Rationalisation of IT departments has emerged as a key factor
behind a spate of financial institution mergers but, a new survey
shows, there is no quick fix. Bill Goodwin reports
Banks and financial services companies are on the verge of a
massive IT shake-up as the industry braces itself for a series of
multinational mergers.
The potential for businesses to dramatically cut costs by
merging their IT departments will act as a major catalyst for
consolidation in the financial services industry.
Overall spending by Europe's banks and financial services
industry on IT will fall by about 8% (£12.6bn) within five years,
as merged businesses rationalise their IT departments, research by
Datamonitor predicts.
The findings illustrate a growing trend for businesses in all
sectors of the economy to achieve efficiency savings by merging IT
operations.
But mergers are not a quick fix for struggling companies,
Datamonitor reveals. Companies will have to increase their IT
spending by an average of 15% in the first few years after a merger
as they struggle to merge their systems.
It will take five years before the IT budget falls to 70% or 80%
of the combined budget of the merged companies.
Companies can achieve quick savings in spending on front-office
systems, but merging back-office systems can often prove
problematic. In some cases this can significantly reduce the cost
benefits of a merger.
Daniel Mayo, banking and finance analyst at Datamonitor, said,
"It is important not to underestimate the problems. When it comes
down to merging IT, it is often a case of trying to hammer round
pegs into square holes."
Lloyds TSB, for example, has been unable to combine the Lloyds
and TSB back-office systems. Customers of each bank are unable to
access the same banking services and the cost savings have not been
as high as they could be.
The Bank of Scotland has predicted it can save £290m in its
takeover battle with NatWest.
Key findings of the Datamonitor survey
Customer Relationship Management
- Has become a top priority for banks and insurance companies
over the past three years
- Has a long pay-back time which is making it difficult for IT
directors to secure funding. They are introducing CRM in a
piecemeal way
- Spending on front-office systems will occupy an increasingly
large share of the CRM budget
Internet Banking
- Move driven more by the desire to boost share price than demand
from customers
- Banks rushing Internet services into place without a fully
thought-out strategy
- Banks wasting money on Internet banking systems that become
obsolete after two or three years
- Customer loyalty on the Internet is much lower. Banks need to
offer other services, such as online mortgages, insurance, and
pensions, to keep their customers
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