The increased trend toward globalization of banking in 2007 will cause U.S. banks to attempt to stand out from the crowd more as they consider product innovation, replacing their core processing infrastructures, more branding effort and greater strides to differentiate their delivery channels. And look for more European banks to buy American.

These are among the key predictions for this year from Jim Eckenrode, managing director of banking and payments for Needham, Mass.-based TowerGroup Inc. during a recent Webinar entitled "The Top 2007 Trends in Banking: Business Drivers, Strategies and Technology Initiatives."

"The banking industry is facing increasing burdens of cost pressures, regulation, customer demands and security risk," Eckenrode said. "At the same time, globalization, branding and acquisitions will change the industry landscape."

While Eckenrode said a couple of top U.S. banks, including Citigroup Inc. and JPMorgan Chase & Co., could expand their banking presence internationally, he expects more activity from the other direction, i.e., European banks looking to expand their market presence in North America.

"I see more institutions, particularly Dutch and British, seeing greater interest in the U.S. market, where there are 300 million banking customers. They will buy the larger institutions because they won't want to build a presence through bits and pieces," Eckenrode said.

He said this foreign competition will prompt U.S. banks to be more creative with their delivery channels. "Many of the foreign institutions have been more willing to adopt innovative ways to use self-service and that is likely to cause institutions in the U.S. to look at how they could use unique delivery channels, such as mobile technology, to set themselves apart."

Such innovation will involve how products are "configured and priced," Eckenrode said, referring to product packages designed for specific customers and differentiated more by geographic markets. He expects this trend to carry over into greater emphasis on bank branding.

"European banks have done a good job of developing their brands. But U.S. banks are not as good at branding in terms of recognition, consistency of experience, emotional appeal, uniqueness and adaptability," Eckenrode said.

Finally, U.S. banks will use cross-border mergers and a need to create greater economies of scale as incentives to replace their core banking systems and increase their use of Service Oriented Architecture (SOA), Eckenrode said. He noted that European banks such as Santander in Spain, Italy's Unicredit Group and Barclays Bank in the U.K. have used their acquisitions as an opportunity to install more efficient core banking systems throughout their entire operations.

But Eckenrode also predicted that U.S. institutions will apply SOA at a slower rate than European banks. "Some institutions, such as Wachovia Corp., are farther along with SOA. But nearly all the top 20 are investing in the technology, at least on a case-by-case basis. Some banks are looking at it for payments; others for mortgages."

The result of all these trends will be greater innovation - at least at some banks. "For the first time in years, some banks will separate from the pack and truly establish a competitive advantage. But for the rest?"

Eckenrode left that question unanswered.

(For our own top predictions for 2007, see "Retail Outlook for 2007" in the January 3, 2007 issue of BAI's Banking Strategies Retail Delivery Insights.)

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