The last few weeks have seen a stampede of major banks (the latest being Unicredit) cutting thousands of jobs and closing businesses as they try to staunch the flow of blood and repair once-more beleaguered balance sheets. There are still more than 3,500 banks in Europe, which between them spend over ?60 billion a year on technology. Neither of those numbers will be sustainable. Many banks will be forced to go “back to basics” and refocus on what they should have done all along – solid and dull commercial banking for business or consumer customers.
The financial services industry will have to re-invent itself, brick-by-brick, in response to a radically changed economic, cultural and political environment. Politicians and regulators alike are finally acknowledging that Europe is overbanked, with a mature, saturated industry supported by cartel-like business practices and risk taking that would be unacceptable in any other industry. Regulatory pressures will force new investments on banks, creating worsening margin squeeze that severely restricts cash for old-fashioned IT megaprojects. In short, major change is coming.
Bottom Line for ICT Buyers:
1. Prepare for unprecedented rethinking of IT budgets in 2012 and beyond. Of course, banks cannot be in business without technology, but the days of massive IT spend are set to end, and banks will no longer take the kinds of high-spending risks with IT investments that matched the big bets they took elsewhere. In a more sober industry, there-s going to be less money and less risk, and IT buyers need to adapt their strategies and culture to match the new environment.
2. Prepare for a critical rethink of ICT services sourcing strategies. Not only will the European banking universe shrink dramatically in the next few years, but banks will also start pooling resources in an unparalleled manner. There is no need for financial institutions, under the cover of data protection and security, to continue to duplicate their massive investment in IT infrastructure. Ownership and the size of the IT estate will no longer be a badge of honour. Banks will be defined by their service, their skills and their prudence – not the size of their balance sheet.
3. Prepare for a new model of collaboration between banks and ICT vendors. Massive business challenges, slashed budgets and a new openness to shared services and outsourcing all mean that banks will need to rely more on ICT suppliers. Yes, banks will squeeze suppliers far more brutally on price (as the public sector is doing right now in the UK and Netherlands, to name but two), but a (relatively) cash-strapped industry crying out for secure, shared infrastructure and services will have to open its arms to deeper collaboration with ICT suppliers. Those who do that best will reap the rewards.
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