Machines Offer Loans, Not Just Quick Cash

Traditionally, the process of seeking a loan at the local bank has been a tedious, arduous, and sometimes daunting, task. But at some banks, obtaining a loan of up to $10,000 can now take less than 10 minutes - and it isn't even necessary to confront a loan officer.

At Farmers First Bank, based in Lititz, Pa., five automated loan machines (ALMs) similar to the ubiquitous automated teller machines, are available to customers.

Applicants use a touch screen to enter information, which is automatically analyzed, and the customer is either rejected, asked to contact a bank loan representative, or, ideally, receives a cashier's check on the spot.

Soon more than 25 banks across America will be offering ALMs, which were introduced last year by Affinity Corp. of Columbia, S.C. The banks range from giants such as NationsBank and Banc One to little Shoreline Bank in Benton Harbor, Mich.

Analysts see the move as part of broader changes that include banking by telephone and computer on-line services.

"Community banks must react to the tremendous technological change that is sweeping the entire financial services industry, or suffer the consequences," says Paul Pustorino, a partner at the Boston office of consulting firm Grant Thornton LLP. "There is an entire generation of customers growing up today who interact with computers and other technology-based products every day. These customers aren't just comfortable [with these products] - they expect banks to offer them."

Surprisingly, the innovative ALMs are hitting the marketplace in a period when loan defaults are at a high level. A June report by Gerard, Klauer, Mattison, & Co., a New York investment house, cited bank loan-loss levels almost as high as during the 1991 recession. Although the losses stem largely from credit-card problems, making loans more easily available could add to default risks.

But Edward Balderston Jr., a senior vice president at Farmers First Bank, says the ALM grants unsecured loans using the same credit standards as a loan received from an officer at one of the bank's branches. Farmers First plans to add 30 more ALMs to its present fleet of five.

Blair Bingham, vice president of Deposit Guaranty National Bank in Jackson, Miss., provides a different slant: "[ALMs] have the potential to be of a higher risk. Anything that takes the human element out of the equation adds a little risk to it." The bank has placed a $5,000 limit on its ALM loans to minimize potential losses during a research-and-development stage.

The new machines may symbolize more than just a new marketing tool aimed at a technology-savvy generation. With the rise of services based on computer and telephone links, some analysts say the days of the brick branch office are numbered.

Balderston discounts this notion. "There will always be people who want to do banking in person, [as well as] over the telephone, or electronically," he says. "We are attempting to provide as many opportunities for the customer ... as possible."

But he doesn't think automated banking will stop at the dispersal of unsecured ALM loans. "Soon the machines will be capable of opening credit-card accounts, checking accounts, ... and mortgages."

The ALMs are being distributed to branch banks, shopping centers, and even grocery stores. Mr. Bingham hopes to have ALMs available at venues such as automobile shows. Deposit Guaranty charges 12 to 15 percent interest on its ALM loans.

Many bank executives are not jumping on the ALM bandwagon. And even the early adopters sound cautious. "It's still new technology," says Mr. Gavin of Atlantic Federal. "We have had several [ALM] loans, but it will take a while to get it recognized by the public."

Affinity Corp., the machine's manufacturer, says it is the only "closed-loop" loan-application device. Affinity processes all ALM transactions for customer banks, based on criteria they provide.