The economy has disappointed in 2011, and 2012 looks similar. In the US, the housing crisis and high unemployment persist. The euro debt crisis threatens Europe with recession. Healthier regions like Asia are too small and too export-oriented to escape a downturn in the West. The best macro case appears to be halting progress on structural issues and continued weak growth.
Despite this, IT spend in banking and financial services grew in 2011 and looks poised for modest growth in 2012. Why is this happening? Banks and securities firms feel pressure both to reduce costs and to innovate. There are multiple ways to cut costs but the only way to simultaneously reduce unit costs and innovate is through technology. Hence, IT investment continues even in the most difficult times and even while operational portions of the IT budget are themselves under attack, as we foresee next year.
For 2012, there will be a sweet spot of IT investment, specifically, unit cost reduction combined with either improved customer experience or with compliance. Banks and their captives or IT partners who can do this through a global delivery model will be at an advantage. Our best bets:
- Online customer-facing technology will continue to attract investment. Unit costs for online transactions are pennies or less while costs for human mediated transactions are dollars or more. Customers prefer banking online and firms that deliver it will gain market share. Examples range across the financial spectrum, e.g.,: 1) allowing consumers to make online payments to other consumers worldwide, 2) giving business customers the ability to scan batches of checks and deposit images online, or 3) exposing a bond dealer’s inventory, buying interests, and pricing to institutional trading partners.
- Mobile, tablet, and social computing, arguably a subset of online banking, has become the fastest growing tech investment area and deserves unique comment. The race is on to lock in the younger generation of banking customers who do not own a land line, who use Facebook instead of email, who buy a Starbucks Latte with their smart phones, and who think voice calling is their phone’s least important capability.
- Integrating online channels with customer service is the key to lowering cost and improving quality when the customer does have to pick up the phone or come into an office. Business process management (BPM) is the key technology to ensure that the bank’s service rep understands what the customer is trying to do, has any information the customer provided online, and can manage the customer’s problem through to resolution.
- Cloud computing, slow to take off with banks because of security concerns is gaining traction, with lightweight cloud for non-critical development environments, multi-party deal collaboration, and client relationship management.
- Smart implementation of regulatory and compliance systems can turn a cost of doing business into cost reductions and risk management capabilities the bank wants and needs. Advanced Business intelligence and analytics are the keys to better information at lower cost. BPM can enforce compliance, improve performance, and ensure that a process is auditable.
Even in times of slow growth and tight budgets, banks making these investments will be successful in 2012.