Key Issues and Research Agenda for Banking and Investment Services, 2H09

Analysis

Introduction

After the huge disruptions to the financial services industry in 2008 and the onset of a global recession in 2009, some banking and investment services (BIS) organizations are starting to look ahead again to the next phase of the business cycle. This view is confirmed by the results of a worldwide survey of 104 banks conducted by Gartner in May and June 2009. The full analysis of that survey will be presented in a separate report later this quarter, but we can look at some of the highlights and overall trends here.

The questions that this survey covered were tightly aligned with the detailed topics we presented in "Key Issues and Research Agenda for Banking and Investment Services, 2009." So, the major areas of "Customer," "Operations" and "Payments" were broken down into 30 or more, granular research threads, such as multichannel integration, mobile banking, loan servicing, reference data management, card acquisition, electronic bill presentment and payment, and so on. We then got individual responses on how these 104 banks intend to prioritize IT spending on each of those research threads.

This sort of detailed feedback continues to dynamically shape and prioritize the direction for our agenda for the remainder of 2009. What the survey confirmed at the highest level was that the banking industry is going through the three phases of dealing with the economic contraction that Gartner has shown are relevant to the IT organization (see "How the IT Organization Handles the Three Stages of a Downturn"):

The first phase in the reaction to the banking meltdown in late 2008 was to find immediate cost savings. For IT, that meant a frenzy of renegotiation for IT license fees, and IT contract terms and conditions. Software upgrades were postponed, hardware refresh cycles were delayed, discretionary IT spending was reduced and ways of moving staff to lower-cost locations were examined. There is considerable variation between different countries, but the IT departments at many banks have now moved beyond this first stage.
The second phase — and this is where most BIS firms are right now — is to continue efforts to optimize costs and protect income by accelerating medium-term cost savings. Having plucked the "low-hanging fruit" in Phase 1, the IT departments at BIS firms are focusing on initiatives to consolidate, standardize and rationalize their IT portfolios — trying to use fewer applications on fewer servers and to move to variable pricing where costs go up and down with market volumes.
The third phase will be to start planning for the future, specifically the new world for banking, once the current recession is over. No one knows exactly when that will be or what exactly the world will look like afterward, but it seems reasonable to assume that it will not be the same as the world experienced in 2007 and early 2008. In short, it will be a harsher world that shows low growth, small margins, high volatility and heavy regulation.

These three phases aren't always mutually exclusive, and they will often overlap; so, for example, banks will always be looking for efficiency improvements with a greater or lesser degree of urgency over time.

Figure 1 shows how — right now — the IT organizations at banks are functioning in four different ways (it adds "business as usual" to the three phases of bank activity described above — in other words, doing nothing differently) in response to internal and external financial pressures. This version happens to show the banks split by asset size, but the picture of their behavior is broadly the same when split instead by geographical region.

Figure 1. How Banks' IT Organizations Are Behaving in Mid-2009

Source: Gartner (August 2009)