As US banks move to align their business and IT strategies, Datamonitor has predicted IT spending by US banks to total USD 37.8 billion by 2006, up from USD 33.5 billion in 2003. Banks’ need to offset shrinking revenue and profit margins will result in a 4.1 per cent CAGR in IT spending between 2003 and 2006 as investment is made in core systems, Check 21 preparation, infrastructure and regulatory compliance. In short, banks are expected to look to IT to address profitability issues and maximize growth potential while upgrading existing legacy systems and introducing straight-through processing technology.

Revenue generation and cost-reduction initiatives will be a further factor in banks’ IT initiatives through 2006 as new efficiencies become harder to identify. Essentially, the traditionally high level of customer service at North American banks has left antiquated transaction-based systems misaligned with newer customer-centric initiatives. Costs and the risk involved are perennial deterrents for US banks to replace legacy systems, but as cost-cutting moves up the banking agenda, core systems replacement represents the best way to merge disparate systems onto a single platform while eliminating multiple license fees.

For this reason, just a few North American banks, including Citibank, Bank of America and Scotiabank, have actively started replacing their core systems. Post-merger efficiency drives by US banks, in tandem with cost-cutting programs will fuel further systems integration projects that are aimed at improving overall business efficiency, Celent Communications reported earlier this year. Apart from considering designated vendor solutions for core systems replacement, banks can investigate the use of middleware layers to improve the integration of existing systems and channels as an ‘add-on’ to prior investment.


(Datamonitor)