Magazine article American Banker

Tech Outlays Rising, Especially to Hike Revenue

Magazine article American Banker

Tech Outlays Rising, Especially to Hike Revenue

Article excerpt

The nation's largest banks are changing their technology spending habits, according to a study from BT Alex. Brown Inc.

The study, which was based on responses from 13 of the top 25 U.S. banks, showed a rise in the average percentage of operating expenses devoted to technology-11.1% this year, compared with 9.9% in 1995.

It also found that banks are investing relatively less in systems designed to cut costs or improve processes. Instead, they are buying technology that supports sales and other revenue- generating efforts.

In the report, George A. Bicher wrote that a bank with a strong sales culture can afford to be a little behind when it comes to the technology it uses. "However," the report said, "a bank with the latest technology and a poor sales culture is not likely to prosper."

Among the survey's respondents, the median annual technology budget for 1997 is $170 million, 28.4% more than 1995. A little more than two-thirds of this money goes toward hardware-related expenses.

The percentage of the technology budget spent on improving processes or cutting costs fell to 23%, from 27% in 1995; and the allocation for technical maintenance declined to 24%, from 27%.

Meanwhile the percentage of technology dollars spent on revenue- generating efforts rose to 26%, from 21% in 1995.

"With the likelihood that cost-cutting momentum is slowing, it now falls to revenue growth as the key driver for earnings performance and profitability," Mr. Bicher said.

Of the money allocated for increasing revenues, about 40% went to retail banking projects and about 21% to commercial banking projects.

The banks expect about 60% of revenues generated by technology spending to come from existing customers.

"It appears that banks are not simply casting a wider net for new business, but dedicating significant resources toward enhancing revenue production from the traditional customer base," the report stated. …

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