Financial services organisations face an uncertain year
amidpredictions of an economic downturn,
but IT budgets will continue to grow.
Companies in the sector have been hit hard by the fallout from
the US sub-prime mortgage crisis, which has created uncertainty and
reduced the availability of credit in the market.
The crisis became evident in the UK when the Bank of England
lent
Northern Rock billions of pounds to enable it to stay in
business. And business volumes are falling at their fastest rate
since 1991, according to the latest
survey of the financial services sector by
PricewaterhouseCoopers and the Confederation of British
Industry.
But rather than slashing IT budgets, financial services
companies are planning to invest more in IT as they seek to reduce
costs.
"By far the biggest reason for IT investments is to improve the
efficiency and speed of operations," said Chris Potter, partner at
PricewaterhouseCoopers.
This is in sharp contrast to the priority a few months ago, when
the financial services market was more optimistic. "Financial
services organisations were spending on technology to support new
services and increase their capacity," he said.
"They are now holding back on activities that are to some degree
flexible, such as PC replacements, and focusing on IT to reduce
costs in the business."
Analyst firm Celent has forecast that IT spending in the
financial services sector will grow at a reduced rate of 3.6% in
2008 compared to 4.1% in 2007 because of the economic
uncertainty.
At the same time, the industry is experiencing
major regulatory changes, which are forcing financial
institutions to upgrade IT. This will put pressure on IT budgets
and lead to greater internal competition for IT resources. "IT
dollars will be hard to come by after regulatory/compliance
spending and maintenance expenditures," said Celent.
Analyst Axel Pierron said, "There are a lot of changes being
introduced that are eating into the IT pie."
Banks will be forced to make their funds go as far as possible.
One area where they are being creative with IT funds is through the
use of
service oriented architecture (SOA) to extend the life of
legacy systems.
"It will replace a specific system without impacting the overall
process. The banks can re-use systems through SOA rather than
spending a lot of money replacing individual systems," said
Pierron.
Bob McDowall, senior analyst at TowerGroup, said IT budgets were
up slightly on last year, but he expected banks to cut IT spending
during 2008. "Budgets have been set, but these can be changed when
reviewed every quarter. Organisations will hold back until they are
certain about the environment."
McDowall said organisations would hold back IT spending in parts
of the business where companies expect reduced activity.
"IT spending in maintenance and infrastructure development will
continue, but areas where companies are not planning an increase in
activity will be hardest hit," he said. These areas include
businesses fixed income, credit provision and property lending.
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