Banks feeling IT pressure from both sides: analyst

ST. PAUL-DE-VENCE, FRANCE — They may not get a whole lot of sympathy, but one analyst says bankers are under pressure to trim IT costs while satisfying customer demand for more online channels and improved service levels.

And while much of the world falls into the grip of a global downturn, that means carefully weighing which technologies will be the ones to generate revenue for financial institutions in the next five years.

“Banks are getting squeezed from both the market and customer side,” said Remus Brett, lead analyst with London-based Datamonitor. “The biggest concern for banks is they have a whole lot of online customers, so they can’t just junk electronic services. Customers still want financial services channels.”

Brett was speaking here at the first annual Leaders, Lemmings and Laggards conference for the financial industry press, sponsored by Unisys.

While the rich come to the French Riviera to play and soak up the sun, their bankers and a collection of futurists were here considering the management of wealth tucked away in this medieval hilltop village of Saint-Paul-de-Vence.

Datamonitor spoke with CIOs and IT managers recently, Brett said. It discovered that IT spending in the banking industry will actually increase in the coming years, despite the economic downturn, with a projected 3.5 per cent growth rate to 2002, and 3.7 per cent to 2003 compared to 2.5 per cent in 2001. However, it will drop off again to 3.0 per cent by 2005.

Similar to the dot-coms that came before them, Brett says that after a period that saw bankers pressured to deliver an e-commerce strategy and products for online users, cost control is once again the priority, as it was in the late 1990s.

“In the late 90s when banks were king, the success factor was share price-performance,” said Brett. “Then suddenly, there was this strange new phenomenon and the financial market was saying ‘what we really want to see is future revenue growth potential’. CEOs were being told that online customers, products and e-commerce investment were key factors. Now, we’re back to price per share. We’ve turned full circle. Sympathy for CFOs at the world’s banks is needed.”

At the same time, another 70 million customers will go online in Europe and the U.S. alone by 2005. This poses a major infrastructure challenge, as it also includes determining what technologies will be required in the future to answer consumer needs.

“The primary cost for banks today is developing technology for today, but the dreamer wants more,” said Chris Skinner, vice-president strategic marketing, Global Financial Industries, Unisys.

According to Datamonitor, banks should be looking at 15 to 17 per cent as a benchmark for IT/operating costs. Currently that spending sits at 24 per cent worldwide.

To achieve those goals, bankers will need to use technology to remove duplication in the services they offer and create revenue growth tied to increasing the level of customer satisfaction, said Brett.

“Mergers and acquisitions will occur in the next year to address cost reductions,” he added, but what will remain is a big demand for more services delivered online.

To capitalize on the growth projected for online customers, research shows banks should be investing in areas such as eCRM, epayments, mobile banking, wealth management or ewealth. In a recent survey, two thirds of bankers told Datamonitor that eCRM was the number one area of investment in 2001. For the next two years, personalized one-to-one marketing and self-management tools and aggregation would also be key applications, Brett said.

With an aging population, wealth management will become a bigger factor for banks that should see it as a long-term growth strategy, according to Brett. Figures show that in 1960, one in 11 people were 65 years of age or older. Today that number is one in seven and is expected to drop to one in four by 2020.

“The Internet will become a gateway of interaction for this demographic,” he said.

Banks should also determine how to position wireless devices and services in terms of their overall strategy as mobile banking is expected to finally take off after months of speculation about its use. Datamonitor’s Impact study showed 30 per cent of European mobile users were already interested in using mbanking services.

“If you’re a technology vendor exposed to those things it is not such a bad thing,” said Brett.

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Jim Love, Chief Content Officer, IT World Canada

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