19 September 2014

Financial markets IT spending to hit $100bn as credit crunch nears end

19 March 2014  |  3560 views  |  0 globe

2018, a decade after the collapse of Lehman Brothers, could prove the end of the financial markets technology credit crunch, with spending breaking the $100 billion barrier, claims analyst house Ovum.

Ovum says that there is a consensus developing across the capital markets, corporate banking and asset management that tech spending will pick up between now and 2018, mainly as a way for firms to make cost-savings elsewhere in the business.

In capital markets, after weak growth in global IT spend of 3.7% in 2013, this year will see a modest rise to 4.8%. In the longer term, spending will pick up, growing at a 6.4% CAGR between 2014 and 2018.

Ovum says the spending comes because financial institutions want to move towards a central banking function and so will consolidate and improve their systems in order to make them more efficient. Currently, the capital markets are very product-siloed and are looking to transform their trading platforms.

In corporate banking, tech spending is set to grow by five per cent this year as banks invest in their systems to improve liquidity management. The lending side of corporate banking is seen as the primary driver of growth, but the transactional side of the business is also on the upswing, driven mainly by IT spending.

Daniel Mayo, practice leader, financial services technology, Ovum, says: "Lending is picking up and banks are looking to IT to analyse and understand lending decisions in order to minimise the risk of another financial crisis. This increase in responsible lending suggests that the end of the credit crunch is in sight."

Meanwhile, asset management IT spending is also on the rise. Having recovered from the financial crisis, it has reached pre-crisis credit levels and looks healthy overall.

It is not all good news though: this masks a polarisation of the industry. The IT load of asset management is being squeezed between passive tracker funds on one side and more specialist hedge funds on the other. Most asset managers are looking to diversify and increase the number of funds that they offer.

This is driving IT investment, to cope with the diversification of services driving an increase in spending from two per cent growth in 2013 to a 5.1% CAGR between 2014 and 2018.

Says Mayo: "The element that is driving most of IT spending revolves around appeasing investors. With a current trend of account holders desiring visibility and control, particularly in the digital channels, client servicing systems are having more money placed into them."

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