IDC predicts tough year ahead for fintech firms as EMEA FIs cut spending

The future profitability of financial technology providers is in jeopardy this year believes IDC Financial Insights as IT spending by EMEA banks will decrease to a growth rate of just 2.9% in 2012. The gloomy prediction, made at the Pewterers’ Hall last night in the City of London during IDC’ s 2012 Predictions for EMEA …

January 19, 2012 | bobsguide

The future profitability of financial technology providers is in jeopardy this year believes IDC Financial Insights as IT spending by EMEA banks will decrease to a growth rate of just 2.9% in 2012. The gloomy prediction, made at the Pewterers’ Hall last night in the City of London during IDC’ s 2012 Predictions for EMEA Financial Services event, is still better however than certain other consultancies, and an improvement on a straw poll of 200 delegates at the Bloomberg Enterprise Technology Summit last December which foresee negative numbers.

The reasons for the straightened times were fairly obvious, commented IDC analyst Rachel Hunt, with a looming recession, liquidity crisis and increased regulatory expenses all negatively impacting banks’ ability to spend money on IT. The smaller growth rate of 2.9% this year would largely be driven by stronger economic performance in Africa and the Middle East and pockets of investment by European banks in dynamic areas that cannot be ignored, such as analytics, mandatory compliance spending and risk management systems – where a healthy 6.8% increase in IT spending is predicted, said fellow IDC analyst and 2012 predictions author Matthew Clay. This growth is being driven by capital optimisation projects initiated by the impending Basel III rules and other similar post-crash regulations. All of IDC’s figures are based upon research reports, partnership projects with European, Middle Eastern and African (EMEA) banks and discussions with analyst contacts maintained the group.

The mobile payments field will also experience a “slow burn” pocket of growth, rather than a raging inferno, added fellow IDC analyst Alex Kwiatkowski. Something that Ed Hodges, head of mobile (business and commercial) at RBS, concurred with as he explained in the later panel discussion how difficult it was to make money out of some mobile propositions (as opposed to lead generation benefits). “The business banking side – in contrast to retail banking – can be a particularly tricky proposition but we’re looking at the transactional arena to help us out here,” he said.

Last year was difficult, “but there were signs that things might be looking up a bit: that has now gone as banks focus on survival,” said IDC’s Hunt, as she outlined the year ahead. “2012 will be about maintaining a difficult balancing act between ‘keeping the lights on’ at banks [i.e maintaining a satisfactory service], while trying to simultaneously keep regulators happy and invest in future growth and innovation projects.” The latter is likely to suffer as the IT spending squeeze deepens, admitted Hunt, and all bets would be off if the eurozone crisis really blows up.

The key technology predictions for 2012 were for growth in big data projects and in mobility, cloud and social media – all of which will contribute to the big amounts of data flowing into EMEA financial institutions, which needs sifting to obtain customer value and profits. A rise in the number of security attacks against bank customers, due to the growth in social media and proliferation of channels, was also predicted, alongside an interest in in-memory computing from bleeding edge banks searching for enhanced speed in their computing procedures.

The business predictions included a possible growth in newcomer’s market share, as Metro Bank, Tesco and now Virgin become established in the UK retail banking scene for instance, and older traditional banks focus tightly on expense control. Infrastructure resilience is also likely to rise up the agenda at bank boards as a lack of investment in recent years, since the crash of 2008, comes home to roost – for instance, HSBC and RBS both experienced outages in their UK retail banking service late last year, leaving customers locked out of branches, ATMs and card schemes. Banks – and indeed fintech firms – better batten down the hatches for a tough 2012.

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