Editor's Note: This is the second part of a yearly feature by Celent. Read part 1, which analyzes IT bank spend for 2009 and previous years.
The financial services industry has evolved greatly over the last several years. While economic conditions, regulatory issues, competitive pressures and customer needs have all contributed, a more fundamental area has truly revolutionized the industry: technology. Technology's radical implications in the financial services industry have grown exponentially. Although information technology has played a significant role for some time, today it is a major competitive requirement for financial institutions. This explains why North American banks are investing a sizable chunk of their revenues in IT.
2008 and 2009 were dramatic and often gut-wrenching years for financial institutions. The financial crisis has made many questions rise to the surface. There is still plenty of uncertainty in the industry, and we are not completely out of the woods. 2010 has the potential to be the start of a turnaround. The information we collected from banks across North America points to several promising conclusions.
Spending on corporate banking is fueling the growth. 2010 will see spending on total new investments grow by a solid 7.1% (spending on new investments fell by 11% in 2009). The overwhelming majority of this spend will be in wholesale banking. Increased focus will be placed on corporate cash management space as banks look to upgrade their aging platforms to woo additional business. This will trickle down to the smallest of businesses as banks also work on targeting additional small business customers. Celent is starting to see some interesting solutions peek out from under the hood. This past fall, Citi unveiled CitiDirect BE, its next-generation corporate online banking platform, and Bank of America announced its next generation offering of Cash-Pro. Other banks, both large and small, will start to invest in catch-up efforts as they attempt to match Bank of America and Citi. Midsize banks will also attempt to compete here as they recognize the importance and profit potential of corporate banking. Growing corporate relationships will continue be a major theme in 2010 as banks aim to offset the lackluster growth on the retail side and to focus on higher-margin businesses that contribute to non-interest income.
Spending on software and services is on the rise. Software spending will see solid and consistent growth over the next few years. Banks are increasingly making use of external providers as they try to focus on core competencies. Spending on external software by North American banks will rise by 5.5% to $9.2 billion (US) in 2010. This figure will continue to grow, rising to $10.3 billion in 2012. External services spending in North America will accelerate through 2012 as banks focus on core competencies and engage external firms for technology projects. External services spending growth will increase by 4.7% to $15 billion in 2010.
Jacob Jegher is a senior analyst within Celent's banking group. For the full Celent Study, "IT Spending in Banking: A North American Perspective," email info@celent.com.
