JHA Radio North American Bank IT Spending and Trends January 8, 2009 · 2009. 4. 15. · EMEA Financial Insights 2009 Top 10 Predictions 20-Jan-09 EMEA Government Insights 2009 Top

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2009 Predictions EMEA Financial Services

January 20, 2009

(c) 2009, Financial Insights, an IDC Company, All rights reserved. www.financial-insights.com

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Our 2009 Top 10 week

EMEA Financial Insights 2009 Top 10 Predictions 20-Jan-09

EMEA Government Insights 2009 Top 10 Predictions 21-Jan-09

EMEA Health Industry Insights 2009 Top 10 Predictions 21-Jan-09

EMEA Global Retail Insights 2009 Top 10 Predictions 29-Jan-09

EMEA Manufacturing Insights 2009 Top 10 Predictions 4-Feb-09

EMEA Energy Insights 2009 Top 10 Predictions 5-Feb-09

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European Financial Insights analyst team

Part of a global team of 23 analysts focused on the financial services industryBacked by 700 IDC analysts and their coverage of technology andeconomic trends around the world

Trevor LaFlecheSenior Analyst, EMEA Banking

Matt ClaySenior Research Analyst Capital Markets, EMEA

Peter FarleyMD FI EMEA

Simona Macellari, Manager

Insurance EMEA

Rachel Hunt Manager

EMEA Banking


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2009 – The outlook for FinTech

European outlook for Financial Services dominated by efforts to rebuild bank’s capital bases. The 2008 reporting season will be the worst ever & will see widespread debt write-offs, acknowledgement of NPL’sWidening recession will see further interest rate cuts (partic. ECB), continued weakening of the Euro seen since start of 2009, further sharp increases in unemployment, wage deflation across Europe, further sharp falls in asset prices as de-leveraging continues. Euro-bloc under pressure as Ireland, Spain, Greece, Portugal seek assistance.Bank consolidation accelerates as more banks are merged to prevent failure and others are nationalizedBank IT budgets cut in real and absolute terms, but scope for selected spending increases in risk analytics, MIS, CRM as heightened demand for better intelligence from within the enterpriseRegulators and politicians will start to flex their muscles and impose new stringent operating practices for banks – but attempts to deliver a super-regulator/global co-ordination will flounder on national priorities“Back to Basics” – Those banks that acknowledge the threats, pressure & obligations to rebuild trust and focus on core business will be best placed to lead the pack when dust settles. But two-tier industry hands advantages to those that stay in private hands.


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Four key themes in 2009

Reduce:– All banks looking to reduce

costs, from IT budgets to human resources

– However some banks will look to benefit from talent exodus

– Reducing budgets won’t answer the issue of “doing more with less”

– Time to finally tackle efficiency gaps: no more papering over the cracks

React:– Some banks are taking looking

to build scale and increasing CAD ratios: “war on deposits”

– Key fundamental is to assess what are the areas of growth relative to core competencies

– Need to move away from a herd mentality – there are opportunities but need to act fast!

Retain:– All banks focus on “A1

customers”– How do you attract/ recognise

good customers– Servicing very much back on

the agenda • High touch for good

customers• Automate for mass market

– “We are in this together”

Risk Management:– Fundamental review of risk

management models– Place of risk management in the

enterprise?– Less information, more

intelligence– More failures possible?

1. FI EMEA predicts negative IT growth for 2009, -3.78% decrease

Forecasting in difficult times…Probability of downside risk much higher than of upsideClearly most banks told to reduce IT budgets in 2009:

– Services contracts and software upgrades renegotiated

– Support teams cut– Non-strategic initiatives scrapped

Results in the first contraction in IT spend –much worse than 2002 downturnHowever not all doom and gloom – fewer projects but with more strategic imperativeBanks need to define profit making businesses in tight margins


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2 - EMEA bank consolidation to accelerate in 2009, forecast contraction of 8 to 10 %

Many banks will be under greater pressure as Q4 2008 and Q1 2009 results are releasedForced mergers will continue especially in the Tier 2 bank segmentsSeveral factors drive M&A activity but we expect war on deposits to continue in 2009As a result:

– Banks need to focus on efficiencies not just cost reductions

– The right thing to do is to take advantage of integration to get house in order

– We will also see greater polarisation of strategies with global transaction banks continuing to focus on scale

