ABA and TowerGroup Bank Technology Spending Study Sees Growth Ahead

Survey findings indicate that banks will leverage customer relationships to increase revenues, and reduce costs by managing risks and improving efficiency of customer service. The report presents analysis of an industry survey conducted between June and September of 2003. The objective of the survey was to identify the technology spending patterns, investment trends and technology management strategies of the traditional diversified bank with a mixed portfolio of consumer and wholesale deposit, lending and payment services from 2002 through 2004. Highlights of the survey findings include: - Survey participants identified the top five lines of business technology investment priorities as branch, consumer credit origination, image/document management, consumer banking Internet sites, and financial control and risk management. - Consumer banking investment in branch renewal remains strong, as retail bankers continue to invest in strategies to attract and retain profitable customers. In line with this trend, the degree of interest in loan origination systems and enhanced analytical marketing capabilities further indicate that retail bankers are focused on top-line growth. - Payments investment drivers include fraud reduction and enhancements to existing systems to support the increasing electronification of all payments processes. Most notable are investments to support the expanded use of check images enabled by legislation popularly known as Check 21 (the Check Clearing for the 21st Century Act). The bill, which has been passed by both the U.S. House of Representatives and the U.S. Senate, is pending the signature of President Bush. In addition to using images in the settlement process, banks are improving customer service by adding image capabilities to their consumer and corporate Web sites. - While wholesale banking spending declined by 1.5% between 2002 and 2003 and wholesale banking investments only scored once among the top 10 technology investment priorities for both community and large banks, bankers did indicate an interest in increasing investment in 2004 by 5.7%. They identified their institutions? highest priorities for 2004 as client relationship initiatives, followed by continued investments to reduce cost with straight-through processing, especially in commercial lending operations. - The top five enterprise and technology infrastructure investments identified by the survey were: communications network replacement and enhancements, PC and server hardware / software upgrades, mainframe computer upgrades, computer operations center replacement, and IP telephony. - Operational resilience and information security were the leading concerns of banking executives. Technology managers are looking for comprehensive end-to-end strategies for resiliency. Virus protection and intrusion detection are major concerns among all respondents, while security policy automation is highly valued at larger institutions. - Technology spending among banks with assets greater than $20 billion will grow modestly at a 4.5% rate between 2002 and 2004. Banks reported spending growth of 4.0% between 2002 and 2003 with plans to accelerate the rate of growth to 5.1% between 2003 and 2004. - While overall spending increase is modest, among the largest banks, external services spending will rebound dramatically with double-digit growth of 17.4% led by business process outsourcing, which will grow 28%. Software spending is projected to grow strongly at 9.4%, while internal spending stays level reflecting banks? continued efforts to keep fixed expenses under control.