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“We believe the impact of strategic cost management over the past two years has changed the traditional relationship between maintenance and investment spending,” said Bob Landry, TowerGroup vice president of research and corporate development. “Banks will now be able to spend a larger proportion of their IT dollars on investments that provide competitive advantage – rather than on maintenance spending that provides little differentiation.”

Highlights of the survey findings include:

• Survey participants identified the top five lines of business technology investment priorities as branch, consumer credit origination, image/document management, consumer banking Internet sites, and financial control and risk management.



• Consumer banking investment in branch renewal remains strong, as retail bankers continue to invest in strategies to attract and retain profitable customers. In line with this trend, the degree of interest in loan origination systems and enhanced analytical marketing capabilities further indicate that retail bankers are focused on top-line growth.



• Payments investment drivers include fraud reduction and enhancements to existing systems to support the increasing electronification of all payments processes. Most notable are investments to support the expanded use of check images enabled by legislation popularly known as “Check 21” (the Check Clearing for the 21st Century Act). The bill, which has been passed by both the US House of Representatives and the US Senate, is pending the signature of President Bush. In addition to using images in the settlement process, banks are improving customer service by adding image capabilities to their consumer and corporate Web sites.



• While wholesale banking spending declined by 1.5% between 2002 and 2003 and wholesale banking investments only scored once among the top 10 technology investment priorities for both community and large banks, bankers did indicate an interest in increasing investment in 2004 by 5.7%. They identified their institutions’ highest priorities for 2004 as client relationship initiatives, followed by continued investments to reduce cost with straight-through processing, especially in commercial lending operations.



• The top five enterprise and technology infrastructure investments identified by the survey were: communications network replacement and enhancements, PC and server hardware / software upgrades, mainframe computer upgrades, computer operations center replacement, and IP telephony.



• Operational resilience and information security were the leading concerns of banking executives. Technology managers are looking for comprehensive end-to-end strategies for resiliency. Virus protection and intrusion detection are major concerns among all respondents, while security policy automation is highly valued at larger institutions.



• Technology spending among banks with assets greater than $20 billion will grow modestly at a 4.5% rate between 2002 and 2004. Banks reported spending growth of 4.0% between 2002 and 2003 with plans to accelerate the rate of growth to 5.1% between 2003 and 2004.



• While overall spending increase is modest, among the largest banks, external services spending will rebound dramatically with double-digit growth of 17.4% led by business process outsourcing (BPO), which will grow 28%. Software spending is projected to grow strongly at 9.4%, while internal spending stays level reflecting banks’ continued efforts to keep fixed expenses under control.

“This survey shows that banks are eager to invest in technology that will improve services for their customers,” said Edward L. Yingling, ABA executive vice president. “By identifying spending levels and charting the latest trends in bank technology investments, we are able to provide ABA members and the industry at large with valuable benchmarking information to support them during the 2004 budgeting and planning cycle.”