The market forecasts for 2014 are more promising than they have been since 2007. With the downturn receding into the rear view mirror–but the lessons learned still in sharp focus, there is more scrutiny on risk management than ever before. The regulatory burdens being placed on financial institutions continue to expand, along with pressure to manage all types of risk effectively. As a result, there are more eyes on the processes banks use to assess risk than ever before, and a growing sense that risk management is everyone’s business. This means that risk-related data needs to be reportable, trackable, defensible and accessible to a growing network of professionals.
In the context of a challenging regulatory and economic environment, it is not surprising that more institutions will be leveraging technology in the coming year to meet extensive regulatory compliance requirements in today’s “doing more with less” mindset. Spending on IT solutions in financial services globally is expected to exceed $430 billion next year—and surpass $500 billion by 2020. American Banker just published a list based on research conducted by Ovum, a leading global analyst firm, of how banks plan to spend their 2014 IT budgets. A quick review reveals the collective emphasis on efficiency in managing a growing volume of data, more insight into customer behavior/needs, better collaboration institution-wide, the need to address regulatory compliance, and streamlining/simplifying outdated processes. Below is Ovum’s list of overall IT spending hot spots for banks in the coming year:
1. Digital banking and mobile payments. Ovum predicts an almost 7 percent increase in spending on digital banking next year versus 2013, reflective of a shift toward mobile apps and being able to conduct banking functions on a smart phone or tablet.
2. Marketing analytics, supported by customer data management. Banks are expected to spend about 6 percent more next year on data-related technologies like data warehousing, data mining and online analytical processing specifically geared toward better understanding customer behavior.
3. The “omnichannel.” This term refers to a system that allows for “seamless, synchronized interactions across all channels.” This means customers can interact with their bank online, via an ATM or using a help line with massive integration among multiple lines of interaction with customers.
4. Core banking technology. Banks are expected to invest 4 percent more in investments in their core technology to improve outdated, legacy systems that have become too expensive to maintain. Notable projects on this front that are cited in the American Banker article are BBVA Compass (a $360 million effort), Santander’s Sovereign Bank and Zions Bank. A lot of eyes are on these projects which, if successful, could provide a strong catalyst for other institutions to follow suit.
5. Private clouds. Banks are increasingly adopting software that allows for widespread sharing of files from a centralized location.
6. Efficiency. The progress made in 2013 is expected to continue into the new year as U.S. banks adopt new software to facilitate document management, workflow and business process management. This trend is a allowing banks to replace “time-consuming, paper-bound processes with simpler, web-based tasks.” A growing number of large national and regional banks are streamlining loan originations, loan portfolio management, vendor management and other core functions using workflow applications that were not even around just a few years ago.
7. Security. Ovum also cited modest spending on security-related technology to protect against “DDoS attacks and malware.
8. Compliance and risk management. The heavy investment in compliance and risk technology in 2011 and 2012 will continue into 2014, coupled with a new focus on trying to get a proven business benefit from this category of IT spend. Systems that allow banks to facilitate a broad-based understanding of their risk exposure and doing it in a way that allows for better business analytics are gaining traction.
The results of Ovum’s analysis points to more centralized data management, better analysis of analytics, and more efficiency. Technology trends like this are taking root in virtually every industry and Ovum’s research demonstrates that the lending world is no different. Consider that Family Dollar’s real estate management team now uses a platform for site selection that allows better collaboration among internal teams, and has reduced the company’s site evaluation times by a solid 67 percent. There is more data available on commercial lending transactions than ever before, and it is all about speed and efficiency. Those in the deal making world are getting used to accessing data quickly from anywhere, interacting with it, customizing it, experiencing it, analyzing it and acting on it. In a bank facing intense regulatory scrutiny, centralized systems are also providing a way to establish processes for reviewing risk reports and ensuring that consistent risk management processes are being followed institution-wide.
Technology is transforming how financial institutions perform their core functions, manage risk, meet customer needs, keep regulators at bay and meet their business goals in the coming year. Bank on it.