According to recent research by Deutsche Bank, financial services firms will spend between $270-billion and $460-billion on IT in 2013 globally.
The explosion of technology has changed the financial services industry from a paper and branch business to digitised and networked services. It’s no wonder, then, that measured as a percentage of revenues, financial services firms spend more on IT than any other industry.
The reasons for a higher spend on IT in the financial services industry are manifold, but these are no different from those of other customer-facing businesses with large subscriber bases, like mobile operators and retail companies, says Anton van Heerden, GM at Altech ISIS.
“Financial service firms have to fulfil exacting regulatory requirements which translate into IT costs that do not contribute to the firms’ earnings. Furthermore, banks rely heavily on IT in their back offices as well as their distribution channels. These are in essence the same reasons that other organisations in other industries rely heavily on their IT infrastructures,” he says.
He adds that banks with the ability to invest and integrate information technology will gain an edge in this highly competitive market.
“Advances in technology are allowing for delivery of banking products and services more conveniently and effectively than ever before. Rapid access to critical information and the ability to act quickly and effectively will distinguish the successful banks of the future.
“Banks can gain a vital competitive advantage by having a direct marketing and accountable customer service environment and new, streamlined business processes. Consistent management and decision support systems will provide a bank with the competitive edge to forge ahead in the banking marketplace.”
The research points to the fact that financial services companies have woken up to the potential of IT and its consequences for the future. Financial services firms spend more on IT than other industries do, with banks’ expenses for IT equalling 7,3% of their  revenues, as found by Forrester Research in a large survey covering firms in the Americas, Europe and Asia. On average, across all sectors polled, IT costs were equivalent to 3,7% of revenues.
Van Heerden says that the size of a bank’s IT budget seems to be only one factor in achieving good business performance.
“Rather, studies suggest that efficient IT management is crucial. A recent paper based on data from German savings banks reached similar conclusions: IT efficiency and the competitiveness of banks are positively correlated. Increasing IT budgets only improves a bank’s competitiveness if IT management is sufficiently efficient.”
For this reason, he says that those banks looking to leverage their technology investment for a competitive edge are investing in IT management as heavily as in the technology itself, and are relying on solutions providers that can help them take this to the next level.
“Banks need to use the new systems to do more than deliver information and basic services. Banks face a serious challenge. The basic structure of the bank is increasingly in conflict with the changing product, delivery, and service needs of the customers. The future belongs to financial service providers not traditional banks.”
The key will be in customer service. Customer loyalty will be determined by convenient and innovative delivery of products and personalised services. In the ’70s and ’80s, banks were marketing to a generation raised on old style banking: personal interaction at a banking office.
That generation was disdainful of “impersonal” service and afraid of computers. Convenience was having a “branch” in a neighbourhood.
“Today, personal service and convenience are still the critical factors in the banking relationship, but they are defined differently. Consumers still want to bank with a financial institution they ‘know’, and one who ‘knows’ them, but they do not necessarily want to go to the bank. They are not afraid of computers and technology; they embrace them.
“Convenience is doing their banking when they want, and where they want. They are now comfortable with personal computers and other electronic devices. They expect fast, efficient, and accurate service.
“And the only way to cost effectively provide the instant, quality service that customers demand, and that the competition provides, is through intensive use of the most advanced information technologies and through good people trained in the use of these technologies. For all these reasons, those forward-thinking banks that invest in the right solutions will stay ahead of the game,” Van Heerden concludes.