Bank Technology Spending History and What We Can Expect Moving Forward
I was asked recently to write an article for a client's newsletter. This may be helpful to people marketing technology solutions within financial services industry...
Crystal balls are, at best, cloudy, but the study of current trends and data to predict the future is still an important business exercise. This is especially true in the banking industry because technology is such an integral part of bank operations and also a major line item in budgets. As the editor of Bankers As Buyers ™ for the last five years, I have collected and shared research from some of the most respected sources in the banking industry. This study has always been written from a “looking forward” view—what would drive technology and related expenses in the coming year.
In preparing this article, I reviewed five years of information to see patterns and clues as to what we could expect in the coming years. Each year seemed to bring new priorities and concerns to the forefront, but budgets and expenditures followed similar patterns. Here are a few highlights and consistent themes from the past:
2002
As an industry, we expected to spend $28 billion—$34 billion in technology in the U.S., about 4 % more than the previous year.
What was the buzz? Internet banking and competition from “non-traditional” institutions. Spending on Internet banking was expected to lead all of technologies for the year.
2003
Most experts believed banks were going to cut IT budgets and look for cost savings. However, banks saw Customer Relations Management (CRM) and outsourcing as a factor that would lead to increasing revenue.
What was the buzz? Fraud, USA Patriot Act, Gramm-Leach-Bliley, OFAC and looking forward to Check21. Regulatory demands and fraud were the biggest concerns for bankers.
There was also an increased interest in self-service and “cross-discipline operational efficiency.”
TowerGroup noted one-third of technology spending was with third parties.
2004
Technology budget growth fell into the mid-single digits with predictions in the 3-5 percent range. An eye-opening 81 percent of the budgets were expected to maintain legacy/existing systems.
What was the buzz? Consumer banking technologies that helped banks competitively deliver financial services.
Experts said banks were becoming more efficient.
2005
Financial Insights saw an increasing importance in linking diversified, siloed applications as a means to provide flexible operational environments.
What was the buzz? Enterprise-wide systems security, fraud detection and prevention. It drove technology spending decisions and ranked as Community Banker’s number one concern according to a poll.
Jimmy Sawyers of Reynolds, Bone and Griesbeck PLC noted new technology budget items, such as IT audits, policy development, and risk assessments.
2006
Spending increases in technology were once again mid-single digits.
What was the buzz? Organic growth, online authentication, distributed check capture and privacy laws. Customer loyalty and integrating retail channels were seen as strong drivers for decisions. CEOs looked to technology to help with compliance and increase revenue.
Compromises in data such as lost laptops, were on the industry radar.
There was also more discussion of open systems technology standards to help facilitate integration efforts and connectivity to third-parties. Also, “workflow was in the air,” according to one source.
2007
Technology spending was predicted to be about three percent. Regulatory/compliance and market forces are driving technology spending.
What was/is the buzz? Customer-centric growth, Health Savings Accounts (HSAs), Service Oriented Architecture/Software as a Service (SAS) and technology spending on new projects, not just supporting legacy systems.
Banks are looking to achieve return on investment on technology within one to two years.
Seventy-three percent of banks report at least one application with a third party.
Banks are also interested in Customer Relationship Management (CRM), but not buying CRM systems.
Here are a few “takeaways” for me:
1) Technology budgets stay relatively flat from year to year. Therefore, you are more likely to get more from your investment by having strategic partner relationship with key vendors, thereby helping you build business cases, better allocate budgets and provide advisory services in their areas of expertise,
2) Business conditions and outside influences such as the regulatory environment are a drain on resources and technology budgets. You are expected to do more with what you have. Look for ways to leverage existing technologies, data and improving business processes as a means to help you better understand the customer,
3) The trend toward third parties/outside vendors will continue to grow as the complexity of systems increase and vendors can show superior operational prowess, and
4) Enterprise wide efforts trump siloed efforts in terms of strategic importance.
Bankers As Buyers has continued to grow in popularity over the years with vendors and bankers alike, as a tool in planning and positioning technology and having strategic value. If you have some ideas about 2008 or would like to contribute to the next Bankers As Buyers, please don’t hesitate to contact.
