IT trends in banking: key focus for 2009

European banks will this year invest in IT to improve risk management, increase flexibility and reduce complexity. And they will outsource and offshore more...

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.

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