Bankers As Buyers 2005
The following is a summary from the 2005 Bankers As Buyers study, prepared by Scott Mills, APR and President of William Mills Agency. The piece is a collection of research, opinions and articles about what bankers will buy in 2005. To view the entire study visit www.williammills.com.
Spending Outlook
Financial institutions will increase their technology spending in 2005, most analysts agree, though the amount of growth is somewhat in dispute. While no one predicts a large jump in expenditures like the eight percent annual growth of the late 1990s, increases from a couple of percentage points to the mid-single digits over 2004’s numbers will likely be necessary for financial institutions to continue to battle the increasing fraud issue, meet growing compliance needs, maximize efficiencies across the enterprise and meet the demands of the changing payments system.
“TowerGroup sees fundamental shifts in the way financial institutions will manage their estimated $362 billion in IT investments in 2005, as technology affects the productivity of over $2 trillion in global operational expense,” said Guillermo Kopp, vice president of the TowerGroup Cross-Industry research practice. “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.”
TowerGroup estimates that overall IT spending in the global financial services industry will rise from $360.9 billion in 2005 to $408.6 billion in 2008, for a compound annual growth rate of 4.2 percent.
In 2005, TowerGroup expects the predominant theme in financial services IT spending to be investments at the architectural level in data, content and business process management, as well as in integration technologies.
Datamonitor predicts that global financial spending will increase only slightly. Forty percent of the respondents to a Datamonitor survey said they are planning no change in their IT budgets. Financial institutions are cautiously positioning themselves for a slight upturn, but remain largely in a defensive position, Datamonitor said.
According to the December CFO Outlook Survey, conducted by Financial Executives International and Baruch College's Zicklin School of Business, participating CFOs expect capital spending at their companies to increase by 14 percent in the next 12 months. These projections were made despite more than half (56 percent) saying their companies have felt the impact of rising producer prices in the last quarter.
Terrence Roach, principal for Cornerstone Advisors, Scottsdale, Ariz., expects technology spending to remain constant at 25 to 30 basis points of a bank’s asset size. So a $100 million bank would spend $2.5 million. That percentage has remained relatively constant for the last six years, according to Roach. So a bank’s spending will grow largely based on its asset growth.
Gartner, Stamford, Conn., expects investment firms, banks, healthcare payer organizations and insurers to exploit new technologies and strategies to successfully manage their demanding and changing market environments in 2005 and beyond.
Fraud Prevention
Only the nation’s largest banks (roughly the top 20) have systems integrated enough that they are approaching identity theft/fraud prevention on an enterprise-wide basis, adds Sophie Louvel, Financial Insights analyst.
Phishers are getting better at what they do, Roach said. Phishers, hackers and other fraudsters continue to use more powerful technology. So financial institutions have no choice than to upgrade their own fraud-fighting technology, by adding firewalls, neural networks and other fraud-fighting hardware and/or software.
Some of the nation’s largest banks (below the top 20) will make $5-million plus investments to rectify this problem in 2005, according to Capachin. These projects will be larger than any single fraud prevention/detection expenditure, though there will be many more projects in the security arena.
Community Bank Perspective
In a recently released survey of its membership, Independent Community Bankers of America found that those with more than $100 million in assets were facing the following long-term technology decisions:
· Systems security 65 percent
· Telephone banking issues 60 percent
· Staying up to date on existing technologies 57 percent
· Keeping technology affordable 56 percent
Additionally, the survey said that 59 percent of banks with more than $100 million in assets expected to increase their technology spending in 2004. That trend is likely to continue in 2005. Just over half (55 percent) said their technology is on target. Twenty-three percent said their technology is behind where they want it to be. One percent said their technology is far behind where they want it.
Regulatory/Compliance Spending
Despite continued efforts – particularly by community banks – to get some regulatory relief, the fact is that financial institutions have an increasing regulatory burden to contend with every year. There was actually a recent benefit of sorts from these regulations in the last year – many experts agree that banks were better prepared than many other industries for the Sarbanes-Oxley rules, though they still add to the regulatory/compliance burden.
One of the major ways for banks to meet the growing list of regulatory requirements is through technology. Systems that automate some of the compliance requirements will continue to be in demand.
