Visionaries in IT: Anuj Dhanda

Thanks Jim. You know, talk about pressure. You have weather like this and you want to make sure that you say something of importance to all the people who brave this. And then the title here is Visionaries in Information Technology, and God knows what visionary means. Certainly I don't know whether I would qualify for a visionary, but I'm really delighted to be here to talk to you about what's happening in technology and financial services. The only thing I would also warn you is I have never done a technology course in my life. But I think I'll just start by saying that as a CIO, the most critical thing that we do is to say how do we leverage the technology for growing our business. So in that case, you've got to know what's happening in the business and you've got to know how to leverage technology. And I think over time what I've learned is technology as I grew up on the business side, and that is something I think as you will see today, that in banking and financial services, technology has become really, really core to the business. It's no more a support function. So Jim did a customary thing on PNC. We are a great company, obviously have developed a lot of presence in your area over the last couple of years, first with the Riggs acquisition, then with Merant. We believe this is a very, very important market for us, and you will continue to see us invest in this market as well as grow the market. Also I would say from a PNC standpoint, we are over the last five years probably the top performing bank in our peer group. We have no subprime exposure, and that is one thing that we have sidestepped and hence we are focused on growing the bank while others have to deal with all the mess they've created. So this is one thing we're pretty proud of. But also I would say we have a fairly diversified business model, and I think as we will talk about technology, one of the things we have to always think about is how do we support all the different businesses that we have, ranging from the retail business, small business, corporate banking, wealth management, and we have a fairly large mutual fund processing business called PFPC. So the key messages we want to talk about first is how the role of technology has changed. Many of you may have an appreciation, and some of you getting to know banking may not, but technology really started in the back office in banking, and that's where we had a big application of technology. Then over the years as we've progressed, today it is really becoming an information business, and increasingly technology plays more and more of a central role. The second kind of message I want to tell you is, at least when we see and we just went through strategic plan exercise, when we see the future, we see in the next two to three years at least huge changes in application of technology as kind of introduction of new technologies. We'll continue to see evolution of the technologies we have. We'll probably see mobile technology, RFID, and a bunch of things, but I think we don't see something as revolutionary as the internet coming on in the next three years, but we see equally so that we will see a lot of application of technology and we'll tell you more about that. The third one, which is fairly obvious, is the pace of change is really accelerating. Whatever we used to do in 10 years, we now do in a year; what we did in a year, we do in like two months. And at each successive period, the change is rapidly changing, which is also kind of really disruptive in the marketplace. But disruption in the marketplace is always also an opportunity to do well. In any market disruption, there are winners and losers, and if you play it right, I think the opportunity is really to say how do you win in a place when there's so much disruption in the marketplace. I'll give you some examples about that also. The business is becoming far more complex because as we have applied more technology, as information becomes more available to a wider set of people, you've got to have different controls and the business model becomes much more complex. We'll talk a little bit about that too. And from my perspective, I say the winners in banking or winners in financial services would be people who understand the strong alignment between business and technology and how to align technology with the business in a way that it's not a support function, it is not about technology on the side, but an integrated view to the business. And second, and probably the most important message I'll leave, especially on this side of the house, is we really believe people are central to our success. I'll tell you more about how we are accelerating our college recruiting for interns and for full-time positions, and we have lots of opportunities. But if we are going to win, cultivating you all at this time is key to our success. And finally, I would say as the technology world becomes more global, managing the risk and governance would be a core competency that we would have. So you'll hear those as the key messages that I will walk through.

