Customer-oriented systems drive rise in financial firms' IT spending

Customer-oriented innovations are driving an increase in IT spending by financial services firms, a study into the industry's technology trends has revealed.

Customer-oriented innovations are driving an increase in IT spending by financial services firms, a study into the industry's technology trends has revealed.

A report by analyst firm Tower­Group predicted that investment in new and replacement technology by retail banking, insurance, securities and investment firms would grow at a rate of 8.9% between 2007 and 2010.

Guillermo Kopp, executive director of corporate strategy and business growth at TowerGroup, said the rise in spending was due to firms using IT to grow their businesses in response to the pressures of rationalisation, innovation and globalisation.

"The steady state of financial services is over," said Kopp. "Shifting customer perceptions are recognising the advantages of real-time, multimedia, direct access services, while a surge in electronic transactions brings a quest for speed, scale and connectivity. In this customer-oriented world, new and innovative products and services call for investments in new technologies."

Paul Pettitt, managing director of financial services standards body Origo, said he was already seeing these trends in the marketplace.

"As companies move towards environments that are changing faster than ever, straight through processing, security and fraud, and external service oriented architecture will increase in prominence," he said.

TowerGroup said the surge in financial services technology spending was being driven by investments in business intelligence and customer management technologies.

Kopp cited the example of retail banks that have introduced mortgages that allow customers to offset other investments. These products are fuelling a requirement for a single view of each customer, which underpins many of the top initiatives staking a claim on IT budgets.

The increased use in e-trading platforms and diversified payment methods, including contactless micro-payments, were increasing pressure on legacy systems to handle more transactions in real time, said Kopp.

Added to this was the need to replace duplicate or redundant systems and respond to increasing levels of regulatory requirements. An "explosion of processing and storage requirements" has created a need for standardisation and consolidation of systems across business functions, said Kopp.

Andy Ruby, partner at financial services specialist Citihub, said TowerGroup's observations tied in his experience.

"We are seeing increased focus on customer retention/acquisition, cost income ratio, cross-asset selling and algorithmic trading. This is driving the need for systems initiatives, which include grid computing, new datacentres, server virtualisation, low latency processing, middleware integration and business intelligence," he said.

Top 10 IT spending trends in financial services

1 Business and customer intelligence

2 Business process management

3 Risk and compliance

4 Data governance

5 IT governance and systems rationalisation

6 Low latency and straight-through transaction processing

7 Information security

8 Predictive analytics

9 Internal and external service oriented architecture hubs

10 Multimedia over broadband

Source: Towergroup

Related article: Financial services spending on the rise

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