Shift in IT recruitment favours vendors

Banks are becoming increasingly more likely to hire in external IT consultants and integrators on a project by project basis than recruit IT employees to build, customise and maintain systems.

Despite the fact that the overall global IT spend in financial services is continuing to increase each year, the split in budgets been internal and external spend is shifting, according to TowerGroup, the US research and consulting firm.

Guillermo Kopp, senior analyst with TowerGroup, says that a decade ago, before the dotcom boom, there was a 50/50 split in technology staff between banks and IT firms. Now in 2005, 42% of IT staff in financial services are employed by the banks and financial services firms as compared to 58% employed by IT outsourcing firms, such as EDS and IBM, and software developers.

By 2008, TowerGroup predicts the percentage of IT employees in the financial services industry that work in banks will drop to 37%.

At present, the bulk of the IT spend on maintaining legacy systems is spent on employing staff. But this is set to change. In 2005, TowerGroup predicts that the spend on core banking systems alone will see the bulk of resources taken up by buying external software (32%) and integration services (27%), compared to core banking systems' spend going on IT staff (18%).

Kopp says that the greatest challenge to the banking IT sector is how banks can evolve the skills of their IT developers, who are mostly attached to monolithic legacy technologies, to newer, modular, systems programming. Because of this banks are less likely to hire staff to build technology in-house today and more likely to buy solutions.

"The best way to modernise their systems is to implement a vendor solution that comes with the newer architecture, and not try and re-invent the wheel," says Kopp. "And because of the legacy factors, the technology edge is largely with the vendors, not with the institutions, apart from some very small pockets of excellence in some front office functions and analytics. Why would any institution start up a project to develop from scratch and compete with vendors?"

At the same time TowerGroup predicts outsourcing in the financial services sector will continue to grow at a rate of 12% each year. Kopp says that although this is mainly desktop and back office functionality at present, it will slowly broaden to include front office and more specialised services.

Kopp adds: "If people looking for technology jobs have a technology focus, then the vendors offer them a much better place. If on the other hand, they have business acumen, and can speak the language of business, then they can develop those niche front-end functions within the banks that help give banks a competitive edge. The demand is for those who can blend business acumen with advanced technology skills."