US Financial Institutions to Spend Nearly $118b
February 15, 2005

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The TowerGroup research report titled "2005 IT Spending Crossroads in the US Financial Services Industry: Plotting Roadmaps for Growth" has just been published.

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In 2005 the US financial services industry will again spend more on information technology than any other country in the world. US financial institutions will invest $117.8 billion in information technology, representing growth of approximately $5 billion in IT spending over 2004. 

New research from TowerGroup finds that US institutions are making both organic growth and operational efficiency top management priorities, with IT serving as a critical link between the two.  Yet TowerGroup also finds that US financial institutions are standing at an IT crossroads - one that will greatly impact these firms' ability to grow their business, delight customers, manage risk, and cope with an increasingly challenging regulatory landscape.

"For too long, US financial services firms have built growth plans upon decaying IT ground, only to see that foundation buckle under the weight of flawed IT architectures and business processes," said Virginia Garcia, senior analyst in the Financial Services Strategies & IT Investments research service at TowerGroup and author of the research. 

"Today, US financial services institutions must choose to either innovate around heterogeneous IT systems, a disconnect of data and flawed process architectures - or to take a strategic path toward true IT transformation," she said. "The choice they make now will in no small measure determine their ability to deliver sustainable value to their customers, shareholders, and other stakeholders."

Highlights of the research include:

- Financial institutions have traditionally viewed organic growth and operational efficiency as separate, and often incompatible, business strategies. Yet TowerGroup believes that a number of financial institution executives are recognizing that organic growth and operational efficiency are closely linked pursuits that can work hand in hand.

- Many US financial institutions are abandoning pure IT cost-cutting tactics as a way of driving short-term operational efficiency.  Instead, they are looking to opportunities for sustainable operational efficiency as a strategic objective of the total business. 

- Having reached the boundaries of innovation with aging, siloed and poorly integrated IT architectures, some financial institutions are now addressing the major "plumbing" issues that hinder growth.  In 2005, TowerGroup expects the predominant theme in financial services IT spending to be enterprise investments at the architectural level in data, content and business process management - as well as integration technologies. 

- In 2005, US financial institutions will be less interested in simply driving down IT costs, as they emphasize investing more effectively in IT as a vital driver for growth," said Garcia.  "In this increasingly dynamic business environment, financial institutions are challenged to elevate the role of IT and transform it into strategic equity and competitive advantage.  To do so, line of business owners must help take the lead in setting IT strategy and make transformation a top business priority."