FRAMINGHAM, Mass.--(BUSINESS WIRE)--Retail banks (including thrifts and credit unions) in the U.S. will spend nearly $16.6 billion on hardware, software, services, and internal IT staff in order to develop and implement digital transformation initiatives in 2015. And this spending on digital transformation will grow at a compound annual growth rate (CAGR) of 10.4% into 2019, according to recent IDC Financial Insights spending models. This compares to a growth rate of 3.9% for an overall IT spending by U.S. banks. A new report from IDC Financial Insights, The Cost of Digital Transformation in US Banking: The Critical Technology Investments in 2015 and Beyond (Doc #FI257062), outlines how much money is being invested by U.S. banks in digital transformation, where those investments are going, and where IDC Financial Insights believes the growth will be the strongest in digital transformation investment.
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As banks in the U.S. endeavor to stay relevant in the financial lives of their consumer, business, and corporate customers, the institutions are dedicating more and more of their scarce resources to initiatives that promise to transform the business. Because of the pressures coming from onerous regulatory burdens, the increased need to manage risk, and the constant attacks on the banks' security systems, discretionary spending for important line-of-business projects that can accomplish digital transformation is at a premium. This new report offers critical insights into the industry trends and investments that are driving digital transformation to help IT executives, line-of-business leaders, and financial chiefs at U.S. banks to keep pace with the leaders in the industry.
Key highlights of the new report include:
- The highest growth in digital transformation spending comes from software and internal IT. While internal IT is typically a large part of digital transformation for only the largest banks that can afford to have substantial IT groups, software spend is shared by all institutions, whether it is a bank in the top 10 in assets that develops its own bespoke software or a small mutual that relies on an integrated bank software provider for its technology needs.
- Spending on IT services for digital transformation is a smaller, but not inconsequential, source of spending growth as well, forecast to grow at 8.5% year over year in 2016. Only hardware is keeping pace with total IT spending growth.
- The growth of spending on digital transformation is outpacing aggregate IT spending by more than 2.5 to 1. In five years, IDC Financial Insights estimates that fully one third of the IT budget at U.S. banks will be dedicated to achieving digital transformation.
- Spending on consumer initiatives (including small business) and infrastructure improvements will continue to lead the way. Payments will experience a healthy proportion of spend in transformation as well. However, given the range of payment types in that category – ACH vs stored value, for example – a more detailed analysis is needed to reveal the strong areas of growth in payments transformation.
After using 80% of the IT budget to pay for mandatory improvements in compliance, risk, security, and just keeping the lights on, it doesn't leave a lot to invest in the bank's future. In this report, IDC Financial Insights quantifies reports heard from CIOs and line of business leaders and validates that about 24% of the total IT budget in U.S.-based banks and credit unions is being used to enable digital transformation. And this investment is happening from two opposite ends of the institution with line of business executives buying consumer-facing solutions to improve customer engagement while the CIO and IT groups try to transform the bank's infrastructure from the inside out.
"It's like two teams of diggers making their way through a mountain to build a tunnel. They're hoping they'll be aligned when they meet in the middle and it's a $16.6 billion bet," said Jerry Silva, Global Banking Research Director at IDC Financial Insights.
The budget season is about to begin for banking institutions in the U.S. and the challenge of funding digital transformation is a difficult one. This report provides market insight into what kinds of investments that market is making to enable digital transformation, where those investments are being made, and how those investments will grow over time. Banks can use this report to guide their own investment strategy in line with their commitment to transform their business.
To arrange a one-on-one briefing with Jerry Silva, please contact Sarah Murray at 781-378-2674 or sarah@attunecommunications.com. Reports are available to qualified members of the media. For information on purchasing reports, contact insights@idc.com; reporters should email sarah@attunecommunications.com.
About IDC Financial Insights
IDC Financial Insights assists financial service businesses and IT leaders, as well as the suppliers who serve them, in making more effective technology decisions by providing accurate, timely, and insightful fact-based research and consulting services. Staffed by senior analysts with decades of industry experience, our global research analyzes and advises on business and technology issues facing the banking, insurance, and securities and investments industries. International Data Corporation (IDC) is the premier global provider of market intelligence, advisory services, and events for the information technology market. IDC is a subsidiary of IDG, the world’s leading technology, media, research, and events company. For more information, please visit www.idc-fi.com, email info@idc-fi.com, or call 508-620-5533. Visit the IDC Financial Insights Community at http://idc-insights-community.com/financial.
