Spending on information and communication technology (ICT) from the European banking sector is expected to remain almost unchanged over the next five years, according to Frost & Sullivan.
The analyst firm estimates that the ICT market earned revenues of around EUR45.5 billion in 2012 and predicts that this will reach EUR50.9 billion in 2018.
Regulatory compliance, increasing focus on retail banking, and integration of customer interaction channels will account for the modest growth, necessitating the adoption of new technology.
Mario Fernandez, ICT industry analyst, Frost & Sullivan, says: "Compliance requires banks to consolidate various information systems and install software platforms and applications to gain better visibility of their liquidity positions across different areas of business."
In addition, the rise in the number of customers using mobile channels is leading European banks to increase investment in software and IT systems to support the switch.
However, despite these demands, European financial institutions are also tightening their budgets owing to the bleak economic outlook and higher requirements for minimum capital ratios.
Banks' spending on hardware and telecommunications services is likely to decrease due to the commoditisation of these services and the intense competition among ICT vendors, says the report.
"Banks are looking for ICT solutions that will meet their needs with minimum impact on financial flexibility. Therefore, ICT vendors must develop phase-based projects that will allow banks to determine the returns in each phase and record improvements in terms of efficiency and service quality," notes Fernandez.