Magazine article American Banker

Outsourcing Outlook: Bank Use Rising Fast, Nonbank Use Faster

Magazine article American Banker

Outsourcing Outlook: Bank Use Rising Fast, Nonbank Use Faster

Article excerpt

Retail banking companies are expected to account for the bulk of spending on financial technology outsourcing through 2002, according to a study by Datamonitor, a research company that tracks technology and consumer spending.

But, the study predicts, growth in spending by insurance companies and securities firms will outpace bank spending over that period.

"Because insurance and securities firms are not as saturated with outsourcing, there is more room for growth there," said Randy Gernaat, an analyst with New York-based Datamonitor.

"For competitive reasons, banks have outsourced a lot of the repetitive processes already," he said.

Spending on technology outsourcing by retail banks is expected to grow an average of 8.4% a year for the next five years. By contrast, securities firms' spending should grow 12.6% and insurance companies' by 12.9% annually over the same period.

Because of the increasingly complex nature of their products and services, insurance and securities companies are "being forced to focus on their core competencies and see where the areas are that they can add value," Mr. Gernaat said.

The Datamonitor study was based on interviews with technology executives from more than 50 financial companies and technology vendors. It defined outsourcing as expenditures for processing or technical management services provided by third parties.

Of the $24 billion retail banks spent on information technology in 1997, 12%, or $2.6 billion, went to outsourcing.

The insurance industry devoted about 7% of its $17 billion technology budget to outsourcing, and securities firms spent 6% of their $12. …

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