January 11, 2012

This year promises to be a profound one for positive technological shifts in banking -- the sort of disruptive change that is desperately needed in this industry. The last few years have put more strain on a business model already stretched by compressed margins, capital constraints and fee erosion. While the uncertain regulatory environment will magnify these concerns in 2012, I predict community banks will seek innovative technology to deal with these existing burdens and prepare to solve new, yet unforeseen, challenges.

1. The most dramatic shift in decades will happen in enterprise technology. With the financial services industry still operating on some of the oldest technology of any industry, market pressures are igniting a large-scale shift in the U.S. core solutions market, finally ending the dependency on legacy systems. These market dynamics are forcing many leading vendors to more aggressively market newer technologies and announce replacements or rewrites of their older layered legacy systems. New technology alone will not be enough, though. Community financial institutions will also demand enterprise technology be more nimble and extendable, so they can collaborate and share technology to reduce costs and deploy innovative solutions more quickly.

2. Collaboration will be embraced by community banks to improve operating efficiency. While we've seen inklings of this in the past, community banks will increase collaboration efforts with other banks, their technology providers and even credit unions to solve common business problems. We're living in an era of collaborative technology. Just like Apple and Android are changing the definition of smartphones through application stores with nearly limitless options, we will see banks and credit unions develop and share their technology tools in an open marketplace. Through these tools, financial institutions will reduce development costs, shorten time to market and share ideas globally -- for everyone's benefit.

3. Unlikely revenue sources will be found. More and more financial institutions will look internally for non-traditional revenue sources. As we begin a new year, community banks must take time to evaluate their current practices and look for solutions that improve operational efficiencies or increase revenue. Many financial institutions are dealing with the same business problems, but when one finds a solution, that solution can be shared among a network of institutions. Individually, community banks can't match the scale and technological resources of the nation's big five, but collectively, they can match it. By implementing innovative best practices and taking advantage of the most robust solutions available, community banks will find new ways help to improve their operations.

[Read about how Bethlehem, Pa.-based Team Capital Bank turned its IT department from an investment center to a profit center.]

4. Self-service will become more ubiquitous. Across the country, community banks will look to improve their technologies and increase their efficiencies through cross-channel self-service offerings. More and more community banks will come to understand the deep impact technology is having on their self-service and branch channel strategies with the advancement of technologies such as smartphones, tablets and image technology. As mobile banking penetration escalates, check capture becomes more important. We will see banks embrace mobile, consumer and ATM capture in even greater numbers in efforts to reduce operational costs by decreasing processing at teller lines and satisfy an increasingly mobile customer base.

This will require simplified solutions that improve usability by both employees and consumers. As more transactions are done through self-service channels, customer satisfaction will be based more heavily on usability and simplicity factors that aid rapid, error-free transactions. Human factors engineering and usability testing will continue to play an increasing role in software design in 2012.

5. Community banks will go back to basics by putting their customers at the center of their business. This requires a more effective CRM strategy focused on delivering relevant and actionable business intelligence at every human touch point of the bank. It also requires that customer data be captured fully and cleanly, and offer limitless views into a customer's preferences and distinguish all the of a customer's interrelated connections.

I believe that this new emphasis on the customer will establish the foundation for improved customer service, increase sales and ensure a consistent service experience for the consumer. The banks that have addressed these foundational issues will develop more meaningful relationships and loyalty-based pricing strategies to drive profitability and wallet share. Ultimately, the winners will reestablish themselves as trusted financial intermediaries and lubricants of local economies.

In 2012, there will be no shortage of challenges for community banks. However, those that put effort into improving their use of technology will be better equipped to serve their customers, improve efficiency, control their costs and take advantage of new growth opportunities.

John Messier is the vice president of core product strategy at Open Solutions.