TowerGroup, a research and consulting firm that focuses on the global financial services industry, held its 2005 conference last week at the Boston Marriott Copley Place hotel in Boston.

The use of analytics will become more important to banks, the use of checks will decline, cash will continue to dominate and the different departments of banks will work more closely together by the year 2015.

That’s according to experts who spoke during a conference held in Boston last week.

“[Analytics] are the key to harnessing this tremendous information explosion we’re going to get in the next few years,” said Robert J. Landry, vice president and chief research officer at Needham, Mass.-based TowerGroup, a research and consulting firm that focuses on the global financial services industry.

Landry, who has been with TowerGroup for 10 years, develops top-line industry themes and coordinates the evolution of overall research content, advises major business clients and supports new business development. Landry spoke about innovation and transformation in the financial services industry at the 2005 TowerGroup conference, “Road Maps for Growth,” which was held at the Boston Marriott Copley Place hotel.

Divisiveness among different departments in banks has slowly been lessening, but there is still a long way to go.

“Although some movement has been made, it’s like silos in the countryside,” Landry said.

In 2015, the departments will still be somewhat separate, but will be integrated at the customer level, he added.

Another TowerGroup expert, Jim Eckenrode, the firm’s vice president of consumer banking, compared the integration of banks’ departments to what the nation was like before the Constitution was enacted. In the pre-Constitution era, many of the states operated under the Articles of Confederation – which gave the states more individual control – but the Constitution defined the states as a union.

“I believe banks are like the United States before the Constitution,” Eckenrode said. “Even though we’ve been trying to break down those silos, it hasn’t worked.”

Eckenrode called banks a “loosely coupled” confederation of products and services. Banks’ chief executive officers and chief financial officers are renewing their call for better integration with a goal for freeing up resources for new innovations, he said, and some banking institutions use savings from mergers and other initiatives as strategic investments. Some priorities are to modernize infrastructure to take advantage of new technologies and to improve the client experience, and major technology vendors fill many different roles in helping banks to stay on the cutting edge, he noted.

Among those innovations are new technologies like biometrics and increased mobility. Technology has seen incredible growth in the past two years, Landry said. Moore’s law, which says the power of computers doubles every two years, continues to be true, he added, and communication capabilities continue to grow.

“The other real revolution has to do with communications,” he noted. Bandwidth has moved from wires to the airwaves, a trend that is just beginning. But the cost of providing that new technology will continue to grow, Landry said.

One of the key changes will be that data will come from unexpected places.

“Data is going to come from everywhere,” Landry said.

There will also be networks everywhere and customers will be able to access information from wherever they are.

“The big thing that is going to happen is mobility,” Landry said.

Biometrics may also be a key to identification and security. Innovations such as eye scans or fingerprinting devices can be made safer when coupled with traditional devices like debit cards or key fobs.

“This is going to be part of the solution,” Landry said.

Although privacy issues have historically been a concern with biometrics, many bank customers are starting to see the upside of the increased security it can provide.

And even though technology will have improved in the next five to 10 years, banks must be cautious and smart about the way they use it, Landry added, saying it must be easy to use and make customers’ lives easier, not more difficult.

“We have to find a business use and a way to use the technology,” he said.

‘The Extra Mile’

Although technology and integration will change the way banks work, one of the most important tools for banks in 2015 will be analytics, according to experts.

At an executive forum earlier during the conference, chief information officers from financial services companies around the world identified analytics as the tool that will change business most.

Analytics are data that help companies track business trends. It analyzes data about a company’s business activities and customer information and presents it so that smarter and more efficient business decisions can be made.

Banks are continuously looking for ways to improve business. They have spent hundreds of millions of dollars on enterprise initiatives such as new core systems, implementing single vendor multi-channel solutions and trying to consolidate back offices. They also have been concentrating on short-term projects and demonstrable returns on investments, but experts indicated those changes in goals carry relatively little risk and may not spark the kind of change that will revolutionize the banking industry.

“That’s gotten us as far as it can, I believe,” Eckenrode said. “But we’ve got to go the extra mile.”

One of the biggest areas in which banks are failing is architectural integration, he noted.

“This is where I see we are really falling down,” Eckenrode said.

Eckenrode summarized some of the hurdles banks are facing. For one thing, the leverage that banks get from technology is dwindling. And because banks have had an inability or unwillingness to take on challenges that will deliver major improvements, the implementation of business applications has been flattened.

Major changes will happen when bank executives see that small improvements aren’t delivering results and chief information officers realize the magnitude of the problem, according to Eckenrode, who said some attempts to improve efficiency already have been made in other countries. In Germany and Japan, for example, some banks have replaced core deposit systems and there have been moves to consolidate lending systems.

But as budgets are freed up, savvy executives will recognize that the time for innovation is now, according to Eckenrode.