IT Budgets Getting Trimmed

CU360
February 18, 2009 | COMMENTS

With the financial services industry reeling from the global credit crisis, the outlook for financial institution technology spending in 2009 is bleak. IT departments are in the worst shape. Nearly half (49%) say they've cut their budgets, according to a survey of nearly 1,000 businesses of all types across North America and Europe by Forrester Research.

That percentage is likely to be even higher by 2009. Forrester issued its report on Sept. 9, just days before the credit crisis reached outrageous proportions with the rapid-fire demise of Lehman, the purchase of Merrill Lynch, and the government bailout of AIG, all of which has damaged confidence in the banking system and put the health of the remaining large institutions into question.

Given the current environment, it's no surprise that IT execs at financial institutions say they will be trying to do more with the same. One place they will look to for greater efficiencies will be the data center, where strategies such as virtualization and consolidation can make a big difference to the bottom line.

At the typical data center, each server runs a single application, a configuration that results in only 10% to 15% of the server's capacity being utilized. By switching to virtual servers, financial institutions can run multiple applications on fewer servers, save money on infrastructure, and be more energy-efficient.

Consolidation is another data-center strategy financial institutions will tap into, as they seek to reduce power costs. As they rationalize their data centers, financial institutions will also add resiliency and redundancy in preparation for disasters and emergencies. Indeed, disaster recovery and business continuity is one of the few areas where institutions can ill afford to skimp, even in tough times.

Financial institutions can also do more with the investments they already have made in retail automation, such as Internet banking, ATMs and electronic bill pay. By adopting a greener approach to all these technologies, institutions can reduce costs and improve security for their customers, while having a positive impact on the environment.

Not Slamming on the Brakes

IT spending is not expected to come to a halt, of course. Many financial institutions are already involved in multi-year strategic initiatives. “It would simply not be economical or strategically sound to put these largescale projects on hiatus,” Robert Hunt, research director of TowerGroup's retail banking practice, tells American Banker. “Progress on the IT front may slow substantially, but it must be sustained.”

While technology vendors may have a difficult time convincing financial institutions to invest in new projects, there is no denying that there are plenty of worthwhile technologies for organizations seeking to get solid returns from their investments.

With paper-check volumes declining, investments aimed at imaging checks and automating payments are increasingly compelling.

For years, financial institutions have been using check imaging in the back office to improve productivity. Now they are seeking to deploy the technology at teller lines and even merchant sites, so checks can be transformed into images as soon as they come into contact with the bank.

Other drivers of bank technology spending will be data security, fraud prevention and compliance, as threats continue to multiply and regulators get tougher. According to Cèlent, 55% of banks cite compliance- and security-related investments as their top technology priorities.

Perhaps the most prudent area for banks to focus their attention is risk management. They should be making investments that support a proactive, enterprise-wide approach to risk, experts say. "In this economic climate, companies can no longer focus solely on reactive spending to meet each new regulation," said John Hagerty, vice president and research fellow at AMR Research.

Indeed, had a more comprehensive approach to risk management already been in place, those tech dollars probably wouldn't be so scarce today, Hagerty adds.