. More importantly, we are talking about the ability to create a highly personalized interaction for a consumer or business customer, uniquely crafted for them, delivered at a low cost," says Mr. Formant.

Research reveals that U.S. banks are far ahead of European and Asian banks in accepting this new reality. A few European banks surveyed refused to acknowledge the drastic changes predicted in this report, clinging to the hope that the super-sophisticated consumer is more of a North American phenomenon. As one prominent retail banker in the UK put it, "This is simply the Americans getting worked-up for a ride into the Wild West."

"Europe and Asia better take notice of what is starting in the U.S. and Canada," comments Mr. Formant. "They may have a bit more time to react to the sweeping changes than their North American counterparts, but they don't have that much more time. If they don't react quickly, they may end up looking like the ancient king who stood at the shore and commanded the tide to retreat."

PricewaterhouseCoopers' financial services industry group created the "Tomorrow's Leading" series to examine the industry trends facing financial services institutions and what successful companies will need to do in order to sustain profitability in the 21st century. In addition to Creating Tomorrow's Leading Retail Bank, the series includes Tomorrow's Leading Life Insurer, Tomorrow's Leading Investment Managers and Tomorrow's Leading Investment Bank.

PricewaterhouseCoopers (www.pwcglobal.com) is the world's leading professional services organization. Drawing on the knowledge and skills of 155,000 people in 150 countries, we help our clients solve complex business problems and measurably enhance their ability to build value, manage risk and improve performance. PricewaterhouseCoopers refers to the US firm of PricewaterhouseCoopers LLP and other members of the worldwide PricewaterhouseCoopers organization.

The Economist Intelligence Unit is a member of The Economist Group, the global communications and information firm and publisher of The Economist. For more than 50 years, the Economist Intelligence Unit has been a leading provider of information on global business and financial developments, economic and political trends, government regulations and management practices. The Economist Intelligence Unit's network of more than 500 analysts, consultants and researchers provides reliable and accurate intelligence to a client base that consists of the world's leading businesses, financial institutions and government agencies. Its home page is located at www.eiu.com.

Note to Editors: For a copy of the study, "Creating Tomorrow's Leading Retail Bank," please contact John Puccio at 212 885 0530.