External IT spending consumes 57% of total IT expenditure in the global financial services industry. TowerGroup expects IT budgets to shift further towards external IT spending, as internally developed legacy systems are replaced with third-party solutions. As outsourcing consumes a growing percentage of IT budgets, TowerGroup estimates that external IT spending will increase from 57% in 2004 to 59% by 2006 – seeing total IT spending grow globally from $198bn to $224bn.

Moving a larger number of IT projects and cost structures to third-party providers has enabled financial services institutions (FSIs) to cull internal IT expenditures, primarily related to staff costs. In many cases, these cuts did not result in direct job losses but instead entailed the migration of IT employees from the FSI’s cost base to the vendor’s.

Based on TowerGroup research by Virginia Garcia, senior analyst, Financial Services Strategies & IT Investments practice. TowerGroup is a leading advisory research and consulting firm focused on the global financial services industry. E-mail: vgarcia@towergroup.com

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