Study: Strategic Investments Taking A Longer View

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The financial industry is shifting toward more long-term strategic investments aimed at increasing returns instead of shooting for short-term cost reductions, according to a survey by the American Bankers Association and TowerGroup.

Survey findings indicate that banks will leverage customer relationships to increase revenues, and reduce costs by managing risks and improving efficiency of customer service.

The report presents analysis of an industry survey conducted between June and September of 2003. The objective of the survey was to identify the technology spending patterns, investment trends and technology management strategies of the traditional diversified bank with a mixed portfolio of consumer and wholesale deposit, lending and payment services from 2002 through 2004.

"We believe the impact of strategic cost management over the past two years has changed the traditional relationship between maintenance and investment spending," said Bob Landry, TowerGroup vice president of research and corporate development. "Banks will now be able to spend a larger proportion of their IT dollars on investments that provide competitive advantage-rather than on maintenance spending that provides little differentiation."

Highlights of the survey findings include:

* Survey participants identified the top five lines of business technology investment priorities as branch, consumer credit origination, image-document management, consumer banking Internet sites, and financial control and risk management.

* Consumer banking investment in branch renewal remains strong, as retail bankers continue to invest in strategies to attract and retain profitable customers. In line with this trend, the degree of interest in loan origination systems and enhanced analytical marketing capabilities further indicate that retail bankers are focused on top-line growth.

* The top five enterprise and technology infrastructure investments identified by the survey were: communications network replacement and enhancements, PC and server hardware - software upgrades, mainframe computer upgrades, computer operations center replacement, and IP telephony.

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