IT spending in North American banks will get a serious push this year. Expected to grow about 4.5%, IT spending will reach $62.2 billion in 2015 from $59.5 billion in 2014. Growth will drop slightly in 2016 and is expected to reach $64.8 billion according to analyst firm Celent.
The report by Celent– ‘IT Spending in Banking: A North American Perspective’, analyses and contrasts the IT spending patterns of US and Canadian banks. Most of the funds will be directed towards maintenance but a major chunk will go to new initiatives including retail banking services. Mobile banking is still a priority with focus on building existing smartphone and tablet apps. Self-service initiatives, digital banking, projects/overhauls, branch transformation initiatives, and omnichannel endeavours continue to get significant attention as well according to the report.
“The figures point to another strong year; 2015 is poised to build on the growth experienced last year,” says Jacob Jegher, a research director with Celent’s Banking practice and author of the report. “Investment in technology will of course continue to be a critical requirement as banks work on maintaining their existing systems and work on incremental improvements and innovations.”
The 22- page report examines the regional breakdowns of retail versus wholesale spending, internal versus external spending, and maintenance spending versus new investments. The report also points to several key North American banking technology trends and growth areas for 2015.
Of the total investment in IT in 2015, 73% goes towards maintenance, about $45.2 billion. Of these funds, £39.7 billion will be spent by US banks and $5.4 billion by Canadian banks. At best, new investment spending in North America will account for 27.4% of the total budget in 2015.
Maintenance will be declining slightly as a proportion of the whole, and is expected to account for 2% less spending by 2017 than in 2015. This marks a positive trend in the following years.
Retail banking is expected to comprise the majority of bank spending this year (62.5%), reaching $38.9 billion. This number represents a 4.8% increase in spending. Corporate banking is also set to continue climbing and is expected to be $17.1 billion for this year. Canadian corporate banking is particularly expected to experience strong growth this year, at 5.6%. A further $6.2 billion is estimated to be spent by North American banks on other areas of banking such as investment management.
With more fraud cases cropping up, security remains a primary concern. Banks will be required to invest in new authentication tools to protect both the bank and its customers. This includes alternative authentication tools like biometrics, internal controls, education and training.
External spending will increase as opposed to internal spending in the coming years. To tackle the situation banks might try to cut down on workforce and focus on core competencies and use inexpensive storage and outsourcing. External software spending, as a result, is expected to rise by 8.1% in 2015 reaching upto $11.4 billion in the US. This year external spending is expected at $17.5 billion which will be in balance with an internal spending of $17.6 billion.
Canadian banks will follow a similar trend initially, increasing external software spending by 7.5% but they are expected to focus more on internal development over the next few years. Canadian banks are expected to spend $3 billion on external services this year – an 8.1% overall increase.
(image credit: Bob Mical)