TBR: Financial Giants Get IT And Plan To Do More With It

While it will only represent a modest 2% increase, North America’s largest financial institutions – commercial and savings banks, financial transactions processing firms, insurance, credit unions, and reserve and clearinghouse services – plan to shell out $73.8 billion on IT improvements across software, hardware and professional services in 2014 as they transition investments from “run the bank” to “change the bank,” according to TBR’s Banking and Financial Services SourceIT report. The survey of 201 organizations – 950-plus employees with $1 billion-plus in assets – that account for 20% of the IT opportunity in the financial segment, found that large banking organizations are increasing investment in multichannel banking and data management to improve system performance to ultimately meet customer demand for improved service and an enhanced user experience, said Senior Analyst Allan Krans, Technology Business Research.

IT is clearly becoming more strategic for financial services companies, helping them maintain the status quo and acting as an accelerator for strategic business shifts, said Krans. Although budget increases are modest, we see strong commitment and funding for IT projects that positively impact the customer experience occurring during the next 18 months.

TBR conducted the survey because the technology market research and consulting firm saw a gap in terms of sizing the overall market, understanding what are some of the more granular views into decision making process, and how IT vendors can take advantage of this opportunity, he said. “Not only were they very aggressive buyers, but there were a lot of touchpoints within the organization.”

From a priority perspective, TBR was a little bit surprised by the focus on how things had changed in the business model. “There is extremely tight integration between the IT roadmap and what the organization intended to deliver (service-wise). I think IT would be more strategic than in many other industries.”

There is also deeper level view of IT, and how close it is to their core business, said Krans. The decision-making process is also really distributed throughout the business, he added.

“If you think about the adoption curve for new technology, we found financial services as a whole are ahead of that curve than other industries. We saw that in BI/analytics (a separate study)… they were leaders in terms of implementing predictive analytics, data mining as well as some of the more advanced approaches.”

The 2% increase is consistent with Gartner’s predictions (for 2013), but less than half of IDC’s forecast for IT spending increases (4.9%). Krans said the 2014 budgets probably reflected the economic environment while they were collecting that data, but that has improved since. Secondly, this segment has already made some significant investments in things like BI and mobile online banking, so a lot of the groundwork is already laid. Thirdly, they’re looking at increasing efficiencies within IT, so they’re able to allocate more money to those initiatives.

He believes large financial institutions are also ahead of the curve when it comes to the split between discretionary and non-discretionary resources, which are most frequently quoted as being 70-80% of IT budgets being locked down on just keeping existing operations going. Rather than the 20-30% that is the market norm, this segment has already shifted approximately 40% to discretionary resources, said Krans.

Looking ahead, he said this segment will continue to focus on delivery methods, both internally and increasingly by way of private cloud. The investment to go that way is significant, but he is seeing large institutions look to leverage the private cloud at scale and reduce expenses. Also expect to see a lot more emphasis on online mobile capabilities. “We’re going to see a lot more marrying of that with analytics… with promotions and targeted marketing.”

The survey covered:

-budget plans, decision drivers and vendor relationships across the enterprise software landscape;

-industry applications, back-office business applications, productivity, BI and analytics, database and middleware, systems management and security; and,

-more than 35 vendors, including ADP, Dell, EMC, Equifax, Fair Isaac FICO, HP, IBM, Microsoft, Oracle, Salesforce.com and SAP.

 

Author: Steve Wexler

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