Gates Tries To Reassure Bankers Microsoft Chairman Says Software Giant Has No Intention Of Competing With Banks

Bankers have nothing to fear from Microsoft Corp., Chairman Bill Gates said Tuesday, but at least one banker said software providers could wind up doing much of what financial institutions do today.

“In no way will we be a competitor to banks. That’s not what we’re doing,” Gates said. “We’re coming up with the technology that allows banks to work with their customers in new ways …

“We will not ever be in the business of doing what banks do.”

Gates spoke at a news briefing after addressing more than 100 chief executives of banks around the world at the 41st annual meeting of the International Monetary Conference.

Drawing low-key chuckles from the likes of John S. Reed, chairman of Citibank of New York, and Lord Younger of Prestwick, chairman of the Royal Bank of Scotland Group of Edinburgh, Gates also said his widely quoted remark about banks being dinosaurs was taken out of context.

A Newsweek article last July 11 described a product conference at Microsoft headquarters in Redmond:

“Talk has turned to broader trends in banking. Where’s it going, what’s in it for us. Banks are dinosaurs, says Gates. We can ‘bypass’ them … it occurs to him that people banking from home will cut checks using Microsoft’s software. Microsoft can then push all those transactions through its (potential) affiliate, taking a fee on every one.”

Asked about that description, Gates quipped, “I should have explained that the dinosaurs lasted for 200 million years …

“What I truly said, and it’s become a famous remark, is that a lot of the computer systems that banks have are dinosaurs, and I stand by that.

“There’s really an opportunity for banks here to do things more efficiently internally, how they use electronic mail, get information all to one place, to eliminate paperwork, make decision processes more efficient.”

Even more important will be the changing relationship with customers as the use of personal computers for bill-paying, borrowing, fund transfers and other dealings becomes more widespread, he said.

“We see banks as thriving, particularly larger banks, because scale and brand and integration will be some of the elements this new technology will really promote.”

He evidently gave the bankers similar reassurances during the conference session, which was closed to all but delegates.

“Much to the present surprise of the banks, Mr. Gates was very much in favor of using banks in the future,” cracked Jan Kalff, chairman of ABN AMRO Bank in Amsterdam and moderator of the session on banking technology.

Gates said he devoted part of his time to a quick demonstration of Microsoft’s newest personal finances product, Money 4.0, showing how an individual bank might customize its on-line customer interface.

“We will be hiring literally hundreds of people and doing lots of new things in this whole area of electronic commerce,” he said.

Reed said banks face tough decisions in software and other technological development - especially when the choice is striking out on their own or waiting for cheaper off-the-shelf models.

“When we first introduced ATMs (automatic teller machines), manufacturers wouldn’t make them for us, but since we very much wanted to have them, we said, ‘We’re going to make our own.’

“And we still do that, although the economics changed … you can buy them more effectively in the marketplace,” he said. “That would be true also of software.”

By contrast, Citibank has used Microsoft’s Windows NT “as the engine driving the platforms on which we do interactive banking,” Reed said.

Even without software providers as competitors, “one of the realities is less and less banking is being done by banks … and I suspect that this could accelerate,” he said. “As to when they shift from simply providing software to beginning to provide a service, clearly that’s a shift at some point that’s likely to occur.”

Eventually, many customers will never have to enter a bank or call a stockbroker, he suggested.

“I think we have to be honest. Ultimately, banking is going to be a line or two of application code in a big network. I don’t think anybody can argue that,” Reed said.

“I think that we’re just beginning to see these effects, and I do think it will be very difficult in some of these transactional services to distinguish between a software provider and a bank,” he said. “The border will get quite blurred.”