European banks will this year invest in IT to improve
risk management, increase flexibility and reduce complexity. And
they will
outsource and offshore more work in the process, according to
new research.
Risk management is at the top of the agenda for banks worldwide
following the
turmoil in the financial markets that was largely blamed on
banks taking inappropriate risks.
Financial services analyst firm Celent said banks are united in
their desire to get more out of the technology they use to manage
risk rather than just installing it to comply with regulations.
"Banks have risk management solutions in place, but they will be
looking to get more use and intelligent information out of them
instead of focusing on the fact that they need to be there for
regulatory reasons," the Celent research said.
Celent said the financial crisis exposed the flaws in managing risk
in silos and there will be a "greater alignment of loosely
coupled risk management activities and information data
sources".
European banks will also centralise their payment processing
systems to cut costs and standardise any systems they can without
compromising competitiveness.
They will also outsource and offshore more IT operations as
part of these cost-cutting measures.
Andy Gallagher, consultant at Compass Management Consulting,
said he would be very surprised if banks that do not already have a
captive offshore structure started building one, "but if they
already have a captive structure I would not be surprised if they
invested to built it up".
He added that those signing agreements with third-party offshore
suppliers will be more cautious following the
financial fraud at Satyam.
"This is because it will cost millions to go through the
selection process, tens of millions to go through the transition
and then to find out the organisation you have invested in does not
have financial stability is a scary position to be in," Gallagher
said.
According to the Celent research, banks will also face
competition from non-bank financial service providers using new
banking systems to deliver services such as web 2.0
applications.
Celent expects "new players and new ways of doing business in
terms of alternative banking systems to start sprouting up". These
include retailers, phone companies and pre-paid card suppliers.