TowerGroup Identifies Top Trends that will Drive Global Financial Services in 2004

Third in Series of Six “2004 Perspectives” Exploring Key Issues for Financial Services Sector in the Coming Year

NEEDHAM, MA, November 24, 2003 — Seeking its way out of a global recession, the financial services industry steered through 2003 in a cost containment mode. While IT budget pressure continues across all financial sectors, banking, securities and insurance institutions are now dedicating an increasing portion of their total technology investments to new initiatives, thanks to a budding focus on strategic cost management.

New initiatives are focused primarily on a long overdue transformation of legacy systems to remove painful constraints that aging technologies pose to business processes. This is one of the key topline findings from a new TowerGroup research report titled, “Perspectives Across Financial Services Institutions: 2004 and Beyond.” In 2004, TowerGroup believes the global financial services industry will be driven by the following strategic themes:

  • Customer trust: While trusted relationships are the cornerstone of financial services, customers still have a hard time linking their diverse cross-industry needs through one provider. As institutions reach deeper into the specific needs of various retail and wholesale segments, a more genuine expression of customer focus will begin to dominate the financial services landscape.

  • Operational excellence: Technologies for workflow automation, imaging, knowledge management, and business process management promise great returns to institutions still mired in a maze of paper documents, manual processes and repetitive hand-offs.

  • Internal and external innovation: Several leading institutions have embraced Web services technology to rationalize redundant technology functions (which are often duplicated across internal business silos). Others have formed strategic alliances and partnerships to offload commodity processes such as check imaging, or tap advanced capabilities such as relationship billing. The continued growth of networked connectivity between financial services functions, both inside and outside institutions, will allow institutions to offer a wider range of services to customers, while driving process changes leading to improved customer satisfaction, increased revenue, and cost efficiency.

  • Risk management: Facing pervasive regulations like Basel II, USA PATRIOT Act and Sarbanes-Oxley, proactive financial institutions will be looking to turn compliance into a value-added proposition for both customers and shareholders. In addition, a more holistic approach to credit, market and operations risk will increasingly allow institutions to reduce losses right where they occur and mitigate their total exposure.

  • Outsourcing: In the quest to reduce cost and time to market, financial institutions already entrust one-third of their IT spending to external providers. TowerGroup expects outsourcing in its array of shapes and sizes to progress at a steady pace across 2004.

“In 2004, financial institutions will increase their emphasis on aligning IT investments with clear return on investment and performance,” said Guillermo Kopp, director of the Financial Services Strategies & IT Investments practice at TowerGroup and author of the research. “Many financial institutions already have a clear picture of whether, across their organizations, it is their product offering, delivery channels, risk management or service resilience that matter most. Working within this more discerning framework, many institutions will begin to do better at fulfilling customer needs with superior services, combined with a web of other offerings via alliances and partnerships.”

Kopp noted that consumer banking is currently the strongest sector for pursuing innovative technology solutions to drive structural efficiencies, customer satisfaction and business growth. “TowerGroup estimates that by the close of 2003, the consumer banking sector will have invested $104 billion globally on technology, including its related payments businesses and enterprise infrastructure,” he said.

This is the second in a series of six “2004 Perspectives” that TowerGroup will issue in the fourth quarter. In each 2004 Perspective, TowerGroup will discuss the critical business and technology issues and trends impacting the financial services sector in the coming year. “Perspectives Across Financial Services: 2004 and Beyond” is available for review by qualified members of the press.

Those interested in purchasing a copy of the research may contact TowerGroup at +1.781.292.5200 or service-info@towergroup.com.

About TowerGroup: TowerGroup—now celebrating its 10th year—is the leading research and consulting firm focused on the global financial services industry. A respected source for trusted information and advice, TowerGroup brings many of the world’s largest financial services, technology and professional services firms a deeper understanding of the business and technology issues impacting their organizations. Headquartered near Boston in Needham, Massachusetts, and with offices in New York, London, and Kuala Lumpur, TowerGroup serves a global client base.