Look inside the Mass. Ave. lobby of Bay Bank/Harvard Trust. Nine automatic teller machines (ATMs) are spewing cash to lines of lunch-hour customers. A separate crowd waits to be served by an army of a dozen tellers. A closed-circuit television repeats the bank's current commercials. Potted palms, ads for trips to Hawaii, and green and blue hues strike you from every direction. It is, unmistakably, supermarket banking.

Just one block away, at Bay Bank's two closed competitors, the mood is far different. Cambridge Trust keeps its all-night ATMsoutside, and Cambridge Savings has none at all. Their lobbies feature wood paneling, a hushed mood, and no television commercial. If Bay Bank is the Stop & Shop of Harvard Square banks these two resemble Cardullo's

One sterotype of Harvard students that generally holds true is that they have a lot of money. The same applies to the Harvard faculty, most businesses in the Square, and the University itself. Predictably, the competition for Harvard Square's depositors and borrowers is hot-no less than seven banks do business within a block of the Square, compared to four in Central Square and three in Kendall Square.

Between them, the seven hold close to a billion dollars in accounts with members of the Harvard Square community. In both volume of trasactions and customer market share. Bay Bank stands as the undisputed ruler of the Harvard Square territory. Donald H. Tavel, vice president of the Harvard branch, says the bank controls about 50 percent of all deposits in commercial banks in the Square (although three, including the large Cambridge Savings, are savings and not commercial).

The large number of competing banks assures that interest rates and account charges remain virtually even throughout the Square. But a different competition-centering on the different services each bank offers-has introduced many banking innovations to Cambridge in the last several years, each designed to enhance the convenience and efficiency of all types of transactions.

"We are a service industry..you have to be aware of what the competition is doing," says James F. Dwinell III '62, senior vice president of Cambridge Trust. This focus on customer attention is largely responsible for the proliferation of ATM locations and the renovation of two smaller banks-Merchants' Cooperative on Church St and Coolidge Bank on Mt. Auburn St during the last two years.

Bay Bank traces its success to its vast network of ATM units installed in the Square in 1977. With more than 200 locations in Massachusetts, any card holder can pick up cash in a pinch at Logan Airport for a spur-of-the-moment flight out of town, in the North End to see the Bruins play, or in downtown Wellesley to buy flowers.

"We are the leading electronic bank in New England," Tavel says. "To me it's faseinating to see the people who enjoy using [the machines]."

Envious of Bay Bank's network, three of the six other banks in the Square have installed machines since 1977 (Coolidge Bank had the Square's original ATMs), and two of the other three are in the process of introducing them "Students love to play with machines," says Daniel Kellecher, managers of Charlesbank US Trust, which does not have them but is investigating the possibility.

Officials of Merchants' Cooperative installed ATMs when the bank moved from Dunster St to Church St two years ago, but the units have never been brought on-line because of computer problems James Logan, vice president of the holding company that acquired the bank last year blames the Harvard Sqare branch's relative decline in the consumer market since the late 1970's on the failure of its automated units.

"The ATM is the key to being of full-service bank." says Logan, adding "We're anxiously pressing our data center" to reprogram the machines.

However, one bank-Cambridge Savings-continues to eschew electronic service despite the competition's success with it. Bank President David Noyes says that Cambridge Savings is not geared toward the customer attracted by the machines. But it has become the second-largest bank in the Square nevertheless, primarily through a high volume of retirement accounts and other long-term, high-yield savings investments that appeal to the wealthier sector of the Square community.

Noyes cites two of his bank's more high-brow functions--providing tax-sheltered retirement accounts for professors, and financing large purchases (of automobiles, for example) by Harvard students--as crucial to his bank's strategy.

But if Cambridge Savings targets its services toward the wealthier part of the market, the other six banks in the Square compete energetically for the business of the entire community, particulary students. Dwinell of Cambridge Trust says his bank has benefitted through the years from students who open small accounts and keep them as they become Harvard faculty or administrators.

We feel very strongly that if you're going to be in Harvard Square, you damn well better deal with [students] thoroughly." he says Cambridge Trust, along with most other banks in the Square, advertises regularly in student publications and caters to the student market by making ATMs available 24 hours a day.