Financial crisis to remove $40bn from global retail banking technology market

The global banking technology market will decline by almost 2% in 2009, according to a new report by independent market analyst Datamonitor. The report says this will be concentrated in European and North American markets, led by the UK, where banking technology spend will have the greatest fall, declining -- almost 7%. Datamonitor expects overall technology growth to remain depressed compared to pre-crisis forecasts up to 2012, removing over $40bn of what would have been IT spending from the banking sector, over next five years.

Datamonitor’s report finds that while IT budgets are under pressure, requirements are different to the last IT downturn cycle (after dot com crash), where technology was particularly targeted for cost reduction. Indeed for banks post financial crisis, IT intensity is likely to increase; this is the ratio of IT cost to overall operating cost base. Technology spend will reduce, but the need to obtain synergies from recent mergers and drive lower costs/ higher productivity elsewhere will protect budgets to some degree.

Banks are realizing the crisis is likely to drive a structural shift in the banking sector and future operating income growth and that this will eventually require a corresponding structural shift in the bank structures and organizational size. Immediate cost pressures will constrain in the short-term, but this will need transformation and IT investment.

Many areas of IT spending will therefore remain resilient. IT spend in the branch will be maintained as banks look to technology to maintain service levels after headcount reduction, with banking operations (e.g. account administration/ loans processing) growing in IT investment focus to support greater efficiency and drive lower cost base. Similarly, technology spend to support risk management and compliance will be maintained, however, banks will be looking to re-use existing systems as far as possible, so immediate technology vendor opportunity will be more subdued than many expect.
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