Financial sector IT bounces back

The finance sector is expected to increase IT investment by 2.9 per cent this year

After a grim couple of years, IT spending in the financial services sector looks set to return to levels last seen before the economic meltdown.

According to analyst Gartner, more than one third of banks expect to invest in new IT by mid-2010. Almost two thirds (64 per cent) will either keep doing “business as usual” or look for incremental efficiencies, while only two per cent of banks still expect to dramatically cut IT budgets.

In a similar vein, analyst Celent predicts IT spending within the [global] financial services sector will grow 2.9 per cent this year to $357.4bn (£219bn). Conversely, worldwide IT spend fell by 2.5 per cent in 2008.

“Although the focus is still on cost control and optimisation, financial services firms have been saying recently that they are planning for growth and preparing their IT for a different business model,” said Gartner research vice president Peter Redshaw.

In the back office, the priorities are around integration resulting from mergers and acquisitions and systems consolidation. Lloyds Banking Group, for example, has reduced its yearly IT spend by six per cent to £1.2bn as it continues to integrate Lloyds TSB and HBOS.

Other areas representing a significant chunk of IT spend in financial services are compliance, risk management, customer relationship management and reporting systems, as well as security, according to Ovum’s financial services technology analysis director, Daniel Mayo.

In the front office, customer acquisition and retention are paramount, said Mayo, so sector companies are investing a lot more in business intelligence and analytics as well as customer-facing technology including mobile services, contactless and online banking.

“Re-engineering web platforms to address more affluent customer areas through online banking will be one of the key areas of activity,” he added.

However, new entrants in some areas of the sector such as Tesco Bank and Metro Bank could exacerbate the UK’s IT skills shortage as they will invest heavily in bringing in specialist IT expertise into their businesses, warned Deloitte consulting director William Conner.

Standard Life seeks fresh talent to help drive its IT transformation
Insurance giant Standard Life is planning to increase its use of technology to develop better client relationships and gain a “digital focus” as it embarks on an IT transformation process.

The company was able to cut costs by £50m in 2009 by outsourcing software development. It also plans to introduce more automation in the back end, as well as increase use of data analytics and make better use of business process management tools, said Russell Irwin, senior IT manager at Standard Life.

“We will also invest heavily in service-oriented architecture and our e-commerce suite as well as work in a more sophisticated way with social media and mobile technologies,” Irwin said.

“Customers are increasingly relying on their mobiles to complete day-to-day tasks so it makes sense to improve the service offering there – it is an extension of the customer focus,” he added.

Standard Life made an “uncharacteristic” amount of investment in technology even during the downturn, said Irwin, who believes this strategy will enable the business to maintain a competitive edge.

“We want to transform the business, so there is a significant investment in IT growth. And we are hiring – if you know [good professionals], send them round,” Irwin said.

“Those businesses that prosper [going forward] will be the ones that invested for the future – this is not about short-term strategy.”

Barclaycard focuses on customer-facing IT
Despite the difficulties faced by the banking sector over the past couple of years, Barclaycard has continued to focus on developing innovative client-facing propositions.

To raise cash to fund these projects, the firm had to be smarter about investments, prioritising strategic projects and eliminating all unnecessary operational expense, said Dan Salmons, director of payment innovations at Barclaycard.

“We haven’t stopped investing in [customer-focused projects] over the past two years – and as we come out of some tough times, that will certainly make a difference,” he said.

“One of the most important consumer trends in banking is contactless (right) and I am confident that other banks will follow our lead, as it is the first credible standard for cash replacement.”

Widespread adoption of contactless will lead to mobile-based payments, said Salmons. He estimates that the company will start commercial trials of mobile payments over the next year and added that by 2012 using mobile devices to purchase items will “not be unusual”.

According to Salmons, dealing with the fast pace of technological change is less demanding than predicting the success of services in the market.

“Innovating fast and at the same time predicting the uptake of services and making decisions around when to invest is a challenge – the days when you could make a five-year [technology] plan are definitely gone,” he said.