Global IT spending in financial markets is on the rise and will grow to more than $100 billion by 2018, according to new research by analyst firm Ovum.
After a tumultuous few years following the financial crisis, technology spending in asset management, capital markets and corporate banking will increase, mainly as a way for firms to make cost-savings elsewhere in the business.
In capital markets, after a weak 3.7% IT spend growth in 2013, this year will see a modest rise to 4.8%. In the longer term, spending will pick up, growing at a 6.4% CAGR between 2014 and 2018. Last year’s low levels of spending were on the currency and commodity side of the capital markets, but the increased focus on the equities market will drive spending back to IT due to the more intensive use of technology.
“Banks are currently in the process of renewing their platforms and are investing in IT for the future. This investment will be mostly focused on the front office in order to improve order management systems, but we will also see a continuation of significant investment in the back office to improve automation and scalability levels,” says Daniel Mayo, practice leader, financial services technology, Ovum.
Ovum explains the capital markets are still siloed along product lines. Some institutions are looking to transform their trading platforms while others are considering a move towards a central banking function, which requires consolidated systems.
Corporate banking IT spending is heading towards a strong growth this year, expecting a 5% increase as banks invest in their systems to provide liquidity management. The lending side of corporate banking is seen as the main driver of growth, but the transactional side of the business is also on the upswing, driven mainly by IT spending.
“While capital strengthening still remains an important aspect of corporate banking, the focus is shifting to revenue growth,” says Mayo. “Lending is picking up and banks are looking to IT to analyse and understand lending decisions in order to minimise the risk of another financial crisis. This increase in responsible lending suggests that the end of the credit crunch is in sight.”
Meanwhile, IT spending in asset management is also on the rise and has returned to pre-crisis credit. Ovum warns though that this masks a polarisation of the industry where the IT load of asset management is being squeezed between passive tracker funds on one side and more specialist hedge funds on the other.
Most asset managers are looking to diversify and increase the number of funds they offer. This is driving IT investment, to cope with the diversification of services driving an increase in spending from two per cent growth in 2013 to a 5.1% CAGR between 2014 and 2018.
“The element that is driving most of IT spending revolves around appeasing investors,” says Mayo. “With a current trend of account holders desiring visibility and control, particularly in the digital channels, client servicing systems are having more money placed into them. On another note, with the continuing focus on cost control in asset management, much of the investment marked to improve IT infrastructure has been put on hold.”