Industry Consolidation Seen Taking Bite out of IT Budgets

By Wolfe, Daniel | American Banker, November 25, 2008 | Go to article overview

Industry Consolidation Seen Taking Bite out of IT Budgets


Wolfe, Daniel, American Banker


Byline: Daniel Wolfe

Bank technology spending is expected to decline or rise only slightly next year, as a result of large-bank consolidation and layoffs, including those affecting tech staffs, two research firms say.

Financial Insights Inc. a Framingham, Mass., unit of International Data Group Inc. predicts that North American financial technology spending will drop 4% from this year, to $52.2 billion and that tech budgets will continue to decline by about 1% a year through 2012.

Jeanne Capachin, a research vice president at Financial Insights who presented the firm's findings in a Web seminar Monday, said in an interview last week that the spending cuts are largely coming from top-tier banking companies that are consolidating in response to the credit crisis.

"A lot of internal IT spending comes out" when banks merge, she said. "You don't need two CIOs."

Virginia Garcia, a senior research director at TowerGroup of Needham, Mass., an independent research firm owned by MasterCard Inc., said it is predicting that tech spending will rise in the United States next year at an "anemic" rate of 0.1%.

She cited similar factors as Ms. Capachin's and stressed that some areas, such as self-service channels, would get budget increases.

"The market doesn't stop for crisis, and business has to continue," Ms. Garcia said.

Both analysts said spending would increase on mobile banking technologies, because many bankers see that channel as one they need to develop.

"Banks feel ... like they have to have a mobile offering now," Ms. Capachin said, so there will be more spending on things such as the mobile channel and less on things like teller systems.

Ms. Garcia said some large-bank branches will be shut down as a result of consolidation.

"In the past five years, there's been a major thrust in branch rejuvenation, so a lot of the spending and innovation that was going to occur has already occurred on a large scale," she said.

Spending on automated teller machines could increase as contracts expire and banks seek to upgrade to image-enabled machines, Ms. Garcia said.

Because many tech projects are of the keeping-the-lights-on variety, budgets can be allowed to fall only so far, she said, but downsizing has had an impact on bankers' ability to take on new projects. …

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