Customer Service
While the term CRM still brings images of some failed early projects, there’s no question that customer service becomes more of an issue as banks’ products become more commoditized.
Sawyers expects financial institutions to use more customer satisfaction surveys – both online and offline – to provide better customer service.
One way will be to upgrade Web-related services. As more customers obtain broadband communications and more powerful computers, they will be more likely to go online for bill payment, account information and other financial services needs, Sawyer said. While most banks already have an online presence, even some $1 billion-plus banks have very static sites. According to the ICBA survey, 18 percent of members still don’t have an Internet site. 13 percent of consumers with Internet access have a broadband connection.
Payment Systems
Between 2004 and 2007, the number of bill payments made via a bank’s Web site is expected to grow 37 percent annually, according to Celent Communications. Celent adds that rising processing expenses could force banks to consider alternatives to the legacy payment infrastructure.
Celent noted that the check’s share of total consumer bill payments is crumbling. By 2007, there will be as many bill payments made over the Internet as by check, and as little as 29 percent of consumer bill payments will be settled by check - down from 53 percent in 2004.
Check processing is a mature process, with no more efficiency to be squeezed out of the paper environment, many experts agree. To gain further efficiencies, banks need to convert paper checks to an electronic form as early as possible in the process, saving the cost of transporting the paper and eliminating the need for expensive check processing hardware such as reader/sorters.
By 2010, 90 percent of non-local transit items will be processed electronically, the study adds, predicting that spending on electronic check technology will be in the range of $1.6 to $2 billion in 2005 (with spending dropping to less than $1 billion in 2006. By 2006, much of the spending then centered on extending image capability out to branches, ATMs and large corporate sites.
So, though growth in bank technology spending will continue in 2005, much of the expenditure will be related to what financial institutions feel they “have to” do, namely, compliance and security, and replacing systems that just don’t meet their needs any more, as with Check 21-related changes. But proactive spending to take technological giant steps in systems and productivity will occur on a much more sporadic basis.
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The mission of the William Mills Agency is to help companies market to financial institutions and in 2002, the agency decided to publish Bankers As Buyers as a service to clients and others who might be interested. This year’s Bankers As Buyers offers research statistics, observations and predictions from some of the most knowledgeable consultants and professionals currently involved in the financial industry. To view the entire study visit www.williammills.com.
Spending Outlook
Financial institutions will increase their technology spending in 2005, most analysts agree, though the amount of growth is somewhat in dispute. While no one predicts a large jump in expenditures like the eight percent annual growth of the late 1990s, increases from a couple of percentage points to the mid-single digits over 2004’s numbers will likely be necessary for financial institutions to continue to battle the increasing fraud issue, meet growing compliance needs, maximize efficiencies across the enterprise and meet the demands of the changing payments system.
“TowerGroup sees fundamental shifts in the way financial institutions will manage their estimated $362 billion in IT investments in 2005, as technology affects the productivity of over $2 trillion in global operational expense,” said Guillermo Kopp, vice president of the TowerGroup Cross-Industry research practice. “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.”
TowerGroup estimates that overall IT spending in the global financial services industry will rise from $360.9 billion in 2005 to $408.6 billion in 2008, for a compound annual growth rate of 4.2 percent.
In 2005, TowerGroup expects the predominant theme in financial services IT spending to be investments at the architectural level in data, content and business process management, as well as in integration technologies.
Datamonitor predicts that global financial spending will increase only slightly. Forty percent of the respondents to a Datamonitor survey said they are planning no change in their IT budgets. Financial institutions are cautiously positioning themselves for a slight upturn, but remain largely in a defensive position, Datamonitor said.
According to the December CFO Outlook Survey, conducted by Financial Executives International and Baruch College's Zicklin School of Business, participating CFOs expect capital spending at their companies to increase by 14 percent in the next 12 months. These projections were made despite more than half (56 percent) saying their companies have felt the impact of rising producer prices in the last quarter.
Terrence Roach, principal for Cornerstone Advisors, Scottsdale, Ariz., expects technology spending to remain constant at 25 to 30 basis points of a bank’s asset size. So a $100 million bank would spend $2.5 million. That percentage has remained relatively constant for the last six years, according to Roach. So a bank’s spending will grow largely based on its asset growth.
