With 140,000 pages of financial services regulation published in the last two years, banks have to perform a balancing act when it comes to IT investments.
While rules introduced to make it easier for consumers to switch accounts will overtly force banks to invest in IT, there are covert pressures emanating from customer demand, such as the need for mobile banking platforms.
Computer Weekly spoke to industry experts about their predictions for IT spending in financial services in 2013.
Anonymous senior banking IT professional
“The main IT theme for 2013 appears to be regulatory projects. There are a very large number across different business units, products and geographies. Although I'm not close to the details of individual projects, I see the budgets and main themes.
"Following all the bad news about what the banks have been doing in recent years I think everyone – management, shareholders, regulators – is turning to IT to put more systems in place which monitor and trap any bad behaviour as well as provide more reporting to regulators and cater for all the changes in regulations.
"I also sense more appreciation and recognition for IT generally as management and regulators realise the solution to many of the issues over the last few years could be addressed by IT solutions. So I think IT is high-profile again rather than just buried somewhere in the back office. A few years ago I remember IT staff used to say they worked for a bank or an investment bank but these days they prefer to say they ‘work in IT’ which is probably a sign they are proud of what they do but not so proud of the industry they work in right now.”
Rik Turner and Daniel Mayo, financial services analysts at Ovum
Daniel Mayo said: “For European retail banking, key IT investment priorities will be mobile banking, marketing and product development with contact centers and online banking secondary investment priorities as banks focus on improving the customer experience. In contrast to the corporate banking and capital markets side, regulation and compliance will be significant, but will not dominant IT investment in the way it has in the years since the crisis.”
Rik Turner said: “Inevitably, one major driver for banks’ IT investments next year will continue to be regulatory compliance, which will require data management and reporting infrastructures to be in place. This is particularly the case in the US, where more clauses of the Dodd-Frank Act will be translated into specific regulations (2/3 still remain to be carried into regulation) and in Europe, where Emir and other regulations will start to bite.”
Jonathan Charley, partner in financial services at IT and business consultancy Bearingpoint
“We are seeing lots of banks looking seriously at the cloud. For example the Commonwealth Bank of Australia has put its online bank in the Amazon cloud," said Jonathan Charley.
"A lot of money will be spent on meeting Independent Banking Commission requirements – particularly the ability to switch bank accounts in 7 days.
"Banks are under severe pressure to cut costs.
"Banks will increasingly outsource application development and give suppliers access to APIs.”
“Financial services firms will continue to be in the cross-hairs of regulators and no matter what is outsourced the risks will continue to remain with the financial firms," said Jean Louis Bravard.
"While this has traditionally been an excuse not to outsource, reality is that increasingly financial services firms have no choice but to outsource to cut cost and improve quality. So outsourcing will be up, probably substantially.
"The most interesting area of outsourcing will be financial services firms outsourcing to financial service firms. While this has traditionally been a big activity in asset management we believe it will be considered for most processes and probably more applications than today. The jury is out for pure IT as we do not see financial services firms entering the market with unbundled offerings.
"Shared services in whatever form will be in vogue but the regulators will become anxious as they will have a hard time monitoring operational risk accounting and thinking about long tail risk or even liquidity issues… not even mentioning the living will of the 'processing engine' firm. We expect action on sharing market pricing and the processing of commodity operations.
"Cloud services will be everywhere at least in name as the technology will be massively used internally but very sparingly leveraged externally (be it private or public cloud).
"Financial services firms will probably fail miserably in listening to customer demand for smartphone-based services they can rely on. Especially retail banks will continue to insist on paper, faxes or medieval security solutions to provide a level of service provided by customer interface leaders such as Apple, Google or Amazon.
"At least one large retailer will seriously enter financial services in the UK and see that as a main activity. This will happen before Google or Amazon enter banking.
"Insurance companies IT will probably not improve as declining business and aging portfolios cannot fund the necessary modernisation.
"One or more bank ATM networks will fail, lead to massive disruption and management will blame third-party IT or communications providers for the mess. We would put some money on at least one bank domestic payment system to fail for several days potentially leading to questions about the fate of the firm and the system. Legacy is running out of runway!
"The FSA will be even more intrusive than in 2012 and IT firms will feel the tentacles.
"Last but not least FS firms will for the first time seriously look at cutting spending on IT operational expenditure. Not good for IT jobs at financial services or IT firms.”
Kosta Peric, head of innovation at the Society for Worldwide Interbank Financial Telecommunication (Swift)
“There will be investment in: regulation and compliance, as usual; mobile front-end to home banking, with particular emphasis on simplification and ease of use; customer service, with particular emphasis on social media; and business intelligence, exploiting better the customer information," said Kosta Peric.
"There will be exploration/incubation in mobile and person-to-person payments and digital asset safekeeping and management for corporate and retail clients.”