So when we start with how the world has changed, you know, I was invited to CMU's launch of a program called Masters in Innovation. It's a master's program in innovation in the School of Engineering. Very interesting program. To launch the program last year they had a seminar and they invited someone from the general manager at US Steel, the strategy person from Hindes, someone from Siemens, the Chief Technology Officer or Chief Design Officer of Ford Motor Company, and myself. First when I got the invitation, I chuckled to myself and said this is a thing on innovation and they're inviting a banker? We really don't think of ourselves as very innovative generally. So we were all going through and talking about what has happened in our industries and how we've used technology to drive innovation. US Steel, if you can imagine, they talked about 100 years of steel making and how technology has changed and how making steel has evolved. When my turn came, it actually gave me pause to think. If you think about us 30 years ago, banking was very, very different. Banks were limited to being within a state, sometimes within a county. There were 1,200 branches. Citibank used to be a bank limited to New York City. We used to call them money center banks. We had no bank greater than 20 or 30 billion in assets. The only banking we did was branch banking. Capital markets were hardly developed. We had a stock exchange of course, but most of the products you see today with derivatives and all that stuff came after that. Cash management for companies was very, very rudimentary, and customers had almost no choice. In fact, banking used to be known as 3-6-3: you paid 3% on deposits, charged 6% on loans, and 3 on the golf course. That used to be banking. It was pretty straightforward actually in those days. But if you look today, how many channels we have and how we interact with a customer from workplace, university banking, to online, we're doing our RFID cards, and every day we're adding mobile and all different channels that we communicate with the customers. We have thousands of branches, online banking, and then on the corporate side, increasingly far more complex products complexity and how we interact, access of information, and it is really fundamentally changed what the business model is all about as we have become much more of an information business.

What has really powered these are some of the inflection points I would say in banking. First was interstate banking because that was the first time that we got some scale. When you had only fewer branches, you couldn't invest and really make it work across a wide geography. So when we got interstate banking going, that was the real start of innovation and advancement in banking. The second part, I think, is the most fundamental thing that has happened in banking, and I'm not saying anything that you guys don't see every day, is the internet. I think that has really changed how information flows as well as how banking or financial services is done in a very, very profound way. The other thing which the internet has really done is for the first time in the IT world given us standards. And I think those standards have really allowed us to do development in a fashion which is very different, much more efficient and effective, and really changed how we do business. In fact, I remember in the early 90s when people would talk of standards, it was like IBM would talk of standards, and standards were what IBM standards or Unisys or whoever was talking. Their standards were like, 'We are open standard,' which meant we might talk to another company or another kind of operating system. And think about today, really it is an open kind of standards world. And then what 9/11 did for the financial services is it taught us risk management, which many of us had forgotten or didn't realize how important risk management was. When people couldn't get like Bank of New York might have taken six weeks for them to come back to stream after 9/11 because we didn't have good business resiliency, we started thinking about how do we protect customer information and realized we had a lot of work to do. And we have really changed the world since 9/11 in terms of how we manage information.

On the technology side, you can also imagine that a lot has changed. And the reason to share this is not to make any profound statement, but more to give you perspective of how things have happened in the last 25 years. If you think about the computing environment, it was mainframe, and people thought when PCs came, mainframes would go away. Well, today we do more computing on mainframes than any time ever before, and yet we have far more computing on distributed computing with servers and PCs. So we just do a lot more computing. But if one thing I think you would take away on this slide on technology which is fundamentally changed is the network. And if I had one prediction to make as a non-technologist, I would say we would see a lot more progress, a lot more intelligence built around the network over time. Because one thing the network allowed, this whole offshore thing is because it made possible because of the advancement in network. So as the network standards became more standardized, the cost points really dropped. All of a sudden the world has changed in terms of how we communicate and how we carry things. And also because of the network, the security industry has really changed. Over time, at least I see more intelligence in the network, and even some of the computing environment I think would get more linked to the network. But that is really, I think, allowed us to have a world where we can fully leverage the internet. And over time, the network becomes more mobile, so we have less connection on landline, but the network will keep driving a lot of the advent of technology.

