National City Bank is expanding - not with bricks and mortar - but with new touch-screen kiosks placed inside lumber companies, printing firms, factories and other middle-market customers.

The idea is to snag new business for the bank - from the CEO right down to the guy who mops the floor - by going to the customer rather than relying on the customer coming to the bank.

Right now Minneapolis-based National City Bank (NCB), which positions itself primarily as a business bank, has only two branches and one drive- through location. But by yearend, it will have four of the kiosks inside customers' businesses. More than 10 installations are planned for next year.

Although features on each kiosk can vary, generally they include an automatic teller machine (ATM), an armored commercial depository, printer, scanner and an interactive videoconferencing center.

The interactive center lets company executives and employees talk with and see their banker without leaving the office. It remains to be seen if the $80,000 setup can generate a profit, but bank officials are hopeful.

"It certainly is a way to attract new customers and to handle the convenience that customers want. We bring the bank to you," said Don Kjonaas, (pronounced chonn-as) senior vice president in charge of operations and head of the internal team that developed the kiosks. "We call on prospects and they say the only place we are located is downtown and we say, `True, but now we can also be located in your lobby.' "

Alisha Rindal, programming cochair for the Minnesota chapter of the Bank Marketing Association calls National City's kiosk project innovative.

Coming to the customer

"I have heard some community bankers talk about putting kiosks in their lobbies but no one is talking about putting them in the customers' offices," she said.

Norwest Bank's "superstore" in St. Paul has used interactive terminals inside some branches for at least a year. Nationally, Huntington Bancshares in Ohio, Mellon Bank in Pittsburgh and Wells Fargo in California, have installed scaled-down banking kiosks at shopping malls with varying degrees of success.

The NCB kiosk, named AVEO (Latin for hello), are only available to bank customers. For now there is no charge. That may change after one year, when NCB evaluates each site's profitability, Kjonaas said.

Northern Hydraulics in Burnsville and R&D Systems in Minneapolis have had the machines since June. In that time NCB has watched business trickle in.

A hundred employees tried the videoconferencing system and customer service reps opened 25 deposit accounts and processed one auto loan over the system. Employees are using the ATMs about 25 times each week at each location. Officials said they have taken to the ATM more than the video bank.

"The employees were curious about it and came in and checked it out," said Kathy Backes, controller for the Techne Corp. subsidiary of R&D Systems. "I think they were pleased with it. Personally, I use it to get cash at the ATM."

Backes, already a National City Bank customer, saves $6 a month using the ATM tucked inside the kiosk in R&D's library. She formerly drove to NCB or used ATM machines outside her bank network, she said.

NCB officials say they hope these early test results will transform into significant home equity, auto and other consumer business as well as corporate loans. Using the kiosk, businesses can scan documents, make deposits, receive same-day ledger credit for deposits and get the previous day's ledger balance.

In the next few weeks NCB will have two more kiosks, one in Japs Olson printing company in St. Louis Park and another in Canton Lumber in Brooklyn Park. Canton, a firm with $60 million in annual revenues, just switched its business account from U.S. Bancorp to NCB.

"They are very, very creative," said John Cizek, Canton's chief financial officer. "It was kind of a refreshing change to have some of these ideas coming from a bank.

Electronic `credit union'

"If you want to inquire about a home equity loan or a line of credit you can just touch on the screen and get some info. Or you can pick up the phone and a face will appear on the screen and you can apply for a loan," Cizek said.

The kiosks give NCB an alternative to costly branch expansions. A kiosk costs about $80,000 for an ATM depository-videoconferencing module. (It costs about $1 million to build a traditional bank branch, say industry analysts.)

NCB's approach differs from other industry explorations into online banking, supermarket branches and consumer phone banking centers, long used by other banks as an inexpensive alternative to tellers and buildings. They are delivery systems that NCB has not yet fully embraced, since it has been primarily a business bank.

Larry Benveniste, professor of finance at the University of Minnesota's Carlson School of Management, said the NCB kiosk combines some common banking features with newer ones. For example, the module offers ATM banking plus the personal touch of eye contact with a teller via videoconferencing.

"It is an interesting idea. Whether it will work remains to be seen," he said.

Patrick Harker, professor and senior fellow at the Wharton School's Financial Institutions Center in Pennsylvania, sees it as appealing more to employees than to executives.

"I can't imagine the CEO walking down and using the video kiosk. That is a stretch to me. It seems that it is really a benefit to the employees to be able to bank at the job. It's similar to the credit unions that have little branches inside workplaces. They are just playing the retail bank version of the credit union but trying to do it with lower cost," Harker said.

Recouping $80,000 cost per kiosk may prove difficult. Loan volume would have to pick up dramatically from their current test numbers, Harker said.

Even NCB officials are unsure what to expect from their experiment.

Initially, NCB had to employ a contest to get employees comfortable with talking to customer service representatives via video, Kjonaas conceded.

The kiosk project is characteristic for NCB, a community bank with $700 million in assets, $475 million in deposits, 200 employees and a reputation for innovation. Its headquarters in Gaviidae Common in downtown Minneapolis is completely glass enclosed - even the vault's interior is visible from the hall. The high-tech interior of the bank, which moved into the shopping mall last year, contains interactive terminals, mini-theaters and news monitors. Customers can easily "touch-screen" their way through rate, product and financial planning information or deal with human tellers.

For now NCB is targeting companies with $5 million to $50 million in revenues and roughly 100 or more employees. NCB will provide AVEO free for one year and then assess each site's profitability to determine if fees are warranted.

In the meantime the customer is expected to pay the electric bill. Non- customers using the ATM will be accessed $1 each visit.