Hedging Their Bets

Regulatory and competitive challenges notwithstanding, it appears that the banking industry's much-heralded renewed focus on growth is more reality than hype - and this confidence is reflected in an expansion of IT budgets. That's according to Bank Systems & Technology affiliate InformationWeek Research in its 3Q 2004 Outlook/Priorities Study (based on 300 telephone interviews in June, roughly one-third of which were from financial institutions).

Overall, business technology executives in the financial services sector continue to be positive about the possibility of an economic recovery in 2004 and what it will do to enhance their companies and business sectors. At the same time, bank executives who responded to the study appear to have become slightly more cautious in their outlooks.

Ninety-two percent of bank executives surveyed, for example, think their firms' revenue growth will be better in 2004 than it was in 2003 - up from the 80 percent who made this prediction in last quarter's research. Financial services respondents reported a double-digit investment in technology and said they expect their IT budgets to hold firm as they head into the second half of 2004. The 3Q Outlook/Priorities Study found that IT budgets in financial services range from 11 to 13 percent of annual revenue. According to half of the executives polled, this represents growth from last year's levels.

In banking, IT budgets represent 10.8 percent of expected annual revenue, compared to11.5 percent in insurance and 12.8 percent in the securities/investment segment (see chart at left).

In terms of IT spending, however, the number of bankers who expect their budgets to be bigger this year than in 2003 is down to 46 percent, from 71 percent last quarter. Reflecting the somewhat more cautious view on this were the 31 percent of respondents who said IT spending would equal 2003 levels (up from 19 percent the previous quarter) and the 23 percent who anticipate that total IT spending will be less this year than last, compared to only 10 percent last quarter.

Still, overall there is clearly a more positive outlook among bank technology execs. According to the Priorities Study, that optimism is getting stronger: Seventy-eight percent of bankers surveyed said they are positive about the industry's economic conditions (22 percent were neutral). However, this is down slightly from last quarter's results, when 82 percent of bank respondents said they were positive and 16 percent were neutral; 2 percent were negative.

Perhaps one reason for this slight chill has to do with concerns about systems security (ranging from phishing and viruses to other forms of fraud to an actual terrorist attack), and this is reflected in the plans for IT spending in banking. InformationWeek Research found that the top business priorities for IT implementation or support this year will be security and business continuity, closely followed by IT support of regulatory compliance (see table at right). In banking, nearly 100 percent of the respondents said updating security procedures, tools and services would be a key business priority.

Similarly, the Priorities Study indicates that tech projects in the works will be heavily focused on security areas, such as network security, intrusion detection and content filtering/anti-spam software. Network and systems management was cited by 88 percent of the banking respondents, followed by network security management software (84 percent), intrusion detection software (80 percent), encryption (70 percent) and content filtering/anti-spam software (66 percent).

For more on the InformationWeek Research Priorities Study and Confidence Index, visit www.informationweek.com/benchmark/ITconfidence. Helen D'Antoni produced this research.

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