Financial services IT spending set for modest growth - Celent

Financial services IT spending set for modest growth - Celent

The latest research from Celent shows that IT spending by global financial services institutions slowed in 2007 to stand at US$342.1 billion, a year-to-year increase of 5.9% but substantially lower than the 8.7% growth achieved in 2006.

Jacob Jegher, senior analyst in Celent's banking group says IT spending growth rates have dropped across all regions, but US banks have been hit particularly hard and "challenges in this region are contributing to growth declines".

"The credit crunch and looming economic uncertainty have North American financial institutions tightening their belts. Ripples from the US subprime crisis are likely to have a dampening effect on other regions as well," says Jegher.

Although Celent forecasts "challenging" times ahead, the analyst expects global spending on IT products and services by banks to continue to grow to US$386.7 billion by 2009, a CAGR of 6.3% from 2007 to 2009.

In North America bank IT spending is expected to climb by a modest 3.6% in 2008 - a significant 0.5 percentage point drop from the 4.1% growth experienced in 2007 - as firms of all sizes slash budgets and look to keep costs under control. This contraction will push IT projects out of the picture and will make internal competition for IT resources that much greater, says Celent, and IT dollars "will be hard to come by after compliance/regulatory spending and maintenance expenditures".

North American bank IT spending grew from US$46.0 billion in 2006 to US$47.9 billion in 2007 and despite the uncertainty, spending is set to rise to just under $50 billion in 2008.

In Europe - where banks spend the same amount on IT as their US counterparts - technology spending by banks reached over US$60.2 billion in 2007, a 3.4% rise over 2006. This is set to rise to $63.7 billion in 2009.

Meanwhile banks in Asia Pacific spent $45.0 billion on IT in 2007, a 4.7% increase over 2006. This signals a slowdown in spending following several years of high growth, but Celent forecasts a new cycle of spending, which will drive levels to a total of $53.7 billion in 2009.

Among the industry verticals, Celent says IT spending on banking activities accounts for the largest portion of the total spending - nearly 50% - and is estimated to reach US$153.1 billion in 2007. IT spending on insurance and securities and investments activities are expected to reach US$95.8 billion and US$74.0 billion, respectively. In the medium term, insurance firms are expected to increase spending in IT at a faster rate than the other industry verticals.

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