The link between banks and the IT industry has been close and strong for some years, but an international survey highlights the fact that banks are becoming a lot stricter on their expenditure.
Traditionally one of the highest spending sectors on software and IT infrastructure, investment banks are now wholly reliant on IT systems - not just to compete, but to function and survive.
But in an economic downturn, and facing the need to comply with stringent legislation, the banking community is now looking much more closely at how much value it gets from its investment in IT. This is according to international training and research group Front Capital Systems, which has released the first edition of its annual survey on the collective opinion of senior banking executives towards current and projected IT spend.
The survey revealed a new pragmatism in IT spending. Recognising the need to reduce unnecessary spending on in-house systems, the majority of survey respondents (69%) now say they are willing to share IT investment with partner institutions - despite the potential impact on competitive-edge.
Reaffirming the trend towards financial consolidation, 74% of respondents say they would prefer to buy an off-the-shelf solution that can be customised, compared with 13% who would develop their own system in-house.
More than half of those surveyed (59%) will control spending on IT by leasing software and taking continual upgrades.
The survey signals worrying times for application service providers, with only 10% of respondents citing this as their preferred approach.
Front Capital Systems says the drivers behind spending on IT also demonstrate the need to prove return on investment. The biggest driver for spending is now demonstrable cost reduction (35%), followed by increasing trading volumes (25%). Compliance with regulation, such as the forthcoming Capital Adequacy Accord imposed by the Basle Committee, is cited by 16% as the biggest driver.
Looking forward, the biggest spending on software in 2003 is predicted to be on front-office systems (identified by 47% of respondents). Derivatives were cited by 34% of respondents as needing the greatest investment in terms of infrastructure support. This is presumably to allow banks to exploit the predicted expansion in the market, with the British Bankers` Association forecasting that the global credit derivatives market will reach nearly $1.95 trillion by the end of 2003.
The survey says 25% of respondents consider risk management to be the second most important area needing greater infrastructure support.
Finally, Front Capital Systems asked respondents which activities would deliver competitive-edge to their businesses. The survey found that risk management will be the most important activity (cited by 30% of respondents), followed by real-time operations (27%), straight through processing (26%) and cross-asset trading (17%).
Share
