Magazine article Mortgage Banking

The Wallet

Magazine article Mortgage Banking

The Wallet

Article excerpt

According to a study prepared by the William Mills Agency, Atlanta, "The effects of the credit slowdown that started in 2007 and picked up steam in 2008 were compounded by a sharp increase in unemployment in 2009. The result was higher defaults for mortgages and other types of credit, tightened credit terms and conservative spending that scrapped many technology and other projects that had been on the books."

The report, Bankers As Buyers 2010, predicts that the technology spending reduction that began in 2009 is likely to continue this year, although there are signs that projects could pick up in the second half of the year. Even if spending does pick up, however, increases will be slower than in the past, the report contends. "Demand will be slightly lower because there are fewer financial institutions every year," the report said.

Even with constrained budgets and expected flat technology spending in 2010, decreases in some areas will permit increases in some other areas of technology spending. Those areas include regulatory compliance, mobile banking, cloud computing and Software as a Service (SaaS), and social media.

A look back

The downturn in the financial services industry, particularly at the beginning of 2009, led to some sharp changes in technology budgets, most of which had already been scaled back.

"At the beginning of the year, we saw a lot of projects cancelled," said Quintin Sykes, managing director for Cornerstone Advisors, Scottsdale, Arizona.

"Toward the end of 2008, we saw a slowdown that continued into 2009," said Christine Barry, research director for Aite Group LLC, Boston. "Projects that had been considered a high priority were put to the side and the focus shifted to cutting costs and increasing stability. A lot of banks were distracted by the new regulatory requirements, which had a lot of impact on new-product development. More of the focus was put on cost-cutting and compliance."

In a February 2009 survey of community banks, Aite Group found that 41 percent of community banks expected to increase their technology spending from 2008.

In an Aite survey conducted only four months later, that outlook had waned, with only 23 percent of small banks and 27 percent of all banks expecting to spend more on technology in 2009 than during the previous year. The outlook for 2010 was similarly bleak.

Though there has been no hard data since then, Barry says, the expectation is that the spending mood is even more conservative as the new year starts--an expectation that many other analysts and bankers share, according to the Bankers As Buyers 2010 report. However, the general feeling is that the soundest financial institutions will slowly look into some new areas of spending. But many will look for quick returns or technologies that offer Software-as-a-Service (SaaS) and other pay-as-you-go contracts.

Sykes said Cornerstone did see a slow pickup in technology spending in the second half of 2009. While financial institutions were still focused on expense control, they started investing some money in mobile banking, risk management and online account-opening efforts, he added. "The mood was a little more upbeat, which was surprising to me," said Sykes.

Spending outlook

The consolidation in the industry continues, according to the report, with the pace quickening in the second half of the year as failures and mergers of necessity removed an increasing number of financial institutions from the market here and overseas. …

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