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North American bank IT spending picks up - Celent

12 January 2010  |  10729 views  |  0 cash

Spending by North American banks on IT is set to pick up this year after a quiet 2009, rising 2.2% to $51.4 billion. However, the growth will be fuelled by the wholesale market as retail spend continues to stagnate, according to Celent.

Last year saw a decline in IT spending growth, from 3.1% in 2008 to a mere 1.7% but Celent predicts a steady uptick over the next few years, with the figure reaching $55.2 billion in 2012.

Celent says 2010 will see spending on total new investments grow by a solid 7.1% compared to an 11% fall last year. The overwhelming majority of this spend will be in wholesale banking, with an increased focus placed on corporate cash management as banks look to upgrade their ageing platforms to woo additional business.

In contrast retail banking IT spending will grow just 0.5% in 2010, compared to a 1.2% rise in 2009, says the research firm. Cuts to retail banking operations and an emphasis on self-service are fuelling the trend but the pain will be short-lived, and the start of a turnaround is expected in 2011.

The pinch is not being as keenly felt by Canadian banks, which have had limited exposure to the US financial crisis, with total retail IT spending expected to grow by 4.4% here in 2010.

Across Norther America as a whole, software spending will see solid and consistent growth over the next few years, predicts Celent, with banks increasingly making use of external providers as they try to focus on core competencies.

External software spend will rise by 5.5% to $9.2 billion in 2010, reaching $10.3 billion in 2012. External services spending will also accelerate through 2012 as banks focus on core competencies and engage external firms for technology projects.

However, the vast majority of IT spending - about three-quarters of the total budget - is dedicated to maintenance. Many banks are undergoing multi-year projects to become more efficient, and have invested in SOA, but these efficiencies have yet to be fully realised, argues Celent.

Jacob Jegher, senior analyst, banking group, Celent, says: "The challenge is actually being able to come up with additional funds once compliance/regulatory spending, post-merger integration, and maintenance expenditures have been spoken for. Not to mention that the financial crisis has made it extremely difficult to get new projects funded. The exciting news is that spending growth on new investments in the US will return to the black in 2010."

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