Scott Mills.(678-781-7201 or scott@williammills.com)
Crystal balls are, at best, cloudy, but the study of current trends and data to predict the future is still an important business exercise. This is especially true in the banking industry because technology is such an integral part of bank operations and also a major line item in budgets. As the editor of Bankers As Buyers ™ for the last five years, I have collected and shared research from some of the most respected sources in the banking industry. This study has always been written from a “looking forward” view—what would drive technology and related expenses in the coming year.
In preparing this article, I reviewed five years of information to see patterns and clues as to what we could expect in the coming years. Each year seemed to bring new priorities and concerns to the forefront, but budgets and expenditures followed similar patterns. Here are a few highlights and consistent themes from the past:
2002
As an industry, we expected to spend $28 billion—$34 billion in technology in the U.S., about 4 % more than the previous year.
What was the buzz? Internet banking and competition from “non-traditional” institutions. Spending on Internet banking was expected to lead all of technologies for the year.
2003
Most experts believed banks were going to cut IT budgets and look for cost savings. However, banks saw Customer Relations Management (CRM) and outsourcing as a factor that would lead to increasing revenue.
What was the buzz? Fraud, USA Patriot Act, Gramm-Leach-Bliley, OFAC and looking forward to Check21. Regulatory demands and fraud were the biggest concerns for bankers.
There was also an increased interest in self-service and “cross-discipline operational efficiency.”
TowerGroup noted one-third of technology spending was with third parties.
2004
Technology budget growth fell into the mid-single digits with predictions in the 3-5 percent range. An eye-opening 81 percent of the budgets were expected to maintain legacy/existing systems.
What was the buzz? Consumer banking technologies that helped banks competitively deliver financial services.
Experts said banks were becoming more efficient.
2005
Financial Insights saw an increasing importance in linking diversified, siloed applications as a means to provide flexible operational environments.
What was the buzz? Enterprise-wide systems security, fraud detection and prevention. It drove technology spending decisions and ranked as Community Banker’s number one concern according to a poll.
Jimmy Sawyers of Reynolds, Bone and Griesbeck PLC noted new technology budget items, such as IT audits, policy development, and risk assessments.
2006
Spending increases in technology were once again mid-single digits.
What was the buzz? Organic growth, online authentication, distributed check capture and privacy laws. Customer loyalty and integrating retail channels were seen as strong drivers for decisions. CEOs looked to technology to help with compliance and increase revenue.
Compromises in data such as lost laptops, were on the industry radar.
There was also more discussion of open systems technology standards to help facilitate integration efforts and connectivity to third-parties. Also, “workflow was in the air,” according to one source.
2007
Technology spending was predicted to be about three percent. Regulatory/compliance and market forces are driving technology spending.
What was/is the buzz? Customer-centric growth, Health Savings Accounts (HSAs), Service Oriented Architecture/Software as a Service (SAS) and technology spending on new projects, not just supporting legacy systems.
Banks are looking to achieve return on investment on technology within one to two years.
Seventy-three percent of banks report at least one application with a third party.
Banks are also interested in Customer Relationship Management (CRM), but not buying CRM systems.
Here are a few “takeaways” for me:
1) Technology budgets stay relatively flat from year to year. Therefore, you are more likely to get more from your investment by having strategic partner relationship with key vendors, thereby helping you build business cases, better allocate budgets and provide advisory services in their areas of expertise,
2) Business conditions and outside influences such as the regulatory environment are a drain on resources and technology budgets. You are expected to do more with what you have. Look for ways to leverage existing technologies, data and improving business processes as a means to help you better understand the customer,
3) The trend toward third parties/outside vendors will continue to grow as the complexity of systems increase and vendors can show superior operational prowess, and
4) Enterprise wide efforts trump siloed efforts in terms of strategic importance.
Bankers As Buyers has continued to grow in popularity over the years with vendors and bankers alike, as a tool in planning and positioning technology and having strategic value. If you have some ideas about 2008 or would like to contribute to the next Bankers As Buyers, please don’t hesitate to contact.
Scott Mills.(678-781-7201 or scott@williammills.com)