Global financial institutions are expected to spend $362 billion on technology investments in 2005, according to the latest reseach from TowerGroup.
Guillermo Kopp, vice president of the TowerGroup's cross-industry research practice, says there will be fundamental shifts in the way financial firms manage their IT investments in 2005: "Financial institutions will implement process and technology changes in more manageable chunks, and employ business process management and networked services as pivotal elements for strategic transformation."
According to the study, technology spending by the banking industry in 2005 will represent at least a 4.4% increase over 2004 levels. Of this amount, the bulk of spending - 72% - will occur in the EU and North American markets. But consumer banking will command the greatest share of overall IT spending across all regions.
TowerGroup says banks will continue to see growth in retail-oriented lines of business in 2005, while also witnessing a slow but broad-based recovery on the wholesale banking front.
The research also suggests that the global securities industry is resuming growth in IT spending at a more measured rate as its recovers from the after-effects of the technology bubble. Between 2001 and 2003, technology spending dropped at a compound annual growth rate (CAGR) of minus seven per cent, but TowerGroup predicts that IT spending will rise across the global securities industry at a CAGR of plus four per cent through to 2008.
Rob Hegarty, VP of the securities and investments practice, TowerGroup, says new regulations, market structure changes and loss of investor confidence is forcing firms to realign their technology budgets.
But TowerGroup says overall IT spending in the US insurance industry will remain relatively flat from 2004 to 2005, although there will be a slight increase in total IT spending for property and casualty insurance.
New IT Reality Spurs Significant Spending Increases For Financial Services Sector, According To META Group's Annual Worldwide IT Trends & Benchmark Report
Thursday December 16, 9:10 am ET
Report Reveals Higher Than Average IT Spending For the Financial Services Sector In 2005; Experts Suggest Financial Services Sector IT Investment Is Inconsistent With Operational Expenses
STAMFORD, Conn.--(BUSINESS WIRE)--Dec. 16, 2004-- While META Group's annual Worldwide IT Trends & Benchmark Report reveals a lukewarm IT economy at large, the financial services sector is on pace for significant increases in IT spending. The report, published by META Group (Nasdaq: METG - News), a leading provider of IT research, advisory services, and strategic consulting, reveals a new IT reality in which cautious technology spending has fundamentally altered how organizations invest their IT dollars. However, this new steady state of IT has done little to suppress the enthusiasm for IT in the financial services sector, an industry which now leads many of its peers in terms of traditional IT intensity measures.
Separate data from Meta Group suggests that financial services IT spending in 2005 is projected to increase by seven percent - with smaller (under $10B) financial services companies accounting for the majority of that growth. Companies over $10B have projections of 4% or less spending growth in 2004. Overall spending projections across all industries is four to five per cent on average.
Meta group says financial services organisations have been able to drive infrastructure costs down considerably and now have changed their focus to applications rationalisation. At the same time, these firms are reinvesting the savings from the rationalisation activities in the past couple of years in an effort to drive business growth.