IT Spending Will Include Increase in Business Process Outsourcing

The Tower Groups has revised its previous numbers for technology spending among U.S. banks, estimating that large banks will spend $20.1 billion on banking technology in 2003 and $21.2 billion in 2004. These numbers were somewhat lower than those released previously in the Tower Group's IT spending survey, American Banker reported in the article, "IT Spending: Outlook Not Quite So Rosy?" (Thursday, October 30, 2003).

Excerpts from the article:

"TowerGroup has been collaborating with the American Bankers Association to project banks' IT spending. Preliminary data were presented in September in Hawaii at the trade group's annual conference, and a final report on 2003 and 2004 spending is to be released next month. The survey results focused on banks with assets of more than $20 billion, of which TowerGroup says there are 45."

"Business process outsourcing will have the biggest spending increase, with banks reporting a 28% compound annual growth rate between 2002 and 2004, " said Robert J. Landry, the vice president of research and corporate development at TowerGroup.

"The second-largest category is the outsourcing of hardware and software-oriented technology applications such as check imaging, online banking, and check clearing and processing. It is expected to show growth of 18% for this year, Mr. Landry said."

"The bump in BPO, or business process outsourcing, is explained by banks' desire to move to variable from fixed cost structures, Mr. Landry said. Also, banks that have traditionally found it difficult to implement change in labor-intensive areas, which are covered under the BPO rubric, are more comfortable now with vendors that are experts in these areas, he said. "

"Outsourcing has been a continuous trend over the last 10 years, Mr. Landry said, but it's a big revolution in that banks are now looking at [BPO] as a way to get high levels of function, more flexibility, and the best technology out there."

"Banks are learning that doing everything in-house and relying on proprietary processes and technologies carried too much risk and cost, (Mr. Landry) said. "

"Branch spending is still strong, and clearly the key driver in the consumer space, Mr. Landry said."

"The customer-facing aspect is key across the board, Mr. Landry said. Even banks that are focused on reducing costs and gaining efficiency know they need to present images to consumers, improve automation, and speed up the back-office flow. It's a double whammy."

"Banks with assets of more than $20 billion said they would increase their investment in wholesale banking technologies by 6.1% next year, to $7 billion. Spending on wholesale banking fell 1.5% between 2002 and 2003, to $6.6 billion."

"Other areas of investment will be check imaging - not only because of the Check 21 law, which was signed Tuesday, but also because customers are eager for online access to check images, Mr. Landry said, citing the survey results."

"Investments in technology infrastructure for 2004 will include communications network replacement and enhancement, PC and server hardware and software upgrades, mainframe computer upgrades, IT help desk center replacements, and Internet protocol telephony, the survey found."