2013 Bank IT spend to grow - but too much in maintenance

Industry analysts at Ovum have predicted growth of 3.4% in the IT spend of retail banks around the world in 2013 – following fast on the heels of Celent’s predictions last month of the same growth for total bank IT spend. Whilst this is obviously good news for those in the fintech space, it is worth diving into the predictions a bit deeper.

The Ovum report predicts that mobile services and banking will see a 4% increase in Europe this year, and will rise at CAGR of 6% between 2013 and 2017. This is great news for customers who expect their financial services providers to move with the times – they can hope to see more and more banking services and payment options via their mobile phones. (Given First Direct’s failings with its mobile apps, we can see we’re clearly not there yet!) Financial institutions need to be able to offer payments, balance enquiries, money transfers and other banking services, through a mobile handset – using technologies such as SMS or downloadable applications. While mobile services, to some people, may be just an add-on for high-street bank accounts, to others it provides a primary interaction point with their account. Indeed in countries with high levels of unbanked it will be the sole interaction point with their 'banking' provider.  With the growing popularity of tablet style devices screen sizes will allow more sophisticated functionality being delivered to the mobile user. 

Whilst investment in mobile technologies is growing, it is still a very small percentage of the IT spend made by banks. In fact, Celent predicted that 77.1% of investment in IT in 2013 will go towards maintenance. (Although this percentage is falling gradually).  This is a massive amount of money to spend simply to stand still.

The reason that maintenance costs are so high are because many banks are trying to ‘make do and mend’ with archaic technology that hasn’t moved with the times. They are constrained into expensive service deals with vendors to keep their, often highly customised, system up to date, or having to track down rare expensive developers who know the programming languages used on these systems that were first built twenty or thirty years ago.

These costs are throttling innovation, and is perhaps why we’re not seeing more banks really differentiate themselves from their competition when it comes to technology. Even in the mobile arena, financial institutions are going down one or two routes, and we’re not yet seeing anyone really stepping up and delivering something new and different. I’m sure that Celent and Ovum have got it right, and we’ll be seeing investments in IT spend grow over the coming years – here’s hoping that banks spend the money wisely.