So what has that done to the role of technology in banking? We have moved from the back office, which we did in the 80s. We had millions of pieces of paper we moved every day, and all the automation we had on a mechanical basis applied in the 1980s. Then we moved to the front office because we said, 'This is great, but how do we bring any value to a customer when we're talking to them in the front office?' So we started saying, 'Hey, we need to know about the customer, about all that they do across channels, multi-channel stuff.' We started talking about that. And then we said, 'Maybe we get directly linked to the customer,' over the last, you know, in the early 2000s with online banking and technologies that started connecting us directly to the customer. But now we are at a stage where information is increasingly becoming the business. So if you look in our corporate banking or capital markets, a lot of stuff was done on a lot of intuition. It's increasingly becoming an information-driven business. How you manage your book is largely driven by what information you have, and the quality of the information allows you to manage your risk in ways that only the right analytics would allow you. The returns are related to how the quality of those analytics, the timing of those analytics, and information has become critical. Today you can't imagine a world where all that information flow that we have in capital markets that you could do business. I'll talk a little more about healthcare. PNC is making a fairly big investment in healthcare payments, and I would tell you that the whole healthcare payments industry is really centered on information. Sometimes you wonder what does a bank doing there? But I think banking business increasingly is also about information. So we see a real kind of tight connection to banking in healthcare when we think about how we are going to get our brand to come alive. A lot of times we have to think about how we would leverage technology to connect with the customers. I'll talk a little bit more about that too. But I think today, that's why in most of the financial services, what you find is that technology and information is no more a staff function like legal used to be or sometimes finance. It is really core. Even my CEO looks to me and says, 'Hey, I'm counting on you.' And that's why you also see a trend that a lot of business people or CIOs have business background, because you've got to understand the business if you're going to be effective in leveraging technology.

So what I thought is I'll share some things on what's happening from what we see, some of the key changes on the customer side, some key changes on technology, and then talk a little bit about what does it mean for implications how we manage technology and how do we win with technology. And then we'll pause and do question and answers, which is something that I think I would probably enjoy the most. So if you think about payments, and payments to us is how you really leverage the financial services of banking, whether you're using a debit card, credit card, check, cash, any way, wire, all those channels that you use. But look at the dramatic change that we have. 10 years ago in 1996, it was really a check and cash society: 85% transactions, and the 15% includes all the credit cards, ATMs, debit cards. Online was all only 15%. And look at today, it's 43%. Now the challenge for the bank is the following: since we now have 43% and growing, we are investing heavily in the electronic channels. But guess what? We need the entire infrastructure to manage all the paper payments too. All our check processing, all our branch investments, we have to have all those investments in place, add all the transactions for electronic. So the fundamental challenge that remains in banking for us is the cost of providing the service across all these channels keeps going up. Some customers never go to the branch, but guess what? Some people, most people would like to open their account in the branch. So we still are opening a lot of branches these days. We couldn't just come into Maryland and say, 'Hey, we want to be PNC and start banking.' We had to have a merger with Merant, and all the Merant branch presence got us really in the game. So the fundamental challenge in banking becomes: how do we leverage technology in a way which is efficient, that we can manage this mix and growing mix, keep investing, and yet keep our revenue to cost ratio in line.

On the other side, you look at the consumers, and they fundamentally changed how they do business with us. If you look at online banking, 60% in a couple of years we believe would be doing online as their primary channel. Today it is around 45% or thereabout. But again, as we invest in online banking, how do we make sure that we have all the stuff in our branches, all the stuff in the call center, all the ATMs? All that cost and all the convenience that we would provide all needs to be maintained while we're investing in new channels. Another area that I talk about customer-driven changes is online banking. This is just a PNC story to tell you how we treated online banking very differently even a couple of years ago. We regarded it as a channel, part of a multi-channel delivery. We thought of it as, 'How do we make progress, present a unified brand?' We went to one site, pnc.com, where we used to have maybe 30 sites over the last 10 years. We went down to one site. We did all the basics pretty well because we wanted to be competitive in the channel. But now we are really in a different ball game. This is how we would differentiate ourselves. Let me talk to my friends on the right side of the house. We're developing websites and saying how do we really do business with Gen Y. Interestingly, we hired a company called IDEO to work with us because most of us when we think about doing stuff on online banking, we start with 'we have checking account, savings account, cards.' That's the language we speak. Well, many of these people don't speak that language. They think about 'I have some money, I spend somewhere, I save something, and maybe I can move it.' How that happens. This company really has a group of anthropologists, psychiatrists, and computer scientists, and they all work together to figure out how does the emotional value of this thing really work. What are emotions attached to you when people do different aspects of banking? In fact, on our behalf, they went to Korea to really check out how it happens in Korea because they are far more advanced actually using electronic banking, and they use a lot of stuff on the card, all the stuff they do on buses and trams. A lot of it is driven on card based. But the point I would say is we would now in June start rolling out, and I would say to the PNC team here, that'll be something that I think you'd find interesting as you are in university, that we fundamentally start changing how we do banking with Gen Y and how they approach it. With a click of a mouse, we'll be able to transfer money. Now we're not telling you we're transferring. We're saying, 'Hey, I want to save. I have so much money, and this is what I want to use to pay my bills, and this is what I want to invest, this is what I want to put my money in this bucket or that bucket.' So we will never talk about accounts to you. We'll talk about you have money and you could do what you want with it with a click of a mouse. In the background we'll do transfers into accounts and all the different stuff. But we'll change how we identify ourselves with how you think about money as opposed to how we think about money. And that is a fundamental change that we would need to make if we are going to be successful. I think you'll see a whole series of changes from us in a way that we really kind of start thinking about, 'How do you think about retirement?' From a banker standpoint, you think of retirement, you have 401k, you have this, you have that. But we really want to say, 'Hey, what are my retirement goals?' In a fashion you identify clearly, and then we say how does a bank really work with you as opposed to saying, 'I have these seven products, which one can I sell you and what might suit you?' But really work to say, 'How do you want to create your retirement plan?' And then we become an enabler as opposed to our definition of products.

