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$40 billion wiped off banks' IT spending

The decline in growth throughout the global technology market will remove over $40 billion of what would have been IT spending from the banking sector over next five years.

By Miya Knights, 12 Mar 2009 at 11:38

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The banking meltdown will slash $40 billion (£29 billion) off spending on retail banking technology, according to a new report published today, which paints a gloomy picture of slow recovery.

The report's publisher and market research firm, Datamonitor forecast that the global banking technology market will decline by almost two per cent in 2009, as banks begin to put technology spending under heavy scrutiny.

The effects of banks implementing stringent cost controls measures will be felt most keenly in the regions of North America and Europe, where the UK will lead the way, with the greatest predicted decline this year of seven per cent.

While a decline was expected, shockingly, its extent means the analyst has forecast overall technology growth to remain depressed compared to pre-economic crisis forecasts up to 2012, removing over $40 billion of IT spending from the market.

Daniel Mayo, director of analysis for Datamonitor’s Financial Services Technology said a vicious circle, deepening between the banking sector and global economy had emerged as the impacts of the financial crisis become apparent on the real economy.

The report also said that, while IT budgets are under pressure, requirements are different to the last IT downturn cycle after dotcom crash, where technology was particularly targeted for cost reduction.

Indeed, it suggested the requirement for new technology would likely intensify post financial crisis. Technology spend will reduce, but the need to exploit the economies of scale from recent mergers and drive lower costs with higher productivity elsewhere will protect budgets to some degree.

It predicted IT spend in the branch would be maintained, with a growing focus on supporting greater efficiency and driving a lower cost base. While similarly, technology spend to support risk management and compliance will be maintained.

However, banks will be looking to re-use existing systems as far as possible, so immediate technology vendor opportunity will be more subdued than many expect.

Mayo concluded: “Banks are more open than ever to alternative sourcing approaches and internal IT departments will likely bear a significant brunt of IT spend reduction pain. 2009 and indeed 2010 are likely to be tough years for vendors, but medium and long-term opportunities remain significant for those who can adapt.”