Index Insider: Banks Unlikely to Defer IT Spending Despite Industry Stress

Hello. This is Alex Bakker and Owen Wheatley with your weekly briefing on what’s important in the IT and business services sector.
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Banking, Financial Services and Insurance together represent one of the largest and most important sectors for the IT services industry. Banks are frequently on the leading edge of technology adoption at scale and are functionally very reliant on both IT and IT services for their business operations.

Amid the banking crisis of the last several weeks, which included the collapse of Silicon Valley Bank and Signature Bank and the absorption of Credit Suisse by UBS, ISG has been evaluating the likely impact of a broader slowdown on the IT services sector. In March, ISG conducted a study of more than 250 large enterprises in relation to their plans for IT cost optimization – a topic that has been top of mind with many clients for the last year.

We asked companies to use a five-point scale to rate their priorities and how well they are performing at those priorities. Then we looked at the percent difference between the two. What we found tells an interesting story both for the market overall and specifically for the BFSI sector. 

When we look at companies across all industries, cost reduction represents the largest gap between priority and performance, with most companies rating it as an area that is immediately important to their business but that is lacking in success. (See Data Watch)

When it comes to priorities versus performance for BFSI firms, the most significant gaps are in data security, technology modernization and digital enablement. Cost reduction ranks ninth. While present circumstances may alter these results slightly, the data suggest that banks are continuing their transformation efforts with a focus on productivity of both staff and assets rather than on absolute cost reductions in spending on services and technology. Individual banks may struggle, but the industry remains focused on gaining competitive advantage through technology.

We expect that this will manifest as a shift from services focused on “keeping the lights on” to innovation and transformation. In the short term, an emphasis on “difference-making technology” may reduce banks’ spending with some service providers and shift it to others, and it may also alter the portfolio of services that individual service providers offer to their bank clients.

One of the reasons BFSI companies rely on IT outsourcing is to satisfy customer demands in an increasingly competitive environment. Banks have been extremely focused on technology modernization and transformation for the last several years, and our data validate that these priorities remain top of mind for banks.




About the authors

Alex Bakker

Alex Bakker

Alex leads the Primary Research Team where he focuses on study design, panel research, and interview based research for ISG. In addition to leading the Primary Research practice at ISG, Alex also serves as the lead analyst on provider pursuit effectiveness, and helps IT service providers understand how they can improve performance in the competitive process. 
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Owen Wheatley

Owen Wheatley

What he does at ISG
To say Owen Wheatley comes prepared to work through your operational concerns and transformational needs is an understatement. As ISG’s Lead Partner of Banking and Financial Services, he treats his 25+ years of experience in this ever-evolving, customer-centric field as a replete lexicon of applicable knowledge, relevant learnings and potentially executable solutions. In doing so, he makes the ethereal and theoretical, actual and obtainable.

Past achievements for clients
Knowledge-sharing is second nature to Owen. He provides his clients with market insights and meaningful thought leadership and helps them understand what similar (or different) organizations in comparable situations have done regarding transformational change. Many of Owen’s clients have sought his expertise to strengthen their customer engagement on the digital front, enhance the employee experience to improve the customer one and navigate new ecosystems—like integrating emerging partnerships—endemic to the industry. He makes sure that untangling this complexity and harnessing your new relationships always lead to your number one goal: driving better results for your banking or financial institution. In fact, Owen:

  • Led a consulting team to design a commercially groundbreaking and elaborate deal for one of the largest hedge funds in the world to reimagine its middle and back-office operations, lessen the bureaucratic demand on the front office and serve institutional clients better. The measures of success for this co-designed and collaborative project included defined stages of excellence and experience metrics, delivered in a commercial model which positions all parties for success.
  • Managed a large team of advisors to provide market insight and an "outside-in" perspective to multiple major North American banks looking to transform their operations, including indirect auto lending, core banking, cheque processing and the entire cash ecosystem.
  • Led a team of experts in helping to transform the HR technology and operations of a major European bank, including designing the right strategy, creating the roadmap and business case, selecting the right partners for a new ecosystem and ensuring expedited and effective implementation.