The global financial services industry has long-been notorious for its bloated IT budgets, which far exceed those found in the majority of other sectors. But as the global financial crisis renders resources ever-scarcer, the financial services industry's well-provisioned IT departments cannot hope to escape unscathed.
Between February and April 2009, The Banker surveyed a group of 129 chief information officers (CIOs), chief technology officers (CTOs), IT directors and managers from across the banking sector in order to understand how their IT budgets have been affected by the downturn and how they intend to invest what funds they have over the next 12 months. Participants were asked about changes to their budgets, how much they intend to invest in different areas of the IT estate over the next 12 months, and which areas of the IT environment they regard as a priority.
The vast majority of respondents (32%) were based in Asia, western Europe (28%) and North America (12%), while just less than one-third of participants were based in eastern Europe (5%), South America (4%), the Middle East (11%) and Africa (8%). Some 30% of respondents worked at commercial/wholesale banks, 10% came from retail banks and 8% responded from universal banks. A small number (2%) came from investment banks, with a further 50% hailing from other types of financial institutions. The vast majority of participants (54%) were IT directors, while 9% were at the CIO level, 3% at the CTO level and 35% held managerial jobs responsible for IT spend.
The vast majority (84%) of the group managed budgets of less than $50m, with 35% of respondents saying that their budgets for the next 12 months had been cut. In an encouraging trend reflecting the global scope of the survey, a further 39% of respondents said that their budgets remained broadly the same at last year, while a whopping 26% reported that their budgets had actually increased for the next 12 months.
Where budgets have been cut, however, the reduction was often found to be dramatic: a worrying chunk of participants (27%) reported that their IT budgets have been slashed by more than 40%, while 4% of participants said that their budgets have been cut by between 30% and 40%. A further 13% of respondents said that their budgets have been reduced by between 20% and 30%, and some 16% reported cuts to their IT budget of between 10% and 20%. The second largest group of IT chiefs (22%) reported that their budgets have been cut by between 6% and 10%, with a combined 17% of respondents reporting cuts of less than 5%.
According to The Banker's research, the average reduction among firms reporting cut-backs amounts to a dire 21%, wiping tens of billions from the global IT industry. Taking the entire group of respondents as a whole, The Banker's IT Investment Intention Survey 2009 indicates that about one-fifth of organisations in the global banking and finance sector are experiencing sharp declines (of 10% and upwards) in IT budgets. This figure, twice the proportion reported by other sectors, clearly reflects the severe capital constraints under which the banking and finance industry currently labours.
Broad distribution
Of the funds that remain, which broad areas of the business and IT estate will receive the most investment? On average, The Banker found that basic maintenance or 'keeping the lights' on functions - which usually commands the vast majority of IT budgets - will account for just less than one-third (27%) of IT expenditure over the next 12 months. The result suggests that IT managers are aiming to drive costs out of what is traditionally a highly flabby area of the IT estate, a finding underlined by the 11% of funds devoted to rationalisation and cost-efficiency projects.
The Banker's findings also suggest that the operational failings exposed by the crisis have prompted many institutions to undertake wholesale IT systems overhauls, with some 17% of budgets dedicated to replacing specific IT platforms. In what may be regarded as a surprising outcome, however, only 9% of IT budgets over the next 12 months will be allocated to regulation and compliance-related projects, suggesting that most financial institutions are deferring such projects until the full extent of future regulation is established.
Less surprisingly, only 8% of funds will be spent on major business change programmes, as organisations seek to reduce unnecessary expenditure on internally facing projects. With a significant 14% of budgets dedicated to customer and client-facing IT projects, however, it is clear that while internal services may be under-resourced, financial institutions will continue to invest in services that impact upon their client and customer relationships. Finally, 14% of funds will be dedicated to other functions falling outside these areas, with respondents citing, most notably, personnel, IT education and 'emergency costs'.
Priority areas
In order to better understand which specific components of the IT stack are likely to receive investment over the next 12 months, The Banker asked respondents to indicate which types of hardware, software, services and human resources they regard as an investment priority.
When ranked on this basis, information and network security proved to be the outright winner. With some 63% of respondents regarding this area as a priority, information and network security ranked well above the second most important area of investment, systems upgrades, which garnered 53% of the vote. The Banker's findings clearly highlight how critical the issue of information security has become to the financial services community as security threats, including viruses, hacking, phishing, data theft, data loss and fraud, continue to proliferate and, in turn, target the financial services industry.
It is not entirely surprising therefore that the network itself - the key vector for security breaches within large organisations - also comes up trumps, with both networking upgrades and the purchasing of networking hardware regarded as a priority by some 48% and 45% of respondents, respectively. Increasing data storage and application integration also snuck into the top quartile, both of which consistently highlight among IT chiefs' ongoing problem areas. Attitudes to human resources were also noteworthy: fewer respondents (29%) regarded cutting back on in-house staff, consultants or contractors as a matter of priority than might be expected.
The biggest loser in the ranking was software-as-a-service (SaaS)/cloud computing, the method by which software applications once deployed in house are provided by an external provider over the internet. With only 9% of IT chiefs regarding the movement to SaaS as a matter of priority, it is clear the financial services industry remains apprehensive toward the proposition. But SaaS was not the only outsourced service to receive a lukewarm reception. Both business process outsourcing and IT outsourcing fell into the bottom quartile, suggesting that fewer IT chiefs than is popularly believed regard increasing their outsourced services and functions as a key resource management strategy for the next 12 months.
Note: Percentages have been rounded up to the nearest decimal point.
Job titles
Bank type
Budgets under management
Change to budgets during next 12 months
Broad investment distribution
Proportion of IT budget cuts
Investment priority ranking (%)
Regional breakdown of responses (%)
