Banks bet on cloud as IT budgets ease, report claims

Spending on IT services in the UK financial sector has grown to £9.8 billion according to analysts TechMarketView, as banks increase budgets and rethink strategies on cloud computing.

The ‘UK Financial Services Sector SITS Market Trends and Forecasts 2013’ report, launched as part of TechMarketView’s new FinancialServiceViews analysis stream, indicates that spending on software and IT services (SITS) is expected to continue grow by 3.6 percent each year up to 2016, outpacing spending in the wider private sector.

The report claims that banking, financial market and insurance firms are responding to a "better economic and commercial outlook" after the financial crash of 2008, and are seeking to invest in IT and services to help build competitive advantage.

The top priorities for spending in all three sectors will be around legacy system modernisation and simplification, meeting regulations, and the increasing use of cloud computing.

Cloud computing will offer benefits around cost for all sectors, for example helping incumbent banks reduce costs and lowering barriers to entry for new competitors, as the technology becomes more widely accepted. 

The report stated: “It is clear from discussions with both customers and vendors that the sector’s attitude to cloud services has evolved significantly over the past 18 months. Consequently, we expect that the move to cloud services will represent a major part of the sector’s cost transformation.”

The report also indicates that spending on enterprise software and applications services is set to grow at 3 percent per year in order to enable central cost control, as well as using data to improve customer experience and create more tailored offerings.

The use of business process services will also continue to grow, with a 6 percent increase in spending per year expected.

Meanwhile, infrastructure service investments are set to grow more slowly than other areas, at 2 percent, but will remain ahead of the wider market spending, as firms look to third party infrastructure suppliers in order to help drive cost reductions.

Despite the increase in IT investment, the report said that CIOs will face new demands to keep costs down.

“Our positive view on overall spending is however constrained by the very different financial environment in which the financial services companies will operate over the next four years, particularly when compared with the pre-2008 crash," the report states.

“Competition and greater regulatory scrutiny will mean that margins and return on capital across the whole of the financial services industry will continue to be under pressure.”

Copyright © 2013 IDG Communications, Inc.

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