Another example as I was talking about is customer-driven change really has become as the information business. Because I think banking increasingly is becoming all about the information that we have. And healthcare is one place where I think it's really showing up for us. If you think about healthcare, imagine yourself that there is a provider like a hospital, and then there are insurance companies. Any hospital people here? Okay. Then I can talk about them. Insurance too. It is a fairly inefficient way in terms of how we do business today, in terms of how we transmit information, the claim information. I think the thinking is there are 50 billion transactions that happen between the hospitals and the insurance companies. 50 billion. Even if you think there's a dollar a transaction, think about the money we are investing. A lot of that is straightforward, complex but straightforward, but very little automation today because there are very few standards. But if we could automate this, you can imagine the billions that we would be able to save for the consumer. But the trick in this really is to be able to identify how does a business work at the hospital? How do you look at what insurance contracts you have, what plans you have, what treatment is allowed, how to do it upfront, how to get permissions upfront so that everything is online efficient, it works for the consumer, but allows the hospital to sell its service in a different fashion. And then at the back end, to have a remittance process which is really efficient so that the bank can provide that service. But increasingly, we find ourselves becoming into the information business on this claim processing and remittance because the two are becoming tightly connected. So most of the banks will be providing the entire service of how do you go claim information back and forth, how do you send money back and forth, connect the two, and be able to provide intelligence to the hospital and the insurance company. And this is one area where I think the banking and the information business becomes one. I think it would be an adjacent territory that we're going to go to.

A lot of technology-driven changes, I'll just keep it at a high level. I thought maybe if we have questions we could talk about it. But a couple of the biggest changes in my mind is the first one is virtualization. Virtualization is really fundamental because it's giving us the scalability. On average, I think this is a correct statistic, on average as an industry we use 8% of the CPU capacity we have on servers. 8%. Said another way, 92% of the time we're not leveraging what we bought. Not as this is not banking, this is the entire industry. The reason is that we have dedicated applications running on dedicated servers. So we have one application, and typically we would have a production environment, a QA environment, a test environment. We'll set up application servers for each kind of environments for every application. And by the way, if you want failover, then you put another server down. And if you have a little more volume, then you become 2x, 2x, 2x, 2x. In fact, yesterday my team came to talk to me for a letter of credit. PNC is not the biggest player in the letter of credit business. They wanted 32 servers to replace the 8 servers they had before, because we're adding environments. So the point I'm trying to make is it's expensive, it's very difficult to maintain because you have that many servers. So virtualization is a big, big challenge for us. With the new technologies that we have and maturity in the virtualized industry, I think that'll become a big deal. And virtualization on the network, across the kind of computing environment, virtualization I think would be really important. The second I think is, as I was saying, linked to scalability but also the complexity. As technology becomes a lot more powerful, it has also become far more complex than it ever was. So for the practitioners in us, we have to really figure out how do we manage that complex environment, the tools we need, and the proactivity we need. The importance of technology to the consumers and to the corporate customers — in fact now, if our corporate online banking, which we call Pinnacle, is down for 15 minutes, that's a huge deal. Because so many corporate treasurers are investing hundreds of millions of dollars based on how much money they have, where the money is going, and they're making decisions in the moment. So now if your system is not available, you just took out 15 minutes of opportunities for them. And by the way, if you took out 15 minutes of opportunity and it happened some major market movement within the 15 minutes, guess who they're talking to? And all the business managers are talking to me saying, 'Hey, your system needs a different level of availability.' And while the complexity in the environment is exponentially increasing, that's why I think really it is an important thing to say how do we manage those complex environments.

