Retail banking IT spend to reach $118.6bn this year, claims Ovum

4 February 2013

Retail banks will increase their IT spending by 3.4% this year to $118.6bn, claims Ovum in its latest ‘Business Trends’ research report, despite the impact of the eurozone crisis, impending tight capital adequacy regime under Basel III and other pressures facing the sector.

According to Ovum’s ‘Business Trends: European Retail Banking Technology Investment Strategies 2013’ report, which has been released simultaneously with its ‘Forecast Spending Model Through to 2017’ chief information and technology officers (CIO / CTOs) at banks will find the money for retail banking investments as part of a renewed focus on customer satisfaction and revenue growth. Ovum is convinced that retail banks are ready to shift away from the cost-cutting exercises that have been prevalent in recent years.

The consultancy says that European banks are lagging behind their North American and Asia-Pacific counterparts on a region-by-region analysis, perhaps due to the eurozone crisis, with just 1.8% growth expected to be spent in the European region this year, compared to 3.3% and 5.1% respectively. The total global IT spending estimate from Ovum is smaller than the earlier figure of $179.2bn suggested by Celent.

More emphasis on digital channels, such as online and mobile banking, plus digital marketing activities on social media, will account for most of the extra IT spending by retail banks, says Ovum, which further claims that such outlay can aid ‘return on investment’ revenue growth strategies and fuel cross- and up-selling opportunities.

Mobile banking is the clear IT investment priority for 2013 as retail banks attempt to capitalise on the features unique to mobile, such as location-based services, near field communication (NFC) m-contactless payments and so forth. Ovum ranks m-banking under its ‘other channels’ category, which it says will grow by 4% in Europe in 2013, and rise at a compound annual growth rate of 6% between 2013 and 2017.

Overall, spending on online channels in Europe – including traditional online banking services and mobile-browser-based banking services – is set to grow 4.2% this year, it adds. In parallel, to compete in the digital world, a number of retail banks will also shift their ‘bricks and mortar’ marketing activities online, further de-emphasising branch banking.

Compliance Drives Risk and Privacy Tech Investments

Credit risk management and data privacy will key regulatory compliance drivers for IT spending in 2013, according to Ovum, which is predicting that investment in management information systems will reach $6.4bn over the course of this year; $2.2bn of which will be in Europe – that is 5.5% of total IT spending by European retail banks.

Commentating on the findings, Jaroslaw Knapik, a senior analyst for financial services technology at Ovum, said: “The optimistic signs on the economic horizon are driving the shift away from cost-cutting and towards investment strategies within the retail banking sector. Whilst regulatory compliance has certainly fuelled a significant amount of the investment predicted in our forecasts, it is by no means the sole driver. The level of investment in digital channels gives a clear indication that banks are fully cognizant of the growing expectations of their customers, as well as the opportunities they present.”

Become a bobsguide member to access the following

1. Unrestricted access to bobsguide
2. Send a proposal request
3. Insights delivered daily to your inbox
4. Career development