– Smaller banks need to focus on customer as need to differentiate to retain customer base

5,000

5,500

6,000

6,500

7,000

7,500

2001

Dec20

02Dec

2003

Dec20

04Dec

2005

Dec20

06Dec

2007

Dec20

08Dec

NB: Totals for Germany, Spain, France, Italy, the Netherlands, Portugal and the UK

Source: Financial Insights, ECB Statistical Warehouse Database

Selected EU countries total number of credit institutions December 2001 to December 2008,

3-Year CAGR = -1.76%


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3. Risk management at the core of the business model

Significant failures in risk management models got us here, but this will also be an area of for growth moving forward Investment in and use of analytics are right at the top of the agendaERM finally comes of age with a need for a dashboard approach to risk –drill down and cross the enterpriseBanks need not only to deal with credit risk but with reputational risk –loss of customer confidenceWe expect a fundamental change in risk culture/ appetite – everybody responsible for risk and need to expose at the individual, corporate and SME levelNeed to address not only the issue of single customer view but also its relationshipsDo we need to learn from Insurance business with regards to risk priced products


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4. Three waves of regulation

Initial steps have been taken to ensure a level pan-European playing field

– FSA / Financial Services Compensation Scheme comment draft regulation

– EU Directive on Harmonised Deposit Protection– G20 Commitment to Coordination of Global

Regulation– FSF / IMF / BIS vying for global coordination role

However, old issues remain– Disconnected EU Politics – Rules v. Principles Base Regulation– If the US doesn’t play ball it wont work – currently no

indication by the US that they will

Many false starts and contradictory messages. Banks and vendors need to prepare for changes

– EU Directives will force national regulators to adopt harmonised standards

– IFRS will be substantially re-written– Traditional EU patchwork of regulations will increase– Reporting and data analytics become increasingly

important

2009 2010 2011

Enhanced Consumer Protection

Improved National Regulatory Frameworks

Global Regulatory Coordination

Debate Implementation



Live

Live

Live

Three waves of regulation

Many projects need to start in 2009 but without crystal clear requirements


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5. Efficiency & outsourcing

In Europe demand for transaction processing outsourcing will grow by over 10% as banks move to focus on core businessesA “do more with less” environmentBanks will investigate internal assets and capabilities then need to decide how to proceed in key areasFocus on white labelling over outsourcing increasesCloser scrutiny of vendorsBusiness models that did not gain much traction in 2005-2008 are not set to deliver benefits

• Payments• Payment outsourcing• SEPA DD• Trade Finance• Increasing use of web technology and

portals• Successful track record of White

labelling• Receivables Processing• Part of enhanced Working Capital

Management Services• Mortgage and Loan Servicing

• Loan volumes causing upward pressure on fixed costs


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6. Innovation winners and losers

WinnersMobile Banking – Channel expansion

– Projects that can shift customer interactions down the cost chain will win over larger more complicated rivals

Customer Networking– Niche projects to foster community for

razor specific demographic (Primarily HNWI) will be expanded where pilot projects have proved value

Un-sexy Innovation– Efficiency projects, and dematerialisation

improve customer experience but don’t grab the headlines will deliver results

LosersMobile / Contactless Payments

– Yes, the model works in Africa but…

Social Networking– Projects in this area will be abandoned– Twitter, Facebook and Second Life

projects increasingly look like products of the first internet boom

P2P Lending– P2P Lending will remain niche at best

2009. Very uncertain future

Advanced Biometrics– Will not survive spending reviews

Downturns expose flawed business cases when adopting new technology and experimental projects


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7. Flight to simplicity

Focus on core competencies and delivery expertiseCommercial banking activities vs. investment banking activities

– Optimise retail and corporate banking businessesRestructuring of the product portfolio

– Offer easily understood products with easy access to liquidity• Transparency enables price and cost of provision to be aligned

IT: Prioritise strategic initiatives that promote enduring efficiencies– Simplify the infrastructure

• Renegotiate application licences• Infrastructure virtualisation• Platform consolidation

– Demands proper alignment of IT and the business


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8. Flight to quality

Customer to Banks:– Customers ‘confidence is at the its lower level.

To rebuild a relationship banks will focus on the experience, based on transparency and implementing a two – way communication channel;

– Getting the mix right on channels– Return to onshore for customer service?

