Poor IT investment "could kill banks"

 

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By Stewart Mitchell

Posted on 2 Nov 2009 at 13:17

A lack of foresight and innovation in technology could leave banks and building societies teetering on collapse, according to new research from Gartner.

The lack of innovation is one of six “business killers” still threatening to destroy financial services institutions over the next two years, whether an economic upswing occurs or not, the research firm claims.

“IT departments have been fighting frantically to help keep their organisations’ heads above water and they’d be forgiven for thinking that the worst is over,” says Peter Redshaw, research vice president at Gartner. “That may be true, but it is no time to relax.”

The report says that although firms do invest in innovation, there is little organisation in how the innovation budget is spent, and the funds that are made available tend to focus on regulatory compliance and existing technologies rather than looking to the future.

“Financial service providers must create a more outward-facing set of objectives for IT and a culture that has incorporated innovation best-practices at its core,” says Redshaw. “IT strategies and projects need to be risk-aware, but they also need to be innovative and bold.”

“Most importantly, financial services' IT departments will need to support a new operating model from their board that is designed to cope with a world that has low growth, small margins, high volatility and heavy regulations.”

The report finds that only a third of companies invest during the economic recovery, and even where investment is taking place it is worryingly ad-hoc. Gartner says only 30% of banking sector firms in North America have established a formal innovation process, compared with 53% in Asia and 66% in Europe.