New paradigm for multi-channel integration and CRM Customer knowledge that is made available to all customer-facing employees regardless of channel/location/product specialty has long been an elusive Holy Grail of retail banking. No longer. Pioneering banks are coming very close to capturing the Grail and providing real-time and sales-focused customer information, which enables customer service representatives to deliver personalized service. These banks have justified their expenditures on advanced CRM systems and investments in integrating their middle tier with a strategy founded on building customer relationships as opposed to simply growing product balances. Credible ROI models have been constructed based on data that show that satisfied customers buy more products and remain loyal and buy more products and become profitable, and so continues the virtuous circle.

Branches as stores - The idea to transform branches into stores instead of transaction centers is an old one, but today it has a chance at a fresh start and has a strong impetus. Banks will soon feel pressure -- if they do not already -- to produce more from their branch network, particularly in light of the fact that they have saturated certain markets and face excess capacity issues. A focus on customer relationships and sales requires attention from the entire banking organization from the strategic "C" level on down to the branch tactical level. Advanced branch applications, which are harnessed to advanced CRM systems, will be a key enabler at the tactical level.

Sea change in payments - Growth in electronic payments will accelerate over the next couple of years. Innovative, multi-channel payments will continue to grow on the retail side (e.g., P2P and proximity payments in the U.S. and contactless payments in Asia). There will be a gradual push for e-payment adoption in business-to-business (B2B) transactions driven by a medley of players from banks to standards-focused consortiums (e.g., RosettaNet and the IST Harmonization Working Group) to EIPP/e-payables/ERP application providers. Overall, many areas of payments will experience consolidation (e.g., credit card acquiring and network management).

Further investment in check imaging - More infrastructure will be built to support end-to-end check image processing from the point-of-entry to day-2 processing. Although payback in check imaging will likely not yet happen in 2005, an increasing number of banks recognize that they need to adopt imaging or else they will be left behind processing expensive paper while others enjoy the benefits of image exchange. On the revenue side of the equation, payback could come next year as early mover banks figure out how to leverage image-enabled services to generate new revenue (e.g., attract small business customers by offering expedited funds availability or build their commercial depository business through remote capture).

Heightened attention to security and fraud control - Fraud and security concerns remain top-of-mind for many banks. Several factors are driving banks to invest more heavily in IT and human resources to combat fraud. Such factors include: increasing exposure across virtual channels (e.g., rise in phishing and identity theft); increasing concern regarding regulatory compliance (e.g., the need to implement a consistent, compliant strategy across products and channels); vulnerability created by check imaging and Check 21 and the need for new check fraud measures; and continuing attacks (e.g., skimming) against cards at both the POS and ATM.

Small business Internet banking no longer generic - Branch managers have long known that small businesses can be lucrative customers. This knowledge, however, had been long overlooked by Internet banking decision-makers who tended to discount the channel's potential for serving small business. The days of a generic strategy and solution are waning. The price/performance of small business-oriented online banking has improved notably over the past five years, ushering in tailor-made features and functionalities. Banks that are harnessing the advanced solutions are finding they not only increase customer satisfaction but also are building business and revenue streams (e.g., positive pay services and check images on demand).

Moving beyond cash management to the entire financial supply chain - Leading cash management and treasury banks will gradually recognize that they must offer more products and services to facilitate the financial supply chain. Their future livelihood lies beyond the payment piece: upstream, they must focus on adding value in the order/invoice stages, and downstream, they need to offer better price/performance in the reconciliation stage of a B2B transaction. By diversifying their revenue mix and providing more and better transaction information, working capital services, and credit management, early mover bankers are excelling.

Alenka Grealish is the manager of the banking group at Celent Communications, a global research and advisory firm focused on the application of information technology in the financial services industry. She can be reached at agrealish@celent.com