Financial Firms to ICT Providers:– A Darwinian Selection is in progress and Banks

looks for vendors that are financially sound and that can demonstrate quality and knowledge.

Lending :– Increase in NPL call for a flight to quality: more

business intelligence and analytics embedded at the operational levels to improve the quality of intelligence and ability to react rapidly

Quality of processes:– In difficult times exceptions need to be

managed, processes need to be bullet proof– Building for re-use across channels

Customer-centered

Built for Re-Use

Fulfilled with Collaboration

Dynamically Delivered

Business Process-centricContent-Rich


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9. Insurance

Compared to banking, insurance had a very good year but some issues need to be addressed as profit margins are squeezed

Key focus:– Customer-centric initiatives will be one top business priority and customer service will be one of the top three

insurance industry investments in 2009:– To retain Clients, The rule of the game is to strengthen client retention and boost organic growth through

investment in the “Know and serve customer” area – To allure new customers, will do more with the digital marketplace– Use of collaborative tools to build and constantly update centers of excellence in specific functional areas such

as marketing, actuarial, underwriting, or finance.– Apply digital marketplace media across their value chains to get their agents and brokers more deeply involved

in product development, customer service, and sales campaigns.– Be informed will be the cornerstone of competitive success: Business Intelligence will be another major area of

investing for dynamic pricing, more effective product development more targeted cross-and up-selling and determining the more profitable prospective policyholders as well as channels efficiency

http://images.google.com/imgres?imgurl=http://images.employmentcrossing.com/marketing/articleimages/became_king_xlarge.jpg&imgrefurl=http://www.marketingcrossing.com/article/220022/How-the-Customer-Became-King/&usg=__WL9hO25ERxeSg064ltPDuoxHPKk=&h=214&w=275&sz=9&hl=en&start=12&um=1&tbnid=J-euObkIMtoDDM:&tbnh=89&tbnw=114&prev=/images%3Fq%3Dcustomer%2Bis%2Bking%26um%3D1%26hl%3Den%26rlz%3D1T5GGLL_en___US270%26sa%3DN


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10.Capital markets

Outlook for next 12 months is decidedly bleak!– Continued de-leveraging = further write-downs

Risk dominates the strategic agenda……..and IT spending– Major re-orientation of market, credit and liquidity risk regimes– Greater objectivity in assessing models and their outputs– Hardware acceleration to drive timely risk simulation

Is MiFID working?– Exchange proliferation muddies the waters of best execution

Priorities for algorithmic development are outside of equitiesBuy-side needs to rebuild investor confidence

– Enhanced competition and due diligence– Hedge fund industry contracts 25-30%


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Final words… the alternative crystal ball

• More falls in global asset prices sees S&P 500/FTSE to fall by another third or more before year end

• Gold regains peaks above $1,000 per ounce during 2009 on safe- haven status – the dollar’s rehabilitation continues

• Several more high profile bank mergers and nationalisations, with one European Tier 1 bank acquired by Middle Eastern investors

• Massive increase in Geo-Political risk sees widening of social unrest across Emerging Markets. At least one government ousted and at least one sovereign default

• Russia continues devaluation steps, China sparks threat of trade retaliation as it tries to restore export competitiveness with huge devaluation – trade protectionism threatens

• Although seen as the main cause - regulators hire more tainted Ex- Bankers to consult on rebuilding & new regulatory plans (after Fed hired ex Bear Stearns CRO Mike Alix as senior Bank Supervisor)

• At least one more significant corporate fraud uncovered. Scale could even top Maddoff’s $50B. Rogue trader once again holes a major European financial institution

• Large Private Equity firm breaches loan covenants and collapses• 2012 Olympic Games cancelled (well, severely curtailed) due to credit

crunch… and impact on sponsors• Facebook and Twitter become a powerful force in high street

banking…or not!


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Peter [email protected]+44 (0) 20 8987 7190

Rachel [email protected] +44 (0) 20 8987 7128

Trevor [email protected]+44 20 8987 7131

Matthew [email protected]+44 20 8987 7118

Simona [email protected]+39 348 319 4948

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JHA Radio North American Bank IT Spending and Trends January 8, 2009 · 2009. 4. 15. · EMEA Financial Insights 2009 Top 10 Predictions 20-Jan-09 EMEA Government Insights 2009 Top