Gartner, Stamford, Conn., expects investment firms, banks, healthcare payer organizations and insurers to exploit new technologies and strategies to successfully manage their demanding and changing market environments in 2005 and beyond.
Fraud Prevention
Only the nation’s largest banks (roughly the top 20) have systems integrated enough that they are approaching identity theft/fraud prevention on an enterprise-wide basis, adds Sophie Louvel, Financial Insights analyst.
Phishers are getting better at what they do, Roach said. Phishers, hackers and other fraudsters continue to use more powerful technology. So financial institutions have no choice than to upgrade their own fraud-fighting technology, by adding firewalls, neural networks and other fraud-fighting hardware and/or software.
Some of the nation’s largest banks (below the top 20) will make $5-million plus investments to rectify this problem in 2005, according to Capachin. These projects will be larger than any single fraud prevention/detection expenditure, though there will be many more projects in the security arena.
Community Bank Perspective
In a recently released survey of its membership, Independent Community Bankers of America found that those with more than $100 million in assets were facing the following long-term technology decisions:
· Systems security 65 percent
· Telephone banking issues 60 percent
· Staying up to date on existing technologies 57 percent
· Keeping technology affordable 56 percent
Additionally, the survey said that 59 percent of banks with more than $100 million in assets expected to increase their technology spending in 2004. That trend is likely to continue in 2005. Just over half (55 percent) said their technology is on target. Twenty-three percent said their technology is behind where they want it to be. One percent said their technology is far behind where they want it.
Regulatory/Compliance Spending
Despite continued efforts – particularly by community banks – to get some regulatory relief, the fact is that financial institutions have an increasing regulatory burden to contend with every year. There was actually a recent benefit of sorts from these regulations in the last year – many experts agree that banks were better prepared than many other industries for the Sarbanes-Oxley rules, though they still add to the regulatory/compliance burden.
One of the major ways for banks to meet the growing list of regulatory requirements is through technology. Systems that automate some of the compliance requirements will continue to be in demand.
Customer Service
While the term CRM still brings images of some failed early projects, there’s no question that customer service becomes more of an issue as banks’ products become more commoditized.
Sawyers expects financial institutions to use more customer satisfaction surveys – both online and offline – to provide better customer service.
One way will be to upgrade Web-related services. As more customers obtain broadband communications and more powerful computers, they will be more likely to go online for bill payment, account information and other financial services needs, Sawyer said. While most banks already have an online presence, even some $1 billion-plus banks have very static sites. According to the ICBA survey, 18 percent of members still don’t have an Internet site. 13 percent of consumers with Internet access have a broadband connection.
Payment Systems
Between 2004 and 2007, the number of bill payments made via a bank’s Web site is expected to grow 37 percent annually, according to Celent Communications. Celent adds that rising processing expenses could force banks to consider alternatives to the legacy payment infrastructure.
Celent noted that the check’s share of total consumer bill payments is crumbling. By 2007, there will be as many bill payments made over the Internet as by check, and as little as 29 percent of consumer bill payments will be settled by check - down from 53 percent in 2004.
Check processing is a mature process, with no more efficiency to be squeezed out of the paper environment, many experts agree. To gain further efficiencies, banks need to convert paper checks to an electronic form as early as possible in the process, saving the cost of transporting the paper and eliminating the need for expensive check processing hardware such as reader/sorters.
By 2010, 90 percent of non-local transit items will be processed electronically, the study adds, predicting that spending on electronic check technology will be in the range of $1.6 to $2 billion in 2005 (with spending dropping to less than $1 billion in 2006. By 2006, much of the spending then centered on extending image capability out to branches, ATMs and large corporate sites.
So, though growth in bank technology spending will continue in 2005, much of the expenditure will be related to what financial institutions feel they “have to” do, namely, compliance and security, and replacing systems that just don’t meet their needs any more, as with Check 21-related changes. But proactive spending to take technological giant steps in systems and productivity will occur on a much more sporadic basis.
-30-
The mission of the William Mills Agency is to help companies market to financial institutions and in 2002, the agency decided to publish Bankers As Buyers as a service to clients and others who might be interested. This year’s Bankers As Buyers offers research statistics, observations and predictions from some of the most knowledgeable consultants and professionals currently involved in the financial industry. To view the entire study visit www.williammills.com.