US financial services IT spending declines for first time in history

US financial services IT spending declines for first time in history

Technology spending by US financial services firms is declining for the first time in history, as projects are scrapped and delayed during the economic downturn, according to research from TowerGroup.

The research firm says overall technology spending by US financial services institutions will decline 3.7% between 2008 and 2009 as banks tighten their belts during the crisis.

"In 2009, IT strategies will be challenged by industry volatility, forcing financial services institutions to retract or postpone previously planned IT projects," says Virginia Garcia, senior research director, cross-industry practice, TowerGroup.

But TowerGroup insists strategic technology investment remains imperative for institutions' survival and growth after a watershed year for the industry that has seen mandates for improved risk management and compliance, relentless globalisation, and shifts in customer demographics.

Garcia warns "cost-cutting done in desperation may be so deep that it permanently cripples IT structures and jeopardises business lines".

TowerGroup suggests some banks understand this and, while technology spending on new technology initiatives has been delayed in the short term, there is renewed interest to build long-term strategic plans for IT transformation and modernisation.

In fact, TowerGroup expects replacement IT spending to increase by 20.5% in 2009 as institutions consolidate redundant infrastructures and update legacy platforms to help manage risk, meet regulatory standards and reach new customers.

The firm expects a growing polarisation between "leaders and laggards", as the "visionary" rise to the challenge and use technology to move ahead of weaker competitors.

As the crisis abates, spending on new technology will pick up and grow at a compound annual growth rate of 5.8% between 2009 and 2012, with firms working on IT plans that have been revised or reinforced by the crisis.

"By executing on smart, long-term IT investments today, institutions will see business value - beyond a monetary return on investment - that is guaranteed to help organisations create the competitive edge they need to weather the current economic storm and plan for the future success of their businesses," says Garcia.

The spending predictions contrast with a report from Celent earlier this month which predicts spending by North American banks on IT will continue to grow in 2009, up 1.7% on 2008 to hit $50.3 billion.

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