Retail banking – IT spending on the rise amid economic turmoil

MELBOURNE, AUSTRALIA: The Asia-Pacific retail banking IT spending market will increase by $1.2 billion in 2012 and hit $30 billion over the next five years, growing with a CAGR of 5.7 percent from the beginning of 2012 to 2016, find Ovum.

In a new forecast, the independent technology analyst states that the Asia-Pacific spending on retail banking technology will increase by $7.1 billion, and banks in emerging economies in the region will grow the fastest at a rate of 8.3 percent in 2012, hitting $10.2 billion by year end.

Jaroslaw Knapik, Ovum financial services analyst and author of the forecast commented: “The technology investments will be mainly driven by the need to grow revenues but the changing regulatory compliance will also take a significant toll.

“Returning revenues to pre-recession levels is a priority for a number of institutions, although for many it is unsurprisingly a significant challenge. Banks still need to focus on improving customer trust and increasing sales and servicing effectiveness.

“This will lead to accelerated investment in channel technology, predominantly online banking or other channels such as mobile which will reach CAGR of 7 per cent and 7.1 per cent respectively. Retail banks will invest in these areas in parallel to investments in channel integration and customer information systems.

“This is due to the fact that technologies that allow “smarter” selling and servicing, such as customer analytics and customer data management, are expected to remain hot areas in the near future. As sales activities are expected to be on the rise again, banks will also boost investments into operations as the ability to sell products faster and service customers’ better is a competitive differentiator in the retail market.”

Risk and compliance are permanently on CIOs’ agendas. Ever-increasing regulatory expenditure, which in 2012 will be predominantly related to Basel III, will drive investments into technologies that reduce costs, such as data management, business process management, business intelligence and analytics.

Asia-pacific spending on various middle-office components based on these technologies, such as risk management, anti-fraud, compliance, and performance management, will experience growth of 6 percent hitting $1.45 billion by the end of 2012 and $1.86 billion annually over the next five years. However, emerging economies in Asia-Pacific will experience the highest growth, at 8.9 percent to hit $521 million by year end.

“Regulatory demands are also forcing banks to invest in their core systems. While in many cases tight compliance timescales lead to the “quick-win” type of enhancement strategies, the on going nature of regulatory demands, together with the need to revamp the wider bank to allow the adoption of newer business models, is now driving significant interest in core system transformation,” concluded Knapik.