Growing finance firms to spend 75% more on IT

UK financial services companies expect to spend 75% more on IT in 2015 as business volumes grow at the fastest rate since the mid-90s

UK financial services companies expect to spend 75% more on IT in 2015 as business volumes grow at the fastest rate since the mid-90s, with keeping ahead of new entrants a major reason to spend more.

IT will see the biggest spending increases of all functions as banks invest to win new customers, launch new products, become more efficient and meet regulatory requirements, according to a report from the Confederation of British Industry (CBI) and PricewaterhouseCoopers (PwC).

In comparison to the increased spending on IT, the marketing spend will be 19% higher, 36% more will be spent on land and buildings, while there will be 34% more spent on vehicles, plant and machinery. 

The number of people employed is expected to fall by 9%, which could account for some of the extra IT budget. The report did not specify the size of the firms surveyed, but they included banks, building societies, insurance firms and asset managers. 

The CBI and PwC surveyed UK finance firms in December 2014, and it was revealed the businesses expect healthy growth to continue in the first quarter of 2015. Almost half (49%) of financial services firms said they felt more optimistic about the overall business situation compared with three months ago.

PwC UK financial services leader Kevin Burrowes said financial services firm continue to be optimistic about the future.

“But we will see them investing more to stay ahead of new entrants, deal with technology challenges, meet increasing regulatory and structural reform costs and deliver better results for customers," he said. 

New entrants to banking sector

The finance sector regulators are trying to inject competition into the sector, and 2015 is seeing new entrants enter the market and apply for licences. These new entrants range from startups with finance heritage to IT-based businesses.

New banks view IT as a differentiator because modern technologies can cut costs dramatically compared with big traditional banks with legacy systems that are expensive to maintain. Digital technologies, such as mobile, attract consumers.

A recent survey of 2,000 people by banking software supplier Fiserve showed 80% of people would trust a bank if it had the right technology in place. More than half (56%) said a new bank would have an advantage over rivals if its IT was reliable. 

New entrants to the UK are putting IT at the heart of their strategies.

Germany’s Fidor Bank – which is social media-based and built on Web 2.0 technology – recently announced its imminent UK launch and online banking startup Charter Savings Bank has just launched.

Elsewhere, challenger bank Hampden will start operating in the first quarter of 2015, following its decision to use a cloud-based banking platform from Oracle, and digital-only Atom Bank is promising to convert its low costs into better interest rates for customers.

Then there are internet giants such as Google, Facebook and Apple that are encroaching into financial services, whether it be information enhancement or payments.

One senior IT professional said 75% is a massive increase in IT spending and is unlikely to be the case for the big banks. 

"This must be smaller firms because big banks don’t have the flexibility to increase spending that much," he said.

“This year I think some of the big banks might increase spending on things like mobile applications, internet banking and security. But I can only see increases of 5%, 10% or 15% at the most in certain areas.”

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