With the financial crisis firmly behind us (at least, we hope) and the U.S. economic picture brightening, the outlook is positive for IT spending in the banking industry. Banks will spend 4.2% more on technology in 2014 than they did in 2013, according to IDC analysts. Overall IT spend in financial services globally will exceed $430 billion in 2014 and surpass $500 billion by 2020, the analysts say.
In Ovum's latest predictions of U.S. retail bank IT spending, based on interviews with bankers and vendors' numbers, the firm sees IT spending rising an average of 3.9% at retail banks in the coming year, according to Jaroslaw Knapik, senior analyst, financial services technology. Overall priorities cited by these surveyed bankers are online and mobile banking, data management and analytics, customer data and analytics, operations and core systems.
Generalities and industry numbers fail to take into account the specific conditions at individual banks. For instance, at Capital Bank in Raleigh, N.C., the IT budget for 2014 is flat in comparison to this year. Chief Operating Officer Zahid Afzal (who was formerly CIO of Huntington National Bank), says the bank will increase its investment on mobile, cybersecurity, regulatory compliance, and more convenient products and services for customers. IT purchases will include sales and service tools, cybersecurity and fraud management software, mobile and payments products and services, storage solutions, and big data and business intelligence related tools, However, the bank's cost of operations is going down through process improvement, better governance and consolidation. Hence the flat budget.
That said, there are several overall IT spending hot spots for banks in 2014.
1. Digital banking and mobile payments. Ovum analysts say banks will spend 6.8% more on digital banking next year than they did in 2013. And in Aite's annual survey of IT executives at large financial institutions, two sweet spots for IT spending are the digital wallet (and the fear of being disintermediated by competitors such as Square) and mobile banking, including tablet apps for consumers and small businesses.
"Mobile is one of those areas where banks are afraid to fall behind," says Jerry Silva, research director at IDC. "In the entire ecosystem around mobile, things haven't settled yet between banks, telcos, and third party providers. A lot of balls are still in the air. Banks are afraid of falling behind and losing by default. That's driving most of the spending around mobile."
Mobile-first initiatives for employee software and customer-facing apps are at the top of James Gordon's list of 2014 IT initiatives.
"We're entering a society where before the phone was an add on, now the computer is becoming an add-on," says Gordon, who is vice president of operations and technology at $1.2 billion-assets Needham Bank in Needham, Mass. "The phone is the first point of electronic communication most people will have. As we redesign and rethink a lot of our platforms, we'll be asking ourselves, how does this operate in a mobile environment, and then, by the way, how does this operate on a computing environment? Three years ago it would have been the reverse."
The bank recently launched Fiserv's Popmoney for person-to-person payments. In 2014 it's going to closely watch the mobile payments and mobile wallet space. "We're engaged in a lot of research, a lot of internal discussion about who will be the top provider for 2016 and beyond for mobile payments and mobile wallet."
2. Marketing analytics, supported by customer data management. In Ovum's research, banks said they plan next year to spend an average of 5.7% more on MIS, defined as data-related technologies including data warehousing, data mining and online analytical processing. And they plan to spend 5.4% more on MI/CIS, defined as systems that give front-office staff access to customer data, next year versus this year.
Customer data management (including data warehousing and data management) and marketing analytics to better understand customers also ranked high in Aite's survey of U.S. bank IT executives. "Banks are in a bit of a pickle with regard to customer insights," says senior analyst David O'Connell. "They have piles of data, some of it in core banking, loan origination and risk management systems. The easy part is analyzing it, the tough part is pulling it together, consolidating it and giving it context so it can be analyzed."
Therefore, banks will be investing next year in data integration capabilities, data quality management, and service oriented architecture to make it easier to apps and data sets to one another. Marketing campaign management is also on banks' minds to get close to consumers, learn more about them and reach them better, O'Connell says.
"Once you get more efficient insights into customer behavior, you can target digital marketing in a much less intrusive way," says Knapik. "It's to drive marketing that's much more relevant. Engagement marketing is not so much ad displays, but trying to create an advisory environment, a conversation that can be automated." Employees are given access to more relevant information and suggestions. The customer theoretically becomes more engaged his needs are being addressed.