U.S. banks are expected to increase annual spending on retail information technology by an average of 5.7% over the next five years, according to a survey by Datamonitor.
The study, based on interviews with people at 120 banks, thrifts, credit unions, and technology vendors, showed that commercial banks intend to increase spending on debit card operations by an annual average of 33%.
Technology investments in call center, Internet banking, and credit card programs are expected to increase 10%, 9%, and 9%, respectively.
Areas showing slower or negative growth included automated teller machines (6%), core processing (3%), branch management (2%), and check processing (minus 2%).
Though the $5 billion spent on core processing this year is the most devoted to any single area, banks' cost of maintaining and supporting second-tier systems is on the rise, New York-based Datamonitor said.
"While the bulk of spending goes to the maintenance of existing systems, the key to the future will be alternative distribution channels," said Datamonitor analyst Christine Min.
The segments that come closest to rivaling core processing's share of the spending pie are credit card processing's $2 billion and ATMs' $1.8 billion.
Ms. Min added that many system expenditures are aimed at helping banks "determine who will buy their products and at what price." With so-called data warehouses, financial institutions hope to better identify their most profitable customers and find better ways of selling them new products, she said.
In one of a series of reports on technology spending in financial services, Datamonitor focused on the 62% of information technology dollars- $15 billion in 1997-that support retail banking.
Less than half of the commercial banks' spending goes to retail operations, Datamonitor said. Thrifts and credit unions tend to devote larger portions of their technology budgets to the retail side.
As would be expected, the largest financial institutions dominate the industry's technology market. The 90 or so U.S. financial institutions with more than $10 billion of assets accounted for 73% of the spending.
Credit unions are expected to expand their technology spending at an 8.4% annual rate, thrifts by 4.7% per year, Datamonitor said.