Business Technology Spending to Increase in 2011

Preparing for an onslaught of regulation, and driven by a need to improve performance, financial services firms finally are spending more on IT.

Editor's Note: This story first appeared Nov. 18. It was updated on Dec. 3.

Banks may still be facing some rocky times ahead, but their technology providers have a rosier outlook. With a focus on enhancing performance and meeting new regulations, the financial services industry will increase its spending on IT in 2011, the Ovum research and advisory group predicts.

"The financial markets sector as a whole will be volatile in 2011, but this will not be detrimental to IT spending and will provide significant opportunities for vendors," said Daniel Mayo, Ovum analyst and author of the group's report forecasting 2011 IT spending, in a release. "Businesses will be looking for IT systems that ensure their front offices are performing as well as they can, while they will want to make their back offices more automated."

John Itokazu, EVP and CIO of Zions Bancorporation ($51.6 billion in combined assets), expects his IT budget to increase between 8 percent and 10 percent in 2011, as the Salt Lake City-based bank holding company looks to invest in its Internet banking platform and a commecial loan front end system, and explore a possible core replacement strategy. "It's clearly a time to start getting ahead of the curve,"Itokazu says regarding the potential of a core modernization project. "As the economy settles down a bit, banks need to start prioritizing for the future."

Overall Ovum predicts financial services spending with IT vendors will grow 4.5 percent in 2011, a significant increase over this past year, when overall spending grew just 0.3 percent, and 2009, which saw a 4.2 percent decline in tech spending. But not every bank is ready to spend more.

Going against the trend is Memphis, Tenn.-based First Horizon National Corp., the holding company of First Tennessee Bank ($26.3 billion in assets). Bruce Livesay, First Horizon's EVP and CIO, expects his 2011 to decrease.

"However, 2010 was an odd year of significant investment for First Horizon," he points out. "We embarked on a massive ITtransformation effort, including core system upgrades for most systems as well as data center insourcing."

Compliance and Competitive Pressures

Livesay says he expects significant future investments industrywide in response to regulatory changes. "On a normalized basis without the significant IT transformation investments, we'd see our 2011 budget increase over 2010," he relates.

According to Ovum's Mayo, financial services institutions' desire to improve agility and performance will drive IT spending increases. But of course, he also acknowledged the compliance burden. "They will also be investing heavily in systems that help them comply with the barrage of new regulations brought in since the global financial crisis," Mayo noted in the release.

Ovum reports, however, that while overall spending with vendors will increase, corporate procurement departments still will be looking for opportunities to save money. Mayo also cautioned tech providers that significant growth is likely to come from outside the domestic market, pointing to Asia in particular as a growth opportunity.

"Vendors also need to be aware that the Asia region will continue to grow in importance for IT spending in 2011 and investment will increasingly be directed to hubs there by enterprises," he said in the release. "London and New York will remain the key hubs, but banks will shift some of their power to the Asia region, which will become more and more influential as senior executives relocate there. For this reason, a credible presence in Asia will be critical for vendors in 2011."