The third thing which I'd also say, which is really important, is safeguarding customer information. As information has become more digital through internet and other channels, that information is easily accessible to the bad guys too. I think we have to really think about saying how do we really safeguard that information. We make a lot of investments. Known we've not had any serious lapses there, but as an industry I think it is a huge deal to say how do we safeguard our customer information. And finally, I would say as the environment has become more global, really how risk management and governance becomes really, really critical in this complex environment. So the first thing I would say from the implication standpoint is get committed to a business model. This is really for the banking industry. We have to figure out which model do we play in, because based on what you play in depends what you would do. Every day of the week we compete with all the large banks. Some banks like Citibank or Bank of America are 8 times, 9 times our size. Obviously they invest that much more, they have that much more complexity. So how we compete with them is really once you get clear on what your model is. The larger banks would do a lot of build, we do a lot of buy. I may not have the scale sometimes to compete with Citibank in everything, but I certainly would say Oracle or IBM or ACI or some of the software providers would have the scale. So then for us it becomes important is how we leverage technology as opposed to saying how much proprietary technology do we have. Again, in terms of the workforce, if you want to have a global workforce, you've got to have all the standards around it, all the right governance around it. It is not as easy as saying 'Hey, can I hire seven programmers in India and they cost 1/3 the money and isn't life great?' It is not as straightforward because you've got to have the right governance, you've got to know how to leverage people in different locations, know how to manage the customer information, how to manage the customer information access. All those things have to get wrapped around in a fashion that you can really make this happen. But as I said, knowing what game you're playing is really critical.

What also has happened is as the small banks, and there are 8,000 of them, what they have really done is they are in an information and technology and operations perspective, it's a utility. So there are four or five major providers of technology and operations to these small banks, and almost all of them use one of the service bureaus now because there's no way they could invest and compete in that business. So there's Fiserv, Metavante, Fidelity, there's four or five of them and it's become a really utility play for them. In fact, if you recall, there was an article in Harvard Business Review talking about 'Is IT a utility or is it a differentiator?' And this author made a very forceful or provocative view that they said you know it is like electricity, very important but a utility. And then Scott McNealy from Sun and everyone got really enraged, 'This is our livelihood, how can you ever say that?' There was a big debate. And where I would end the debate is to say it all depends. The computing environment in my view, or network is a utility. It's really like electricity. If we didn't have electricity, imagine this morning we got up and we had no electricity, how screwed up our lives would be. You couldn't take a shower, what all you couldn't do. So it's really critical, but it is a utility. I don't care where the electricity comes from, who's the provider. So I may not compare where my information is computed, but I would care what capabilities I have, how I advance the business. If I go on online banking, I'd like to say it clearly, it would make a difference what capability I have. So I think there are aspects of information technology that are a utility and there are aspects that are a real differentiator.

The second I would say from a practitioner again, from someone like a CIO, is to say how do I manage technology as a portfolio. Because if I try to invest in everything possible, we certainly could not afford it. So we need to know what is really important to the business, what is really important to the customer at the end of the day, and work backwards to say where am I going to play, what am I going to be known for, and then be able to manage the technology set of investments. Where I'm going to be a utility player, and where I'm going to have a differentiated play. And the real value that we create for the businesses is what differentiation at the end of the day we can cause for the customer. If you don't see a differentiator — and this is what banks are not good at actually — is really to create any differentiation. Most people think all banks are similar. I think only in the last few years we've really started talking about the brand and what the brand stands for and how we would create a more differentiated, unique experience for you. So what I think we have to leverage technology to say what are those inflection points for us as a bank, for other people in their organizations, to be able to create the difference.

