Banking's faceless future: Technology is revolutionising the entire system of moving funds, says Peter Rodgers

THIRTY years ago borrowing from a bank was an ordeal and withdrawing cash anywhere but your own branch was a bureaucratic nightmare. Lending was restricted by government order and services were bogged down in reams of paperwork.

In another 30 years, almost everything to do with borrowing, paying, receiving, depositing and moving money will probably be done on wallet- sized personal communicators. They will be open all hours, deal in any currency, and work anywhere in the world at the touch of a few keys.

Even banknotes will be redundant, if a new alternative to cash invented by National Westminster takes off. Mondex, which goes on trial in Swindon next year, consists of computer chips embedded in plastic cards that will be refilled or emptied of disembodied 'cash' by plugging them into telephone networks or other cards.

It is even conceivable that as such systems develop, most loans will be allocated automatically, on demand, and up to limits set by computer analysis of occupation, address, home circumstances, spending patterns and past payment records.

For the personal customer, banking may have become indistinguishable from a specialised branch of computing. Services will be downloaded from a terminal that also carries information databases, video and television programmes, delivered over the airwaves or by cable.

Much of the technology and some of the software is already available. For example, banks have developed 'expert systems' that relate the experience gained throughout the bank to individual decisions by managers. The systems apply complex rules to data, automatically raising the alarm at signs of weakness in a customer company's balance sheet or indications of a problem in the bank's computer networks.

An even bigger step forward is the 'neural network', which learns from the data passing through it and devises its own rules that are fed back into decision making. Such networks are already being developed for credit cards.

By continually analysing millions of transactions, the software learns to recognise signs of fraud and malpractice and raises the alarm.

Ernst & Young, the consulting and accounting firm, says a similar approach can be used in the direct marketing of many other financial products, including unit trusts, to tell banks about customer behaviour, not just fraud.

A study by E&Y found that 'by reviewing millions of cases of what was offered to what kind of customer and how they responded, banks can apply finer judgement in their marketing'.

The ability to use feedback from customers' behaviour will become very valuable. It will make it easier to sell products by push-button transactions through terminals, or by telephone conversations.

Banks have also discovered that it is more cost effective to put money and time into persuading dissatisfied customers to stay than spending thousands on marketing to entice new ones. Using feedback, managers can approach restless customers with soothing words, special attention or cash concessions.

This is one of a number of areas where customers might gain from technology. They have already done so through the personal service offered by telephone banking, which is dependent on good systems that allow telephone staff to be instantly familiar with all aspects of a customer's account by calling it up on a screen.

Clues to banking in the future also come from changing patterns of investment among the banks. In the 1960s, they began to tackle the paper mountains in their back offices by computerised processing. In the 1970s, freed from credit controls, they concentrated on selling loans, money transmission services and innovations such as cash dispensers and credit cards (introduced in Britain in 1967).

By the 1980s, banking was no longer enough to sustain these vast organisations, and the banks began to borrow other people's products to sell and so cover their costs. The most important were life assurance, from the life companies, and home mortgages, competing with building societies.

So far in the 1990s, banks have been obsessed with cutting those high costs after enormous losses in the recession and the arrival of low interest rates that have cut profits. But out of this have come new ideas about how to deliver services to customers that set the framework for the next decades.

Alliances are forming between banks and computer and telecommunications companies. NatWest's Mondex, for example, is being developed in collaboration with BT, as well as Midland. Banks that go down this road could have little need for branches.

But the other strong trend, of which NatWest is part, is towards being supermarkets for financial products. This has led to a new term, 'bancassurance', to describe the way in which organisations such as Lloyds Bank and TSB are concentrating on combining the two types of service.

Although telephone selling is developing for insurance - witness Royal Bank's successful Direct Line - the evidence is that branches will still prove essential as retail outlets.

Only a certain percentage of customers - some say as low as 20 per cent - are yet willing to deal with money by remote control without the reassurance of being able to see a branch and its staff.

The business banking market is hard to influence with technology. The mass market for small businesses may become more like consumer banking. Increasing automation and neural networks will show when managers must intervene.

Some of this may even percolate up to middle-sized businesses, although their complexity will probably still demand personal service and a branch network.

For big business, the distinction between banks and securities firms is disappearing.

One popular theory is that clearers such as Barclays will break up into separate investment and consumer banks. But universal banks have served Germany well, and the clearers may feel it safer to have two legs to their businesses.

For consumers, rather than a vertically integrated company trying to manufacture its own products, banks could become like retailers, buying from the cheapest source and selling under their own brand name.

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