Banking IT life support costs drain budgets - time to go off-the-shelf?

When will banks move off their 40 year-old platforms?

Not only is the European economy holding back IT spending in the banking sector but ageing systems mean that a massive proportion of what is spent goes on maintenance and not generating business.

I did an article about research from Celent about the banking sector and expected investments in IT over the next couple of years.

I am sure I have heard it before but I was still staggered by the fact that 77.1% of total bank IT spending is on maintenance. This is $138.2bn.

So forget about new mobile platforms and internet banks being the projects that get funds. Most the money goes on supporting legacy systems.

I constantly hear people in the finance sector talk about the fact that banks will replace legacy systems when it becomes worthwhile from a financial point of view.

Well surely over 75% of IT spend going on maintenance rather than going on technology that increases business, is a good argument for replacing systems. Remember the skills required to support these systems are often in shortage and come at a premium.

And surely this walks straight into the arms of the off-the-shelf banking software suppliers. Standard software from suppliers will be maintained by them and actually requires less maintenance than legacy systems that are highly customised.

Or outsourced systems suppliers could look attractive if they take away maintenance overheads.

According to Gartner, banks spend about 6% of their revenue on IT. This compares with the retail and wholesale sectors that spend 1.1% of revenue on IT, utilities 2.8%, industrial manufacturing 1.8% and a sector-wide average of 3.6%. The only sector that spends a larger proportion of revenue on IT is the software and internet sector, at 7.6%.

But only 18% of banks’ total software expenditure is external. Perhaps time for a change?

Also read:

Perhaps time for a change?What does 2013 hold for financial services IT?

Mobile banking innovation stimulates banks’ IT spending