Major Investments Expected in New-Product Development

By Marjanovic, Steven | American Banker, September 21, 1994 | Go to article overview

Major Investments Expected in New-Product Development


Marjanovic, Steven, American Banker


Over the next few years, wholesale bankers plan on substantial investments in technology to develop new products and expand customer information files, according to a study of the top 150 bank holding companies.

The study, a survey of technology trends, issues, and investment plans in the banking industry, was conducted by Andersen Consulting, American Banker, and the Tower Group.

Results found wholesale bankers .anticipating significant investments in new products such as swaps and currency options over the next few years, a reflection of bankers' concentrating more on productivity in trading rooms.

In terms of dollar value, the survey found that 13% of banks plan on investing more than $100 million on developing new wholesale banking products or new features for existing products through 1997.

Wholesale technology spending in other areas - like improving delivery channels, managing the back office, or improving risk management capabilities - is expected to be much smaller.

Survey respondents predicted that technology investment in those areas would, on average, be less than $25 million a project.

"The difference in the numbers is that big banks are talking about putting in new trading rooms and investing significant sums in the capital markets activities," explained Patricia McGinnis, an analyst with the Wellesley, Mass.-based Tower Group.

Survey responses also identified a number of other hot technologies: on-line paperless deal tickets, digital data distribution, and RISC-based workstations.

RISC, which stands for Reduced Instruction Set Computer, is a high-speed processing technology that uses a simple set of commands and is used to trace securities quickly and more accurately, especially complex derivatives.

Significant investments are planned for on-line paperless deal tickets for traders. Fully 58% of wholesale bankers predicted this technology would grow at rates of 500% or better through 1997.

Diogo Teixeira, president of the Tower Group, said while the top banks were already in a paperless environment, there were still many banks that dealt with paper. He said the potential "risk of errors is high."

"It's cryptic dialogue," was the way Mr. Teixeira characterized trader's dealings with counterparties. "Once they have an agreement, they both have to write it out on paper. That takes time, and errors may be introduced later when put into the system."

Another technology predicted to experience dramatic growth is digital data distribution. …

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