Global spending on retail banking technology will increase by $US3.6 billion (3.2 per cent) in 2012, and will hit $US135 billion over the next five years, according to Ovum’s “Retail Banking Technology Spending Model Through 2016”.
Banks in emerging economies in the Asia-Pacific region will grow the fastest at a rate of 8.3 per cent in 2012, hitting $US10.2 billion by year end.
On the other hand, Western Europe will have the lowest growth of all the regions (1.9 per cent) despite being the second biggest market in terms of overall spend ($US44 billion by the end of 2012).
The technology investments will be mainly driven by the need to grow revenues and improve customer trust, but will also be driven by changing regulatory compliance. Online banking is expected to be the fastest growing area globally in 2012, rising 5.3 per cent to hit $US8.3 billion by year end. Areas such as other channels (including mobile), management information systems, and multi-channel integration/customer information systems will also grow at high rates.
Banks must recover their revenues
Returning revenues to pre-recession levels is a priority for a number of institutions, although for many it is unsurprisingly a significant challenge.
Banks still need to focus on improving customer trust and increasing sales and servicing effectiveness. This will lead to accelerated investment in channel technology, predominantly online banking or other channels such as mobile (an increase of 5 per cent globally in 2012, reaching $US3.3 billion).
Retail banks will invest in these areas in parallel to investments in channel integration and customer information systems, an increase of 4.2 per cent in 2012 globally, hitting $US5.6 billion the same year. This is due to the fact that technologies that allow “smarter” selling and servicing, such as customer analytics and customer data management, are expected to remain hot areas in the near future.
As sales activities are expected to be on the rise again, banks will also boost investments into operations (account origination and administration) by 4 per cent and $US7.7billion respectively, as the ability to sell products faster and service customers better is a competitive differentiator in the retail market. However, these investments will also be driven by the adjustment of the pre-financial crisis infrastructure to post-recession volumes.
Emerging economies in Asia-Pacific will drive most of the growth, although Africa will also grow at a rapid rate, with branch technology spending growing at high rates in both regions. On the other hand, the ongoing sovereign debt crisis in Europe is still having a negative impact on the financial sector, and consequently growth in retail banking technology in Europe will be slower than in other regions.
Risk and compliance are permanently on CIOs’ agendas
Ever-increasing regulatory expenditure, which in 2012 will be predominantly related to Dodd-Frank and Basell III, will drive investments into technologies that reduce costs, such as data management, business process management, business intelligence, and analytics.
Global spending on various middle-office components based on these technologies, such as risk management, anti-fraud, compliance, and performance management, will experience growth of 4.6 per cent, hitting $US6.1 billion by the end of 2012 and $US7.6 billion over the next five years.
Emerging economies in Asia-Pacific will experience the highest growth, at 8.8 per cent to hit $US521 million by year end, although North America will grow the fastest by volume, an increase of $US95 million, reaching $US2.2 billion.
Regulatory demands are also forcing banks to invest in their core systems. While in many cases tight compliance timescales lead to the “quick-win” type of enhancement strategies, the ongoing nature of regulatory demands, together with the need to revamp the wider bank to allow the adoption of newer business models, is now driving significant interest in core system transformation. This will lead to an increase of core banking technology spending by 2.5 per cent globally to reach $US19 billion this year, and $US22.5 billion over the five-year timeframe.
Jaroslaw Knapik is a Senior Analyst within Ovum’s Financial Services Technology team