Banks Will Have to Be More Innovative With Fewer Dollars Going Forward

With the capital and consumer banking markets faltering, banks will shift their investment dollars to the fee-based and transaction-processing business lines -- preferably with no (or a managed) credit component. There will be general tightening of the standards for IT project review: shorter paybacks, higher hurdle rates and less tolerance of "soft" benefits.

Significant investment in the next couple of years will go to executing the bank mergers and realizing the efficiency savings; improving risk management, regulatory reporting, etc., and dealing with the increased regulatory oversight; overhauling financial reporting -- as formerly off-balance sheet instruments are put on the balance sheet -- and further automating the financial supply chain to reduce operating expense from the banks and their corporate clients.

This will tie up the banks' staff and will divert funding from innovative, revenue-growing opportunities. But since banks still need to grow the top line, they still will focus on discrete investments in high-margin (e.g., wealth management) or low-risk (e.g., payments) areas; investments in solutions that don't require support from the overburdened IT staff (e.g., outsourcing and SaaS); and experimenting (on a larger scale) with technologies to do more with less -- for example, banks might look to execute certain merger activities using service-oriented architecture.