Banks Are Spending More On IT, But Vendors Are Not Getting It All

There's some VERY good news for bank tech vendors, and there's some PRETTY good news. But the BAD news is, most bank tech vendors don't see the hidden opportunities. First I'd like to explain what might appear as contradictions to anyone who has tracked my previous blogs.This is what I have been saying:

1. Tech vendors have nothing new to sell to banks and there's nothing new on the horizon.
2. Most banks have hit a comfort zone with their technology that's just "good enough."
3. Switching from one vendor to another has no appeal to bankers because there's little to gain compared to the risk and disruption of a conversion.
4. Even though one could argue there are still too many tech vendors selling the same stuff to a saturated audience, only about four to six companies "need" to get their share of the sales. The rest are content with just being a player.

While the above conditions paint a dark situation for growth oriented vendors, there are some positive views as well. Banks are still big spenders of anything that looks like technology. From 1994 to 2006, the cost of IT increased by an annual average of 15.6%. Two groups experienced the strongest growth rate, and they are at both extremes of the spectrum - very large banks and credit unions. Their increase during the 13-year period was about the same, 260%.

Now the apparent contradiction appears. If banks are satisfied with their technology and there's nothing new to buy, why are they spending more? I believe the answer lies in a shift from buying products to paying internal costs to move technology onward and upward. And that's something vendors haven't figured out yet. Vendors are still doing product dog and pony shows instead of consulting type projects to figure out how their products can be utilized more efficiently. There are three metrics that support this argument:

1. At a bare minimum, any bank has to increase its annual IT cost 7% just to maintain the status quo. Nothing new added.
2. Average annual increases historically have been 15.6%.
3. In 2006, the average revenue increase for eight of the top bank tech vendors was 10.6%.

Thus I return to the theme of this blog. The money is being spent ($63.67 billion in 2006), but vendors are leaving a nice chunk of it on the table. This idea of doing more for a bank reminds me of the old term, "Facilities Management." Invented in the mid sixties, three companies (NationalSharedata, Systematics and EDS) had a very simple sales pitch, "Get back to banking and leave the technology to us."

-Art Gillis www.artgillis.comIf banks are satisfied with their technology and there's nothing new to buy, why are they spending more? I believe the answer lies in a shift from buying products to paying internal costs to move technology onward and upward. And that's something vendors haven't figured out yet.