Despite the effort to focus on long-term IT planning and the hopes that IT shops stay somewhat insulated from the swings of the financial markets, research has shown that the technology buying habits in the financial services space are more directly tied to economic trends than in any other industry, according to new research from away from Technology Business Research (TBR).
In a way, however, it should be no surprise that an industry that is so in tune to the swings of the financial market would also be hypersensitive when it comes to the intersection of the economy and IT planning.
"We see [IT] planning as more connected to the economic environment in banking than any other industry," says Allan Krans, senior analyst, TBR Software Practice, during a presentation. "Their business performance and IT imperatives are very sensitive to the business environment."
Krans' research included data from 225 surveys of financial services executives, along with 25 live interviews. TBR divided the data by company size into two groups: 1,000-9,999 employees and companies with more than 10,000 workers.
Run Vs. Build The BankAcross both categories of financial firms, technology leaders continued to struggle with IT resources dedicated to maintenance (run the bank) versus discretionary innovative spending (build the bank), according to Krans. "Investments are balanced between run the bank and change the bank," he says. "We do see legacy investments, but there are more investments in newer technologies."
For instance, TBI's research shows that banks of all sizes are especially focused on investing in technology that can enable business growth through application modernization. Banks are turning to business intelligence applications and analytics technology, for instance, with 20% of discretionary spending focused on those technologies, according to Krans.
However, the amount of the IT budget dedicated to maintenance and "keeping the lights on" continues to be larger than most bank's discretionary budgets, but there is improvement. "Run the bank is a more sizable portion of the budget," Krans notes.
Overall, 60% of budget is fixed (run the bank), and this includes compliance, according to Krans, while 40% is discretionary (change the bank). "It is no longer a 70-30 split and it has shifted to 60-40," he adds. Collectively, banks will spend $33.6 billion on fixed IT costs and $22.2 billion on discretionary projects.
Moderate IT Budget GrowthIn addition to the "good news" that financial firms are slowly moving more IT dollars to discretionary (innovative) spending, TBR also reports that banks will show a slight increase in overall spending in 2014.
According to Krans, executives at larger banks report that there will be approximately a 1.6% increase in the overall IT budget in 2014, amounting to roughly $631,000. Smaller banks will be increasing spending even more, with data showing a 2.2% overall increase, or about $313,000 per bank. In 2014, according to TBR's data, the average overall IT budget at larger banks will be around $39.2 million, with smaller banks averaging $14.2 million.
TBR segmented the overall technology spend into professional services, business applications, industry applications, productivity applications, business intelligence/analytics, database/middleware, systems management and infrastructure. The only segment where there was no increase was productivity.
According to TBR's data, banks collectively plan to spend, on average:
- Professional services $11.1 billion +2%
- Business applications $7.7 billion +3%
- Industry applications $3.7 billion +3%
- Productivity applications $5.3 billion 0%
- BI/analytics $5.7 billion +1%
- Database, middleware $6.8 billion +3%
- Systems management $6.3 billion +2%
- Infrastructure $9.2 billion