Even Growing Bank IT Budgets Are Strained by Competing Priorities

BS&T research reveals that while 2012 bank IT budgets are likely to grow over 2011 levels, an array of competing investment priorities will challenge CIOs to make the most out of still-limited resources.

Illustrating how difficult it can be for banking executives to manage sometimes-competing priorities even when IT budgets are growing, recent Bank Systems & Technology research indicates that banks' priority areas for IT investment in 2012 will be regulatory compliance and risk management, followed by customer experience and channel optimization.

In an online survey conducted by BS&T in October 2011, almost half of the respondents (40.7 percent) indicated that regulatory compliance, risk management and security would be the top areas for IT investment in the coming year (see chart, below) -- an unsurprising response given the continuing uncertainty about global banking regulation in general and the impact of the new Dodd-Frank legislation in the U.S. in particular. And 30.8 percent of the bankers identified compliance-related projects as the top challenge facing their banks' IT organizations in 2012.

At the same time, competitive pressures, growth imperatives and changing customer expectations also must be addressed, and almost one-fourth of the respondents (22.2 percent) to the BS&T survey pointed to customer experience/channel optimization as the likely top area of IT investment in 2012, followed by mobile banking (14.8 percent). Meanwhile, 15.4 percent identified enabling appropriate security for emerging channels such as mobile and 11.5 percent cited the consumerization of technology in general as critical challenges for the coming year.

Data management, which is essential both to compliance and to delivering a better customer experience, ranked fourth in terms of priorities (11.1 percent). And since none of these priorities and challenges can be effectively addressed without modern and flexible systems and infrastructure, it's not surprising that nearly one-fourth of the participants (23.1 percent) in the BS&T research reported that their legacy systems present the top challenge for 2012 (even though only 7.4 percent of respondents said that core systems would be the top area of IT investment at their banks).

Look on the Bright Side: Growing Budgets

Fortunately, even though 15.4 percent of survey respondents identified limited budgets and resources as the top challenge facing their IT organizations, it does appear that IT executives will have somewhat greater resources to deploy in addressing these mandates. Almost two-thirds of the BS&T survey respondents said their technology budgets would be bigger in 2012 compared with 2011 budgets: 22 percent of the executives said their IT budgets would grow by more than 3 percent over 2011 levels and 37 percent said their budgets would increase by 1 percent to 3 percent. At the same time, almost one-fourth of respondents said their IT budgets would shrink this year -- 11.1 percent said they'd be smaller by 1 percent to 3 percent, and the same percentage said their budgets would decline by more than 3 percent. Almost 15 percent of respondents said their 2012 IT budgets would be the same as in 2011.

These findings were reinforced by informal audience polling conducted by BS&T at its recent Executive Summit event. Forty percent of the participating attendees said they believed their IT budgets would increase by more than 3 percent in 2012. In addition, 50 percent said that limited budgets/resources would be the biggest challenge facing their departments next year, perhaps indicating that even though many foresaw budget increases, they will not be as big as hoped.

Katherine Burger is Editorial Director of Bank Systems & Technology and Insurance & Technology, members of UBM TechWeb's InformationWeek Financial Services. She assumed leadership of Bank Systems & Technology in 2003 and of Insurance & Technology in 1991. In addition to ... View Full Bio