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Egham, UK, January 5, 2010 View All Press Releases

Gartner Says 50 Per Cent of Banks Will Still Lack an Innovation Programme and Budget by 2013

Gartner Makes Key IT Predictions for Banking & Investment Services



Half of banks will still lack a formal innovation programme and budget by 2013, according to Gartner, Inc. The prediction is one in a series Gartner analysts have made on IT in the banking & investment services in areas including peer-to-peer (P2P) lending, disruptive technologies and security.

“Pressure from governments, regulators and consumers is making some banks risk-averse and creating a culture of introversion and inflexibility,” said Richard De Lotto, principal research analyst at Gartner. “The predominant view of IT is that it is only useful for cutting costs so tactical thinking about automation and rationalisation overwhelms longer-term decision and strategic plans and goals.”

Gartner’s predictions for the banking and investment services in 2010 and beyond include:

By 2013, 50 per cent of banks will still lack a formal innovation programme and budget, severely restricting growth potential.
Non-banking competitors, such as retailers, online companies and telecommunications companies, are making inroads into the banking industry, leading the way with customer-oriented service improvements which customers will seek as economies of access improve. Meanwhile, bank fees will rise to help offset customer attrition. Gartner recommends that banking & investment services films focus innovation initiatives on service improvements, as opposed to pure product development and ensure that personalisation is a critical component of innovation initiatives.

By 2013, P2P lending will soar at least 66 per cent to $5 billion of outstanding loans.
Consumers who lose their jobs can't get loans to cover periods of unemployment; businesses that encounter trouble due to low demand can't get credit lines to see them through to recovery. Furthermore, banks are more interested in recapitalising than in lending. Growth in P2P lending will be driven by investors seeking higher returns and borrowers shunning (or being shunned by) banks. Gartner recommends that financial services providers investigate how to partner and collaborate in adding P2P to their existing offerings rather than building their own P2P lending networks.

By 2013, 75 per cent of retail banks in North America and Western Europe will have shut down 10 per cent or more of their traditional branches.
Retail banks are shifting to non-local, franchised, multi-tenanted and virtual branches as the drive to improve efficiency and cost-to-income ratios will be constrained by the high fixed costs locked into large retail branch networks. Banks will consider splitting high- and low-value services by keeping their own branches for high-value service but using multi-tenanted services for low-value services. For example, small businesses wishing to deposit cash at the end of the day can do so at a general cash deposit facility that serves multiple banks.

Through 2013, 75 per cent of banks will lack the means to systematically identify and exploit potentially disruptive technologies.
Banks face unprecedented competition from industry outsiders with innovative products and services that are able to capture and expand from market niches long-thought unprofitable. The long-term winners will be those able to innovate faster, better and cheaper than their competitors. Creating a systematic methodology for tracking disruptive technologies when they appear, market trends and discontinuities is essential to meet competitive challenges. In addition, few product innovations last more than six months because they can be swiftly mimicked. Therefore, technology — rather than products and services — will remain the leading enabler of sustainable competitive advantage.

By 2013, 90 per cent of bank services hub initiatives that are planned or under way will need to be re-architected on a global basis.
Most banks that are undertaking payment, lending and treasury management services hubs (initiatives combining related standalone services on a single platform) are doing so in an isolated fashion without using common organisational services. Meanwhile, both vendor offerings and reference models to guide more holistic hub initiatives are immature. Gartner predicts that, in the next five to ten years, significant progress will have been made on industry reference models, messaging and process standards, and service-oriented architecture (SOA) governance, enabling more-holistic approaches to services hub designs along the lines of "virtual hubs" that leverage common services.

“Banking and investment services providers need to make a critical shift to a more outward-facing set of objectives for IT that are risk-aware but still innovative and bold,” concluded Mr De Lotto. “These institutions must now look beyond the fire-fighting of the current crisis towards planning for the eventual recovery and the new world that comes with it. If they don’t, they will become uncompetitive and fall behind more-forward-thinking rivals.”

Additional information is available in the Gartner reports "Predicts 2010: Executive Decisions in Banking and Investment Services Demand a Longer View" and “Predicts 2010: Operational Technologies Present Threats and Opportunities in Banking and Investment Services.”The reports are available on Gartner's website at http://my.gartner.com/portal/server.pt?open=512&objID=260&mode=2&PageID=3460702&resId=1226713&ref=QuickSearch&sthkw=predicts+2010 and http://my.gartner.com/portal/server.pt?open=512&objID=260&mode=2&PageID=3460702&resId=1219729&ref=QuickSearch&sthkw=predicts+2010 respectively.

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