Banks Projected to Boost IT Spending

The banking and financial services sectors are always looking to improve
profits margins, and a new study says this will lead to a hike in IT
spending over the next few years.

IDC on Thursday said it expect the U.S. banking industry to reach $60
billion by 2007.

“Forward-thinking banks will turn to technology to meet their strategic
priorities as well as to create greater operational efficiency,” said
Jessica Goepfert, program manager, U.S. IT Opportunity: Financial Services
at IDC, in a statement.

Earlier this year, IDC said it conducted a survey of 27 banks asking them
what role IT will play in addressing their top strategic priorities. The
research found that “meeting regulatory requirements, managing the customer
relationship, managing risk, reducing costs and attracting new customers”
were the most important factors to bank managers.

“With these priorities in mind, IDC expects overall IT spending by U.S.
banks to grow by more than 5 percent between 2002 and 2007, reaching more than $60
billion in 2007. Delivery channels will continue to grab the largest share
of IT spending, while back office functions will be the fastest growing area
and will vie for the largest share of functional IT spending by 2007. IT
spending on retail and wholesale products will remain balanced and grow at a
slower rate throughout the forecast period,” IDC said.

The findings are part of a new report entitled “U.S. Banking Industry IT
Spending Forecast by Functional Area, 2003-2007,” looks at IT spending
estimates by U.S. banks, and five specific areas: retail products, wholesale
products, capital markets, back office and delivery channels.

The IDC research follows on similar trends observed by TowerGroup, a Reuters
subsidiary, recently said financial services firms
continue to put a premium on technology spending. TowerGroup expects
worldwide IT spending to top $337 billion in 2003, a 2.3 percent increase
over 2002. The study found that the biggest increase will be in the United
States where a 2.8 percent increase is expected, while a 1.1 percent
decrease is expected in European IT spending.

As consolidation continues in the financial services industry, there are
questions what impact the spate of deals is having on IT professionals.
TowerGroup tracked 20 banking deals worth at least $1 billion over the past
year, and found there was some outsourcing for network operations. The
research also found that costly software development projects are being sent
offshore to both India and China.

Of the $337 billion TowerGroup forecasts to be spent worldwide on IT, close
to $250 billion will likely go towards maintenance and upgrades to existing
hardware and software, including mainframe systems.

While there is some optimism for IT spending in the financial services
sector, there are signs the overall IT picture is still somewhat bleak.

On Tuesday, Gartner said its overal IT Demand Index retreated to 81 after
holding steady at above 90 from May through July, perhaps signaling a
pullback in investments in recent months. The index is compiled based on a
polling of 20,000 IT decision-makers, a rating of 100 means that businesses
are spending exactly what they had budgeted for the month.

Gartner also found that the demand index for large businesses fell to 85 in
August from 89 in July. The research also found that the small business IT
Demand Index dropped to 72 from 79. Mid-sized business showed the most
promising signs, as spending remained strong over the past few months moving
from 95 to 97 on the IT Demand Index.

And while there are some promising corners of the IT sector, there are
concerns about the future of IT jobs in the U.S. The Commission on
Professionals in Science and Technology (CPST) said it has found that
unemployment in the U.S. IT sector has risen to an average of six percent in
the first half of 2003.

One of the main factors behind the technology jobs slump is the move by many
companies to move towards outsourced contracts and hiring IT staff overseas
for lower labor rates than U.S. workers.

The CPST said that over the past decade, the share of foreign-born IT
workers has doubled, while the outsourcing of IT work overseas quadrupled to
more than $1.2 billion in 2001. Another factor putting pressure on the IT
job market, the fact the number of computer science graduates has jumped
over 40 percent in just the past few years.

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