Banks failing to build IT for the future

European Banks are using IT to retain their market share, rather than help them grow their business in the future, according to research from SAP. The...

European Banks are using IT to retain their market share, rather than help them grow their business in the future, according to research from SAP.

The banks are allowing the credit crunch to dictate the future and are failing to invest in technology that will help them win new customer business, such as Web 2.0, the research concludes.

The research surveyed banks, external industry observers, economists and academics for their views on what the next 10 years hold for banking.

"Current investments by banks tend to be short-sighted. They are aimed at retaining market share in the present, with a limited long-term structure in place to grow their business," said the survey.

The survey said that although the banks have identified new customers that require different services, they are not investing in the right technology to win their business. "One [group] is a youthful niche of customers who are using new channels such as the internet and mobile technology as their primary banking conduits," said the survey.

Only 19% of banks said technology could help them succeed. This is despite banks having IT infrastructures made up of inflexible legacy systems that are becoming expensive to maintain.

"The overall impression from this survey is that banks are not creating their own destinies," said Arnoud De Meyer, director of the Judge Business School at Cambridge University.

Ralph Silva, analyst at Towergroup, agreed. He said: "The percentage of IT spending that is allocated towards innovative projects has all but dried up in the banking sector."

He said banks are still spending on technology but most of this is to upgrade existing systems, rather than to grow their business.

"If banks are cash rich this attitude is a mistake, but if they have cash flow problems, as most do now, they have no choice," he said.

Silva said Web 2.0 technology is an example of an innovative technology that banks are not currently investing in. "The UK banks for example are very knowledgeable about Web 2.0 but are very poor at implementing it."

Retailers are competing with banks by offering financial services to customers. "These organisations are absolutely taking up Web 2.0 and are willing to spend money on it because it supports their main businesses," said Silva.

According to the research, banks are allowing the credit crunch to dictate the future industry. "Banks are just doing enough to keep their heads above water. They need to start thinking more strategically in order to take advantage of the opportunities that are knocking on their door," said Johan Kestens, senior vice-president, line of business financial services at SAP.

SAP said banks should make customer management an over arching long-time focus and should integrate all the different methods it uses to deliver services.

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