IT budgets in the global retail banking industry will reach US$131 billion in 2015, an increase of 4.3% over the previous year, according to recent findings from research analyst firm Ovum.
Furthermore, this will rise to US$157.6 billion by 2019, driven by improvements in the global macroeconomic outlook, which has caused banks to focus on growth, rather than cost reduction and compliance-centric projects.
In 2015, global spending will be led by Europe and North America, but growth will be most rapid in Asia and MEA while spending by banks in the US and Canada will reach US$50.5 billion in 2015, a 4.7% increase from last year.
This is driven specifically by the US’ economic growth. Due to instability issues in the eurozone, budgets in Europe will only rise by 3.1% in 2015, driving total spending to US$42.4 billion.
According to Ovum, this does mask the disparity between different countries in the continent though, as Europe will still account for 32% of global retail bank IT spending.
It will be Asia and the Middle East and Africa (MEA) though that will see the largest growth this year.
Total budget in the former will reach US$27.5 billion in 2015, a rise of 5.6% from 2015, while MEA will grow by 5.3% reaching US$2.4 billion.
In Asia, this growth will be driven by the continued development of the banking sector in India and China, with Malaysia being another country on the rise. In the Middle East, the fluctuations in oil prices will act as a brake on the pace of growth, but there will still be solid levels of IT investment.
The trend of investment in digital channels will continue in 2015. Mobile banking will see the largest increase in budgets, with a growth of 7.3% over 2014, seeing total spend reach US$4.2 billion this year.
Online banking will rise by 7%, but its total spending will be higher than mobile, reaching US$10.8 billion in 2015. As the industry’s focus on sales and servicing remains strong, multi-channel integration and customer information systems (MI/CIS) spending will see a global growth rate of 5.6%, pushing this year’s total to US$7.3 billion.
“Data and analytics will be key to the developments in digital channels,” says Kieran Hines, Practice Lead, Financial Services Technology, Ovum.
“Many markets are witnessing their second or third wave of mobile and online banking platforms, with driving revenue becoming the prime priority.
“In the next round of major platform developments though, it will be the use of data analytics in real-time that will act as the key differentiator.”
This change will be reflected by the spending growth in core platforms.
In 2015, this will remain a critical investment, with retail banks spending US$22 billion on core banking projects. This is an increase of 4% from 2014 and it will continue to grow, reaching US$26.2 billion in 2019.
“In the rush that will undoubtedly occur to deliver front-office innovation to drive growth, banks must resist the temptation of short-term developments for quick revenue wins,” Hines concludes.
“Customer expectations will evolve and banks must ensure back-office agility is retained, meaning it’s able to deliver future innovations. This means any new developments must be delivered according the enterprise architecture principles.
“The benefit of long-term planning, particularly in regards to legacy modernisation, will pay dividends for banks in the coming years.”
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