Though many banks have reported financial improvements, their technology spending is still at a trickle.
That's the message coming from major banking tech vendors, and it's likely to remain the case for the foreseeable future as banks grapple with credit problems and regulatory changes.
While some financial institutions are more willing to spend on specific projects, few are expressing the confidence to embark on the deep overhauls that many in the industry have been waiting for, according to technology executives.
"Banks are going to really look to that as one of the latter things they do when there's uncertainty around their capital structure, credit quality or regulatory environment," said Darrin Peller, a vice president who covers technology vendors for Barclays Capital.
Fiserv Inc. President and Chief Executive Jeff Yabuki cited an "undefined regulatory landscape" as well as economic challenges as reasons its bank and credit union customers are hesitant to commit to major projects.
"The outlook for predicted IT spending has become slightly more positive over the last quarter," Yabuki said on the Brookfield, Wis., vendor's earnings conference call Thursday.
Fiserv, considered a bellwether for financial technology spending, reported fourth-quarter revenue rose 1.5% to $1.08 billion from a year earlier. The results were just shy of analysts' estimates, which pegged the figure at $1.09 billion.
Yabuki said banks' and credit unions' spending appetite will be "incrementally better" this year than in 2010 "but still not at the average rate of growth we expect to see over the next three years."
It's not that banks aren't spending; rather, they're doing it in very specific pockets of technology such as mobile banking, bill payment services and Internet systems.
Although talk is picking up about massive projects, like a complete overhaul of a bank's core account processing system, such projects are still rare, experts said. And those that are moving ahead on such projects, which can take years to complete and cost billions of dollars, are doing it piecemeal.
"The way you're going to see the investments is, it will be in subsegments of business," said Fiaz Sindhu, an executive in Accenture PLC's North American banking practice. "It will be replacing a line of business," not a rip-and-replace project done at once companywide.
Yabuki said there are some "magnificently large projects" taking place in the industry, but they tend not be in the U.S. and tend not to be "core centric."
"Most of the energy we're hearing tends to focus around channels," Yabuki said, adding that clients are interested in revamping their online banking systems.
Fiserv has invested heavily in upgrading its online banking platforms as well as investing in new products, such as its ZashPay person-to-person payments system, which competes with services such as eBay Inc.'s PayPal and CashEdge Inc.'s Popmoney software. All three allow users to send money using the recipient's e-mail address or mobile phone number.
More than 600 financial institutions have agreed to offer their customers the ZashPay service as of Dec. 31, Yabuki said, adding that ZashPay is an example of a product banks and credit unions can use to generate "much-needed fee income."
Bank information technology spending in North America is expected to increase 3.9% this year to $53.4 billion, according to a report that research firm Celent released in January.
"While we expect good [fiscal year 2011] demand for small/midsize projects, we see banks' continued reluctance to commit to larger projects as the most significant gating factor on industry growth," John Williams, an analyst with Goldman Sachs Group Inc., said in a research note Thursday.