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IT Spending Recovers

If you listen to bank tech execs, analysts and technologists talk about new strategy for the coming year, you can almost hear a page turning. Gone is the moribund posture of retrenchment and compliance focus that's dominated IT work for the past five years, replaced by an outlook that's more focused on true innovation than at any time since before the real estate bubble burst.

Sure, spending's not growing by leaps and bounds and the evergreen line items like compliance, credit risk, disaster recovery and security aren't exactly going away soon. Basell III, Dodd-Frank, rising sea levels and hackers will ensure that.

But the primary pressure on banks is now coming from nimble startups developing exciting new tools that change the way people make payments, deposit funds, and engage their finances; as well as from consumers who expect and demand a robust, layered, educational, and even fun experience when managing their money. While it may not be 1999, the air is filled with creativity.

"2013 is the first year of 'beyond the financial crisis.' From 2008 to 2012, the banking industry was consumed with the crisis, with consumer credit, regulatory impact, introspection and cutbacks. But when we talk to senior level executives now, they are carving out a strategy to go forward," says Jim Eckenrode, the executive director of the Deloitte Center for Financial Services.

Even though economic weakness lingers, particularly in Europe, most banks feel as though they can no longer wait on new tech projects. "Banks have been talking about growth despite the climate of uncertainty. It's time for the rubber to meet the road in terms of innovation and growth," says Lisa Kart, a research director at Gartner.



The projections suggest steady growth in overall bank technology spending. Gartner says that in the banking sector, technology spending is expected to reach $460 billion in 2013, up 3.5 % from $445 billion in 2012, with lending, payments, trading and risk management receiving an uplift in funds. Across all industries, global IT spending is forecast to total $2,679 trillion in 2013, a 2.5% increase from 2012's projected $2,603 trillion.

"North America is looking better than Eastern Europe [which faces a fiscal crisis]," says Kart, who adds that while Citigroup's recent announcement of cost-cutting may impact the forecast slightly, the overall climate in North America is relatively healthy. "Most banks expect IT budgets will increase, and only about 7% say they are decreasing IT budgets, so that's a very positive sign."

In the most recent numbers available, Celent has projected 2012 bank IT spending in North America, Europe and Asia to total $173 billion (the dollar size of different analysts' predictions can differ widely because definitions of bank IT spending differ), or 2.8% higher than 2011. 2013 is projected to come in at about 3% higher, or about $180 billion, with 2014 expanding by about 3.4%.

Celent says the fastest growing region is Asia-Pacific, with 2012 spending approaching $60 billion, with 2013 expected to surpass $62 billion. North American bank spending is expected to grow 2.4% in 2012, closing in on $55 billion, and passing $56 billion in 2013, or about 3 percent higher. Growth in Europe is expected to be flat, or hovering around the $60 billion mark.

Broken down into categories of spending, Gartner says top priorities will be the improvements in systems that enable IT modernization, such as virtualization, cloud, analytics and business intelligence.

"A lot of the investments are being driven by application modernization and the fact that legacy applications more and more need to be replaced, such as core banking systems, risk management and online banking," Kart says.

A pointed focus will be on software to deliver improved CRM, business intelligence and analytics, she says. Such applications can be used to develop sophisticated marketing and sales campaigns to promote mobile financial services, particularly personalized marketing and merchant offers delivered at the point of sale. The technology can also help leverage social media and other unstructured customer information that's part of the "big data" revolution. Social networking has proven to be a source of information on consumer tastes and affiliations that can prove useful in marketing, sales, credit risk and security.

Many major new tech projects in the coming year are expected to involve data management and business intelligence engines. The use of social networks as a venue to deliver content and gather data should mature in 2013, becoming a substantial component of financial services marketing. "Social is generating a tremendous amount of interest right now. Some banks are still taking a wait and see approach, but others are getting headlong into it. The investments in social are not huge when compared to other investments, but they're certainly important right now," Eckenrode says.

Big data's also a big job producer as companies hire specialists, sales people and other staff with skills in advanced information analysis and its varied uses. Gartner is projecting 4.4 million new jobs will be generated in 2013 across all industries and disciplines directly and indirectly connected to big data, with more than 1 million of those jobs coming in financial services.




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