Report Examines IT Spending in Financial Services

A report from Celent, titled ‘IT Spending in Financial Services: A Global Perspective’ estimates that global information technology spending by financial services institutions will reach US$353.3bn in 2009, representing a decline of 1.3% over 2008 (when IT spending totaled US$358bn). This figure is substantially lower than the 4.5% growth achieved in 2008 and 6.4% growth in 2007. Although the next couple of years will be challenging, Celent expects global spending on IT products and services to grow to US$364.5bn by 2010, a mere 0.9% compound annual growth rate (CAGR) from 2008 to 2010.

The report goes on to say that European and North American financial institutions currently spend an almost equal amount on IT. Firms in Europe and North America account for 37.7% and 33.5%, respectively, of the global IT investments by financial services institutions. Firms in Asia-Pacific account for 23.3%, and Latin America and Africa account for the remaining 5.6%.

Among all regions, the fastest growth will be seen in financial services institutions in Asia-Pacific, with IT spending increasing at 8.9% in 2008 and a CAGR of 4.1% from 2008 to 2010. Growth will continue to rise in this region, and total spending in Asia-Pacific is expected to reach US$90.3bn in 2010. Latin America and Africa are expected to grow at a relatively modest rate (3.1%).

Among the industry verticals, IT spending on banking activities accounts for the largest portion of the total IT spending, nearly 50%, and is estimated to reach US$160.4bn in 2008. European banks make up the lion’s share of bank IT spending at US$61.6bn. IT spending on insurance and securities and investments activities is expected to reach US$103bn and US$74.7bn, respectively. In the medium term, insurance firms are expected to increase their spending in IT at a faster rate than the other industry verticals.

Across all industry groups and regions, securities firms in Asia-Pacific and insurance companies in Asia-Pacific and North America, will experience the fastest growth from 2008 to 2010, (CAGRs of 6.1%, 4.2% and 3.5%, respectively). The slowest growth will be found in North American securities firms and European banks. From 2008 to 2010, North American securities firms are expected to grow at a CAGR of -5.7%, and European banks at -1.9%.

The most telling indicator of future spending and growth relates to investments in new IT projects. Of the total investment in IT in 2008, a whopping 71.9% still goes to maintenance. The percentage of funds dedicated to maintenance activities is still astronomical but is slowly coming down (73.7% was dedicated to maintenance in 2006). Unfortunately, economic conditions and the financial crisis has financial institutions cutting spending on new investments. As such, the ratio of maintenance to new investments will remain relatively unchanged in 2010.


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