IT investment losing priority

Australian banks are expected to invest in key risk technologies to boost their defensive position over the next 12 months in response to the global credit crisis.

IT expenditure will come under new scrutiny but the area is no longer regarded as an easy target for cost cutting.

Industry analyst Gartner forecast in July that spending by Australian financial services institutions would grow marginally from US$11.5 billion in 2008 to US$US11.7 billion in 2009.

Last week it revised downwards its ICT spending forecast for the Asia Pacific region, estimating 8.3 per cent growth in 2009 instead of 11 per cent.

Several banks have already said they will make sizeable cuts to IT spending through staffing levels and non-strategic long term projects.

Those cuts will give banks some leeway to keep on track critical core banking projects already budgeted for and investments needed to support growth and business transformation.

But as the economic crisis bites worldwide, banks will shift to the foreground counter-cyclical technology tools such as collections and recovery systems, credit scoring systems, and portfolio and exposure analytics, according to industry analysts who have held private talks with banking executives over the past six weeks.

Chief information officers have also indicated they will increase their use of compliance software that delivers greater government oversight and greater transparency of information.

"It's critical for banks, especially investment banks, to get a better view of the customer and make sure they have an understanding of their exposure," said Michael Araneta, senior research manager, Financial Insights Asia/Pacific, who surveyed 70 regional banks, including six major Australian banks, in late September.

"A lot of the solutions needed to survive and recover from this crisis such as risk, recovery and credit scoring systems, will be needed.

"They also really need to assess whether their existing systems can cope with the pressure in the system and for that they'll need exposure analytics."

As the public shifts its focus to savings, several retail banks are beefing up customer-oriented systems either to improve service or to boost efficiencies in collection and debt recovery.

ANZ recently invested in improved collection technology to stem the increase in arrears levels, while at Westpac the customer has moved to centre stage.

"The priority is making sure that we support our customers, and at least in those areas [the bank] is going to improve delivery and service to customers," said Westpac's chief executive Gail Kelly at a media briefing on the 2008 results.

Kelly identified plans to address problems Westpac has suffered with its delivery platforms, which had affected customer support.

"We recognise that [our delivery platforms and associated processes] clearly need work to enhance our reliability and to equip us to support our customers in the way that we would like," she said.

Westpac also plans to deploy new tools and technologies such as scoreboards to support front line staff with additional data.

Kelly identified customer support as a priority from its integration with St George, to be steered by CBA's former CIO, Bob McKinnon, and said Westpac would improve its contact centre delivery.

NAB has already started an upgrade of its contact centre technology.

The renewed customer-centric focus is also expected to give weight to business intelligence systems that help branches assess the performance of sales staff, analyse customer behaviour and generate more cross-selling opportunities.

"Perhaps if banks and financial services companies established BI systems and metrics as to the ratios of what kind of debt they were holding versus the cash reserves they had, their analytics systems might have driven alerts earlier in the process," noted Melissa Martin, senior market analyst at IDC Australia.

The credit squeeze will make every technology decision count but with the financial sector in flux most banks are saying little about their technology roadmap for 2009, other than that their major projects are on track.

A number of substantial technology initiatives lie ahead including up to $1 billion for new technology in NAB, including its NexGen platform; several bank integration projects; ANZ's upgrade to its network of automatic teller machines; and CBA's four year, $580 million program to overhaul its core banking legacy systems.

These projects are expected to come under renewed scrutiny in relation to cost management, the quality and turnaround times of new applications rolled out and improved discipline.

Performance benchmarking is one area that will emerge as a priority as these projects progress, according to Martin.

Integration software will be in demand alongside automation applications that enable workforce reductions and productivity enhancing applications.

Technologies already in place will likely be leveraged for further value such as virtualization, which draws on a pool of shared resources for multiple needs, and services oriented architecture which allows an application to be re-used.

Rather than face cuts, telecommunications is expected to be further exploited to reduce travel costs, with more meetings conducted via conference call or videoconferencing.

Tier two banks are likely to accelerate IP data technology plans as well as voice over broadband deployment to cut the cost of fixed voice.

Across the region, vendors are restructuring ICT contracts to take into account new cost sensitivities.

Contracts are being converted from those linked to headcount to fixed-price agreements with payments staggered over a longer time frame, said Financial Insight's Araneta.

"This crisis calls for more discipline on all fronts."