Next, how do we create the brand experience come alive as part of the differentiation cycle? We got to leverage technology in a fashion that makes the brand experience really come alive. So at PNC, we are really talking about centering the brand experience on ease of doing business and letting you achieve your goals with confidence. So now the question is how does it make it easy? As I was talking about Gen Y, the whole design is around not the way we traditionally thought, but how to say how do we make it easy for people. And then we're going to take the same approach and say how do we make it easy for the employees, how do we make it easy for all different segments, and be able to reach out to different segments in a fashion that really works for you. Given that we have limited resources as every company does, it is really critical also that we have enterprise leverage, especially where there is utility, and also play the game to say if you all try to centralize everything, you may not have the ability to be innovative and have the creator of differentiation. So what I think, and that's the reason I use the word 'optimize,' really says you need to know how much enterprise leverage will you have, how much innovation will you have, and you've got to have a good balance to be able to do both. And last, this is my way of saying, I think it's really about the people. Technology may be about bits and bytes, but it is really about people. How we have people at management levels, how we have people entering our workforce, and it is also something we don't sometimes pay as much attention. So at least for me, this is my single biggest priority: the people that we hire and the people that we have, how do we make sure that they have challenging roles, that we keep their interest and we are able to keep our best people and grow our people. It would be my great desire that we form this partnership with University of Maryland and really see a lot of your graduates come to PNC, because I really think this is a fundamental differentiator for us and a core competency for us. I think we certainly would look to partner with you to do more of that.

I just thought I'd encapsulate what PNC — how we would characterize our technology strategy. If you look at the formula as I call it, it is really to say the most important thing is we remain committed and aligned with the business. So there is no wastage in technology. We really have focused on what we would do, and then really get focused on how do we get leverage out of technology. We win all kinds of awards for technology, but almost all the awards we win is how we create value out of technology, not that we use the technology the first way or we are the first to the market with the technology. But the idea is, you have some technology, how do you create value out of that? That's where the alignment with the business is critical. Again, given our size, we need to make sure we are focused. We're not investing in everything, but the focus bets we make, we need to make sure that we have much higher batting percentage. We leverage as much as possible for the centralized and optimize the central versus decentralized approaches. Core competency in M&A — even how many of your PNC customers show hands? Well, I think there's a big sales opportunity here too, J guys. But I would say is for those of you I hope, as you went through the Mercantile conversion, you would say that we had a fairly seamless conversion. This is something we've kind of developed over time, and each time we learn some lessons. It's not 100% flawless, but close to 100% flawless is the approach that we would go for. And finally, you've got to center this in an architecture that is congruent and can leverage all the different investments and needs that we would have. So in conclusion, I'd say people in my view would be who would be successful, or winners, would be people who can really align business and technology. In my mind, this is a big, big challenge. It's not something that happens naturally, you've got to work at it. And I think it's really critical that people who are in technology understand the business, and people in business understand technology. Relentless focus on people, as I've said a couple of times now, is how we're going to be successful — hiring the right people and then having those people be challenged and grow. Strong risk management and governance, especially as the world becomes more global, and there's no denying the fact that we are becoming more global, and over time the world would be flatter. But the only way this thing works is if you have strong risk management and governance. For people who have gone offshore, you'll hear some stories about how that has not worked or we didn't get the value. I think it's really people who weren't really prepared with a strong governance model. And at the end of the day, this is all about growing the business. So we've got to say how are we going to use these innovations in technology, know what's happening on the customer world, and then say how do we marry this to create value for the business. That's how we play a bigger role, grow the business, and create a competitive advantage. So I'd be happy to take questions at this time.

