In the new report, IT Spending in Financial Services: A Global Perspective, Celent expects global spending on IT products and services to grow to US$364.5 billion by 2010, a mere 0.9% CAGR from 2008 to 2010.
Celent estimates that global information technology spending by financial services institutions will reach US$353.3 billion in 2009, representing a decline of 1.3% over 2008 (when IT spending totaled US$358 billion). This figure is substantially lower than the 4.5% growth achieved in 2008 and 6.4% growth in 2007.
Key findings of the report include:
European and North American financial institutions currently spend an almost equal amount on IT. Firms in Europe and North America account for 37.7% and 33.5%, respectively, of the global IT investments byfinancial services institutions. Firms in Asia-Pacific account for 23.3%, and Latin America and Africa account for the remaining 5.6%.
Among all regions, the fastest growth will be seen in financial services institutions in Asia-Pacific, with IT spending increasing at 8.9% in 2008 and a CAGR of 4.1% from 2008 to 2010. Growth will continue to rise in this region, and total spending in Asia-Pacific is expected to reach US$90.3 billion in 2010. Latin America and Africa are expected to grow at a relatively modest rate (3.1%).
Among the industry verticals, IT spending on banking activities accounts for the largest portion of the total IT spending, nearly 50%, and is estimated to reach US$160.4 billion in 2008. European banks make up the lion’s share of bank IT spending at US$61.6 billion. IT spending on insurance and securities and investments activities is expected to reach US$103 billion and US$74.7 billion, respectively. In the medium term, insurance firms are expected to increase their spending in IT at a faster rate than the other industry verticals.
Across all industry groups and regions, securities firms in Asia-Pacific and insurance companies in Asia Pacific and North America, will experience the fastest growth from 2008 to 2010, (CAGRs of 6.1%, 4.2% and 3.5%, respectively). The slowest growth will be found in North American securities firms and European banks. From 2008 to 2010, North American securities firms are expected to grow at aCAGR of -5.7%, and European banks at -1.9%.
The most telling indicator of future spending and growth relates to investments in new IT projects. Of the total investment in IT in 2008, a whopping 71.9% still goes to maintenance. The percentage of fundsdedicated to maintenance activities is still astronomical but is slowly coming down (73.7% was dedicated to maintenance in 2006).
Unfortunately, economic conditions and the financial crisis has financial institutions cutting spending on new investments. As such, the ratio of maintenance to new investments will remain relatively unchanged in 2010.
The sum of bank IT spending across North America, Europe , and Asia- Pacific will grow to US$160.4 billion in 2008. This spending level is approximately 4.7% higher than 2007. However, Celent expects total IT spending by banks in these regions to fall to US$158.9 billion in 2009. The majority of the growth is coming from Asia-Pacific banks-spending by banks in this region will grow by 9.7% in 2008 to US$49.4 billion, and will slow to 2.5% growth in 2009 (US$50.6 billion).
North American and European banks will not fare nearly as well in terms of growth. Spending by European banks will grow 2.3% in 2008 to US$61.6 billion and will fall drastically by 5.8% in 2009 to US$58 billion. North American bank spending will grow by a modest 3.1% in 2008 to US$49.4 billion. This figure will climb a mere 1.7% in 2009 to US$50.3 billion. The financial crisis and economic uncertainty have North American banks tightening their belts. Large banks in particular are slashing budgets and placing significant emphasis on keeping costs under control.
The sum of insurance IT spending across North America, Europe, and Asia-Pacific will grow to almost US$105 billion in 2009. This spending level is approximately 1% higher than that of 2008, which is a slowdown of the 4% growth experienced between 2007 and 2008. European insurers will spend US$47.5 billion in 2009, versus US$34.7 billion spent by North American Insurers and US$22.4 billion spent byAsia-Pacific insurers.
Total securities and investments (S&I) IT spending varies based upon geography. For the securities industry, IT spending in North America is the largest market, followed closely by Europe and a more distant third by the Asia-Pacific region. In 2008, total IT spending in North America was US$36.3 billion, a 2.6% increase over 2007. However, due to a sharply weakening economy and the credit crisis, Celent expects total North American IT spending to decrease to US$31.8 billion in 2009, a decrease of 12.4%. In Europe , IT spending totaled US$26.1 billion in 2008, an increase of 4.0% over 2007.
Celent believes IT spending in Europe will decrease in 2009, due to the global financial crisis, though strategic IT initiatives and market structure changes will cause growth to accelerate in 2010. Celent believes total IT spending will be US$24.8 billion in 2009, a decrease of 5% over 2008.
The combined IT spending of the Latin America and Africa is estimated at US$19.9 billion in 2008 and is expected to reach US$21.2 billion in 2010. US$15.8 billion will be spent in Latin America, and US$4.1 billion in Africa. The CAGR for the next two years will be a respectful 3.1%, which is a faster growth rate than North America and Europe (approximately flat), but far from Asia-Pacific’s 4.1% CAGR.
L.D.