GUEST COMMENT: Where retail banks will be spending on technology in 2010

The financial crisis has had a significant impact on IT spend since 2008. However, banks have been investing in solutions for run-the-bank operations and where a fast return on investment can be achieved - in short, cost savings. But, we believe that core software and IT services spend for the sector will recover and grow again, albeit by small margins - by 0.2% in 2010, having declined by 4.8% in 2009.

Here's what we believe will be the main drivers of IT investment in UK retail banks in the coming year, and where financial technologists should be positioning themselves:

Post-merger integration: Much of the activity is currently centred on post-merger integration after a string of major M&A activity since the crisis hit the market. We haven't seen the last of this, and 2010 will continue to offer opportunities - examples include Barclays/Standard Life Bank and Chelsea Building Society/Yorkshire Building Society. The proposed break-up of nationalised banks by the government to be sold to new market entrants will add to the momentum. This will primarily drive spend for consulting and systems integration (C&SI) projects, although application software and IT outsourcing will also see some increase in activity.

Regulatory compliance: This will be placed at the top of the agendas for IT investments in 2010. Implementation of risk management and control systems will be a key focus area. In addition, the FSA introduced a new regulation stating that from December 2010, all banks must provide a Single Customer View of accountholders. This will drive significant investments by banks to ensure that customer data stored across disparate systems are integrated and cleansed. Banks will need to determine how they can achieve compliance in the most cost-effective way.

New entrants: The anticipated new players in the UK retail banking market will be another driver for IT spend, primarily for application software and related IT services.

Newly formed banks (for example, attempts to start-up by Walton & Co.) and non-traditional banks seeking to expand in the sector (such as Tesco, Virgin) will need the appropriate systems and processes in place to support their business. Spend for customer relationship management (CRM) and business intelligence (BI) solutions will also see uptake by organisations that seek to take advantage of cross-selling opportunities between existing customers and the new banking business.

Increasing competition from new entrants and a rapid fall in customer loyalty will also drive banks to focus on enhancing their service levels to customers to help retain market share. Customer communications and analytics software will be a focus area, as well as outsourcing to help achieve efficiencies and enhance service levels.

Outsourcing: On the whole, current economic conditions have made banks more cautious in investing in large multi-year outsourcing deals. While the number of deals is on the rise, these are decreasing in terms of size and scope.

BPO and application management have become increasingly dynamic in the last few years, as banks perceive these services as an opportunity to hand over their legacy systems to IT vendors. Banks that struggle to keep costs down will more seriously consider the outsourcing of their IT or processes in an attempt to do so.

Rajeena Brar is a consultant at Pierre Audoin Consultants (PAC), a global market research and strategic consulting firm for the software and IT services industry