Sure. So the first question in terms of is banking changed and why are banks still opening branches all the time? If banks have really become all the trends we showed you about the customer behavior that has really changed, something has changed and something hasn't changed. What has not changed is people pick banks based on location. Then they'll open the accounts, and most people do not go back to the branches, but would not bank with you if you did not have a branch. Now there are some successful people who have done it without branches, ING is one of them. But again, in the scheme of things, it's a very, very small percent. Especially when you think about small businesses or medium-sized businesses, people would not bank with you if you did not have a physical presence. So what we are doing fundamentally different is the branches we are building are different. We have different kind of sizes of branches. The model of branches has changed. But unless you really have a physical presence, you can do banking. That's the reason I was sharing with you the challenge that we have. So we are opening more physical branches, more cost structure there. We are investing more in online stuff, more cost structure there, and the same revenue model. And to say how do we balance it is an interesting phenomenon. So we're changing in that fashion — much more of a multi-channel delivery with new channels being added but not replacing the branch channel. So that's kind of the challenge. In terms of RFID and biometrics, clearly I think the industry is moving in a direction of using more RFID. Many of our debit cards we are going to start converting to RFID. The challenge, and many of the European countries are far ahead on that thing, whether they have RFID or the merging of cell phones and credit cards is starting to happen. There are different ways where you can connect pieces. But you also pointed out in your question really one of the biggest challenges is security. So now you have RFID, how do you manage that when people lose that card and how do you provide a secure environment? Biometrics is potentially a very good answer. What we find today at least is that consumers are not as interested or don't feel as open to using biometrics right now from a privacy standpoint. But my sense is that over time that barrier will change as people get more comfortable, and also the biometric technology will become more mature. Today it is not as mature. Consumer behavior, like if you say, 'Hey, I need your fingerprint or your retina scan,' people are somewhat reluctant to think that they should do that for buying $7 of gas or whatever. Over time I think it will change because behaviors will change in a fashion that will allow that to happen. So what we are doing at least is our view is we continue to invest, not significant investment, but we are investing in RFID technology for cards, and over time for access management we are trying out different biometric stuff also, but at a more R&D level right now. As consumers are more willing to accept it, I think it'll change. As I said, in Europe we see a lot more, in Korea almost all public transportation is more electronic based than we are. So more to come.

I think my answer really is what the customer wants. For hundreds of years, the American economy has been a check writing culture. So it has begun to change. In fact, 2002 was the first year when the number of checks really declined for the first time. We always talked of a paperless or checkless society, and it has never happened, but we now see every year we decline in checks. How many of you use online banking? See, people who use online banking — I think I would say, Monique, you don't. Jim, you've got to take care of this. But I think the question is really centered in how fast the consumers will change. The volumes have become to decline. The second thing we've also done as an industry is when we get a check now, we digitize the check, and from there on we are only sending images to other banks for collection. The paper flow — in fact, I think about if I recall right, the statistic is 80% of the checks that we get, after we scan them for the first time, we never use the check paper again. In 20% of the cases, in many cases where you're sending a check and the other bank is not ready or certain cases, we have to use the original check, but that percent is declining too. So over time, even when people use checks, we would make our process a lot more digital, and it'll allow you to get your money much faster. You know all the availability that we go through, and from a risk standpoint which is risky for the bank — while we have the check being sent for collection until it comes back, we carry the risk. So we'll get the money faster and we'll give it to you faster. So I think again, some consumer behavior we are certainly encouraging, we are putting fee structures in place that will allow it to happen, but I think it'll take a little more time.

Most of the medium sized bank — let's start with the easy ones. Most of the large banks are becoming global banks. The smaller banks are local banks. So if you have five branches or 20 branches, you are local and focus on a local community. Where the challenge comes in is all the — I'd say a thousand — middle sized banks who are not in the top five and are not in the 8,000 small banks. I think that is a real challenge that will come over time. From two perspectives: as even businesses become more global in their approach, even a medium-sized company for us, maybe a $30 million sales size company, now demands that we have a fair amount of international capability to do business. So as PNC, we need to make sure we have that capability, and that is easier to do. But increasingly, like I was telling, we have a mutual fund processing business. In that business, when they pick providers — like a Citibank has picking a provider for mutual fund processing — now they say, 'Hey, do you have the breadth of products? Can you do custody, sub-accounting, transfer agency? Are you in all these businesses? And can you do it on a multi-currency basis because I don't want to be in the business of picking different vendors for different things?' So it is a challenge for us. So what we are adapting to is how do we support a global payments environment without having physical global presence? I think that's where the role of technology comes in to enable multi-currency accounting and support that aspect, but without having presence in all the different parts of the world because that's really a different business model.

