Enterprise

'Strategic IT investment important for survival'

CIOL Bureau

28 Jan 2009 00:00 IST

Updated On 28 Jan 2009 22:09 IST

New Update

NEEDHAM, Massachusetts: After several years of consistent 4 to 6 percent growth, new research from TowerGroup finds that overall technology spending by U.S. financial services institutions is now declining for the first time in U.S. history. As a result, firms are expected to scrap ineffective (or low-impact) projects and delay new investments until 2010.

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The past year proved to be a watershed year for change in the financial services industry, and by extension the technology market. Mandates for improved risk management and compliance, relentless globalization, and startling shifts in customer demographics are forcing financial services players to retire old business models. So even as institutions pull back on IT spending, TowerGroup advises that strategic technology investment remains an imperative for institutions’ survival and growth.

“In 2009, IT strategies will be challenged by industry volatility, forcing financial services institutions to retract or postpone previously planned IT projects,” said Virginia Garcia, senior research director in the Cross-Industry practice at TowerGroup. “However, cost-cutting done in desperation may be so deep that it permanently cripples IT structures and jeopardizes business lines.

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Additional highlights
1. TowerGroup expects a growing polarization between leaders and laggards, as visionary institutions rise to the challenge of calamity and use technology to move ahead of weaker competitors. 2. Overall technology spending by U.S. financial services institutions will decline 3.7 percent between 2008 and 2009. 3. TowerGroup expects new technology spending to recover and increase at a compound annual growth rate (CAGR) of 5.8 percent between 2009 and 2012, as economic conditions of the immediate future become clearer and as institutions execute strategic plans that have been revised or reinforced by the crisis 4. Three critical trends will help reshape the U.S. financial services industry: regulatory pressure; shifting consumer demographics; and accelerating globalization.

Interestingly, while IT spending on new technology initiatives has been delayed in the short term, there is renewed interest on the part of many financial institutions to build long-term strategic plans for IT transformation and modernization, particularly among players that recognize the limitations of their current IT structures. In fact, TowerGroup expects replacement IT spending to increase by 20.5 percent in 2009 as institutions consolidate redundant infrastructures and update mission-critical legacy technology platforms for greater business agility and ational efficiency in managing risk, meeting regulatory standards, and reaching new customer segments.

“Rumors of the financial services technology market’s demise have been greatly exaggerated,” added Garcia. “The technology sector serving financial services still has a lot of life in it. By executing on smart, long-term IT investments today, institutions will see business value – beyond a monetary return on investment - that is guaranteed to help organizations create the competitive edge they need to weather the current economic storm and plan for the future success of their businesses.”