Global financial IT spend to reach $100 billion by 2018 says Ovum

IT spend is on the increase, according to Ovum

IT spending in financial markets is on the rise and is set to reach $100 billion in capital markets, corporate banking and asset management by 2018, according to new research by analyst firm Ovum.

The study found that increases are being driven by cost reductions brought about by earlier rounds of IT investment in other areas of the business.

Capital markets saw just 3.7% IT spend growth in 2013, but that figure is expected to rise to 4.8% globally by the end of this year. Last year’s low levels of spending were on the currency and commodity side of the capital markets, but with quantitative easing starting to drop off the equities market is predicted to benefit from a renewed focus. This will drive spending back to IT, according to Ovum, due to increased technology requirements to handle the rise in volumes.

“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,” said Daniel Mayo, practice leader, financial services technology, Ovum.

At present, 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. IT spending is predicted to pick up over the long term, growing with a 6.4% CAGR between now and 2018.

In corporate banking, IT spending is heading towards strong growth in 2014, at over 5% predicted as banks invest in systems to provide liquidity management. Instead of using cash to fulfil flows and collateral management, banks are increasingly looking to use cash effectively in investments. The lending side of corporate banking is the main driver of growth according to Ovum, but the transactional side of the business is also on an upward trajectory driven by IT spending.

“While capital strengthening still remains an important aspect of corporate banking, the focus is shifting to revenue growth,” said 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.”

In asset management, IT spending is also on the rise and has returned to pre-crisis credit levels. The IT load of asset management is currently being squeezed between passive tracker funds and more specialist hedge funds. Most asset managers are looking to diversify and increase the number of funds they offer, which Is driving IT investment. This has produced an increase in spending from 2% growth in 2013 to 5.1% annual growth predicted between now and 2018.

“The element that is driving most of IT spending revolves around appeasing investors,” said 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.”