Now if you bank with PNC, you won't have the problem. So that's the first answer. But the reason you see a lot of these issues, and if I was being truthful I would say we might have some glitches here and there, but by and large I think we are a much better multi-channel institution than most others. Most of these channels were developed one at a time. So to a consumer, which is absolutely appropriate for you to think, 'Hey, to me you're one bank, it's your website, your branch, your call center. Why won't you talk to each other rather than me having to track on different channels and different time frames?' But since they were developed one at a time, people are still cleaning some of that up. The other aspect I would say on the regulatory side, we certainly have seen more regulatory pressures than ever before, both from a compliance standpoint as well as safeguarding perspective. Increasingly it is a fairly difficult environment to be compliant with everything. But on the other hand, it also provides our safety. I believe that financial services, or banks in particular, have to inspire confidence in you that it is a safe place and your money is safe. One of the things that regulators do for us as a real service is ensure that we are safe. Sometimes it's really painful how they do it, but by and large I think they do provide a great service. We find in a lot of cases, the regulators have become real good partners in terms of saying how do we partner up to make sure that the banks are strong and they're also watching for the consumer. But on the complaining side, if I look at Sarbanes-Oxley, I tell you the amount of work we have to do to be compliant — how much of that value did we add? I think there was clear value added to say there is more confidence in the financial statements we put out, but the way we get there, for a bank our size, we have 453 IT controls that we have to independently test. We test, management test, audit test, and then outside auditor test 453 controls in IT before we could say the statements are fair. Come on, give me a break. So over time it will get itself corrected, but some of those things need to get cleaned up. But I think inside of that, the regulatory environment is an asset at the end of the day for us. And on your first question, things will become truly multi-channel so that you can pick up a conversation or processing at any channel and pick up the other. I think over time that will happen.

Great question. Two things I say. One, are we preparing to say how do we offer financial services to this generation in a way that works for them? That's what I was describing to you — in June we would have a different approach relating to this generation. And then there are some things that we would do with them that we would transport over to the world at large. The research would show they think of banking more in a calendar way: 'I got paid, this is when I paid,' as opposed to the way we typically display bank transactions saying you got deposited and give you a transaction view. We don't give you a calendar view. So the first thing when you come to the website, you will see a calendar view by date: when you got paid, when you got money, what did you spend, when did you save, all the different aspects. So we will keep working on what works for that generation. The second thing, and I think if we are not doing as good a job, is how do we prepare for this workforce? Most of these people get a laptop on Wi-Fi and it works everywhere on campus. You come to the bank, now all of a sudden, bye bye Wi-Fi because we have all this access management and all this different stuff. That is something I have to tell you we have just appointed someone to focus on it and say really how will the environment at PNC change where we can leverage technology, do Web 2.0 type social networking, wikipedias and different things which we haven't done as well as an industry or as an organization. It is something I would say we are really focused on because these guys ain't going to be happy when they come and work for us. I have a 17-year-old son and he said something about how do I communicate. I said with email, and to me I'm fairly progressive that I use email. He said, 'Dad, you are the CIO, you use email and not instant messaging? Are you crazy?' But he didn't say the crazy part. But his implicit thing was how can it be? And to me, email is progressive enough. So we have to change that thinking if we are going to be ready for these guys.

Can I do one more question? How about the students? Well, I'm not leaving till you ask a question.

I think as your question suggests, we have to do both and everything in between. Because what you would find is that people use branches to open accounts, do some transactions, and then they want to do everything online or on the phone. So what we are trying to do is again change what kind of branches we start opening. They're not as big, they have much more technology within the branch itself, so we use less cost and investment there. We're also trying to say what type of employees we will use in the branch. Over time, today we have platform, we have teller — that's how we think of the world. We will see over time more universal employees who can just be bankers to help the customer with whatever they need, and then really keep investing on the online side. As the online capability becomes more robust and internet banking becomes more widely used, the world would change. And to the question he asked, the key thing for us to work is to say how do we use common workflows, do it in a fashion that opening an account is the same across all channels. Not like the way we think today, where our opening account process online is different than the call center, different than the branch. It needs to be one across the industry so we get leverage from those aspects. I'll give you a quick data point. If you go to online banking and you're a student and you want to open an account, we ask you for 13 or 14 data fields. If you go to the branch, it becomes 36, because we need to do 'know your customer,' we need to do some bank-imposed, some regulator-imposed. But it's crazy — we can open an account online. So what we are now examining is saying if we got to be easy to do business, how can we do this? Some of that kind of things have to get sorted out so that it makes it easy in that fashion. And the learnings come from both places.