Uncertainty bites into financial clients' IT budgets

Uncertainty at banks and financial institutions about demand and business prospects has put the brakes on technology investment, despite most types of financial outfit still setting aside more for IT.

Delivering the verdict, based on third-quarter interviews with more than 100 financial employers, the CBI said IT investment was set for only a “minimal” rise of 4%, well below its long-run average of 28%.

The employers’ organisation said a dearth of finance; inadequate return on investment and uncertainty about demand and prospects were the factors likely to blame for the downgrade.

“This has been a strong quarter for the financial services sector, with increases in sales volumes and profits showing that the sector’s recovery is on track,” the CBI said, reflecting on October, November and December of 2011.

“But firms are less optimistic, employment is down and investment intentions for this year are weaker, as concerns about the global recovery and ongoing troubles in the eurozone create uncertainty.

“Nevertheless companies are expecting business volumes and profits to continue to grow, albeit more slowly, in the next three months.”

On a sector basis, the biggest IT spenders – or at least those financial employers who intend to spend more on technology in the 12 months ahead relative to last year, include investment management firms, building societies and finance houses.

In contrast, insurance brokers have set aside much less to spend on IT systems, as have securities trading firms, while banks – the favoured client of IT contractors, have opted to invest roughly the same amount.

Banks deciding not to up their IT budgets appears at odds with new research showing that, as a way for customers to interact with their bank, digital banking is set to overtake in-branch visits by 2015.

Run by PricewaterhouseCoopers, the probe found that while a growing chunk of people were using the internet to buy financial products, only a third said they do so using their mobile phone.

But such mobile-banking is still set to follow the usage curve of internet banking, meaning uptake will eventually grow, with 67% of respondents saying that they would consider using a wireless device in the future.

Banks targeting consumers who are Generation Y – individuals born in the 1980s and 90s, have the most ‘mobile-ready’ audience, whose numbers are most prolific in China, India and the UAE, found PwC.   

The accountancy firm said: “Banks have generally been too slow to embrace the digital innovation customers now expect from other industries, such as retail or travel.

“This needs to improve if banks are to hold on to their existing customers and attract the next generation, as the quality of a bank’s digital offering will become an increasingly important factor for consumers.”

Banks were therefore urged to “take their digital products to the next level,” while bearing in mind that uptake will depend on a rich user-experience “that is both mobile and social and integrates [customers’] banking needs with their digital lives.”  

Given the multi-faceted requirements, PwC said banks might need to partner with technology, mobile and other non-traditional banking providers, if they are to deliver the digital experience that customers increasingly expect.