by Rene T. Domingo (email comments to rtd@aim.edu)

Benchmarking is a management tool whose time has come in banking. It is the process of learning, emulating, and exceeding the world's best practices to dramatically improve product and service quality. Benchmarking is a competitive strategy to win market shares and a survival strategy for threatened corporations and industries. As the banking industry becomes globalized and liberalized, clients anywhere in the world will soon expect the same world class service from any bank or financial institution offering the same products. A bank which does not benchmark may lull itself into dangerous complacency and deceive itself that it is doing its best or is at its best, while its customers may think otherwise. As customers seek better and better service, those banks which do not do continuous improvement through benchmarking are bound to lose customers and sales rapidly and irreversibly.

What do we benchmark? Ideally, we should benchmark processes and process targets like service times that matter to customers, rather than financial performance like sales, assets and volumes which matter only to management. Benchmarks can be practices or numerical process targets or standards set by your best competitors, whether or not they have been achieved. Quantitative benchmarks are more useful and objective than qualitative ones. They make it easier to assess how far you have gone in closing the gap with the best players.

With whom do we benchmark? Ideally you should first benchmark with your competitors or excellent companies in your industry operating anywhere in the world. Then you can benchmark with your affiliates, sister companies, and subsidiaries which may be doing certain processes much better than you do. Finally, you can also benchmark with companies outside your industry whose processes can be adapted to your organization. After benchmarking, you usually find out how bad or slow or poor you are in certain key processes. The perceived gap with the best player will be the basis of your continuous improvement programs and goals. Of course, you may also discover that you may be the best in certain areas, but you will benefit from knowing how far behind the second best in the industry is. Benchmarking will tell you how much harder you have to work to increase your gap or advantage from the no.2 player.

Let us now look into certain quantitative benchmarks in banking service. Find out if you are at par with or above or below these standards.

Loan processing is a major area for benchmarking because customers expectations are very high from these products. Surprisingly, the small and medium banks and organizations have set the pace in speedy loan processing, approval, and release. These nimble organizations are unsaddled by the slow bureaucracies of big banks. The benchmarks here are the size of the loan and the corresponding processing time. Seafirst Bank of Seattle released a $110,000 loan within a day on short notice for a small construction firm. Franklin National Bank of Virginia released a $250,000 short term working capital loan in 3 days for a medium-sized computer company. The greatest small bank feat is that of the State Central Bank of Iowa which approved a $2 million loan by phone within a day for a small food company without paperwork. A fast growing finance company in the Far East is challenging the traditional role and standards of banks. It caters mostly to career and working ladies, and the loans can be used for emergency, household, vacation, educational purposes. Its ad says "Why wait 30-45 days for slow, non-responsive banks to process your loan?.. We provide fast non-collateral loans...Cash in 24 hours." The company can give up to $2,000 of collateral free loans within the day by just showing your credit cards in good standing.

Tellering and front line services are another area where some aggressive banks have set strict standards that can be benchmarked. Customers have become very sensitive and fastidious about service speed and quality when served by front-line personnel whether tellers, accounts executives, or telephone operators. The Bank of China for instance has set a time limit of two minutes for any current account transaction, six minutes for foreign currency transaction, and three minutes for state treasury bonds trading. Customers processed beyond these times are to be paid Yn1 (12 cents) for each minute of delay. Seafirst Bank has a similar policy which says that if customer waiting time exceeded five minutes or the bank made a mistake in his account statement, he receives a $5 account credit. Moreover, if the customer is inconvenienced by some other problem, the bank apologizes by giving him a $5 "I'm sorry" coupon.

Banks with credit card operations can benchmark with MBNA, a Delaware credit card company. Among the notable MBNA standards are:

• the telephone must be picked up within two rings 98.5% of the time
• calls through the operator must be transferred to the appropriate party within 21 seconds
• requests from regular customers for an increase in credit line must be answered within 30 minutes, and within 15 minutes for special or "platinum" customersrequests for changes in customer addresses must be processed within one day

MBNA rewards each employee a $1,000 bonus at the end of the year if he or she can hit the 98.5% target every single day. Similarly, Citibank's Citiphone Banking facilities offer 24-hour service, 7 days a week, 365 days a year. The system, run by bank officers, can take care of simple to complex customer requests or problems by phone.

In addition to speed and 24-hour availability, some banks have set quality standards for front-line service. For instance, at First Commercial Bank in Alabama, client representatives are required to know by name at least 80% of their regular or daily clients. Moreover, the bank requires them to use 40% of their time selling bank services and 60% doing teller transactions and enhancing client relations. After anyone opens an account, Seafirst Bank mails to the new customer a personalized thank-you letter. Within 10 days of opening the account, the bank calls and asks him if he is interested in ordering checks, electronic banking card and account statement. To make sure they get special attention, the first year's supply of checks for new accounts have stars printed on them. After 30 days, they are asked to rate the service they have received so far from the bank. To make sure bank officers are in touch with customers and their concerns, Seafirst CEO Luke Helms expects them to visit 10 locations or branches per week as he himself does.Check clearing time is another area that needs to be improved and benchmarked. The Malaysian banks are now working on a system to reduce the clearing time of outstation or out-of-town checks from 2 weeks to 5 days. Their benchmark is Japanese banks whose normal clearing time for such checks has only been 2 days for a long time. The Singapore Clearing House Association (SCHA) has set up a system to locally clear US-dollar checks within 3 days instead of the usual 2-4 weeks. But those banks who want tojoin the system must open a US-dollar account with Citibank in Singapore to honor checks issued by their respective customers.

Finally, an important benchmark is the cost of transaction which can affect the future of banks as information technology changes the economics of financial transactions. A survey of Internet Banking by Booz-Allen & Hamilton showed that the cost of a typical payment transaction using the Internet was 13 cents or less, 26 cents using a personal computer running the bank's software, 54 cents for a telephone banking service, and $1.08 for a bank branch teller transaction. The cost benchmarks should spur banks to improve efficiency, cut wastes, and adapt new technologies to match the benchmark leader.