Regional differences colour IT spending priorities
Total bank IT spending across North America, Europe, and Asia-Pacific will grow to $179.2 billion in 2013, an increase of 3.4% over last year according to research and consulting firm Celent.
In a new report, IT Spending in Banking: A Global Perspective, the firm says that “this slight upward shift is an encouraging indicator of future growth” but warns that “regional nuances cannot be ignored”.
Although 2012 saw a reduction in global IT spending growth, 2013 will “take us to more positive and encouraging territory”, it says, but the regional nuances that affect these figures mean that the picture “is not encouraging across all regions”.
This time last year Celent was forecasting a 3.1% growth for 2013, so it has revised upwards, continuing to believe that the momentum is “positive and consistent”. Spending in 2012 was $173.3 billion, an increase of 2.8% over 2011, and looking ahead, the firm continues to have a positive outlook, predicting IT spending to grow by 3.6% in 2014 and 3.4% in 2015.
The majority of the growth is coming from Asia Pacific, which has become the largest market globally. Spending by banks in Asia-Pacific will grow by 5.9% in 2013 to $62.3 billion. This growth will continue: IT spending will grow by 5.8% in 2014 to reach $66.5 billion.
North American banks, specifically US banks, are also reporting positive and encouraging results: growth is rising faster than anticipated. In this region, Celent predicts that spending will grow by a “solid” 4% in 2013 to $56.9 billion, and in 2014 it will increase further, growing by 4.4% to $59.4 billion.
Europe remains as the fly in the global ointment: “Once again, European banks are in far deeper trouble and are reporting little to no growth,” says the report. “Inflation is predicted for many countries in Europe to run at levels higher than 2.0% for the next several years at least, so the growth is marginal at best, and potentially a reduction in real terms. Spending by European banks will grow 0.4% in 2013 to $59.5 billion. European spending growth will continue to be flat through 2015 as spending increases by just 0.3% to $59.9 billion.”
European banks are also having the most difficulty in reducing the cost of maintenance, which remains the top item in any IT budget.
“Of the total investment in IT in 2013, a whopping 77.1% ($138.2 billion) goes to maintenance,” says Celent. “The percentage of funds dedicated to maintenance activities is still astronomical but is slowly coming down; this allocation should drop to 76.6% ($147.0 billion) in 2015.”
Unfortunately, the report notes that global economic conditions and uncertainty have “resulted in a slow shift to increased spending on new investments … this will change as financial services firms put greater emphasis on innovation. It will, however, take several years before it has a material impact”.
New investment spending at North American banks has rebounded, and growth rates are strong compared to 2012 (6.8% compared to 3.8% growth in 2012). Asia-Pacific banks are continuing to ramp up new investment spending, though growth rates will decline in 2015, it concludes.
Banks will need to spend on new investments at least partly as a result of necessary system upgrades. “Frequently, financial institutions are running systems that are too obsolete, too slow, and inflexible,” it says. “Systems like these prevent banks from achieving optimum operational efficiency, impede product development, and increase operational risk. Slowly but surely, many financial services firms that rely on technologies that are nearly 30 years old are realising the competitive advantage of modernising their core systems and byzantine legacy systems.”