Global Financial Institutions to Spend USD$362 Billion on Technology investments in 2005: TowerGroup

TowerGroup Issues Series of 2005 Perspectives Reports Identifying Top Business / Technology Drivers For Coming Year and Quantifying IT Spending

NEEDHAM, MA, December 15, 2004 � In 2005, banking, securities and insurance institutions will be united in their quest for organic growth, greater operational efficiency and networked services. TowerGroup identified these as among the top business and technology drivers cutting across all major sectors of the global financial services industry, as part of its series of 2005 Perspectives research reports.

“TowerGroup sees fundamental shifts in the way financial institutions will manage their estimated $362 billion in IT investments in 2005, as technology affects the productivity of over $2 trillion in global operational expense,” said Guillermo Kopp, vice president of the TowerGroup Cross-Industry research practice. “Financial institutions will implement process and technology changes in more manageable chunks, and employ business process management and networked services as pivotal elements for strategic transformation.”

Kopp added that it will be increasingly critical for financial institutions to lay out a strategic road map to cut across organizational silos and fulfill their customers needs more proactively. “This is something the industry has talked about for years, but has been hard-pressed to implement effectively,” he said.

Sector-specific highlights covered in the 2005 Perspectives reports include:

Banking & Payments:

  • TowerGroup projects that technology spending by the banking industry in 2005 will represent at least a 4.4% increase over 2004 levels. Of this amount, the bulk of spending (72%) will occurs in the EU and North America – with consumer banking continuing to command the greatest share of overall IT spend across all regions of the world.

“As we head into 2005, TowerGroup believes that bankers will greet an environment supportive of continued growth in retail-oriented lines of business, while also witnessing a slow but broad-based recovery on the wholesale banking front,” said Jim Eckenrode, vice president of the TowerGroup Banking & Payments practice.


  • TowerGroup projects overall IT spending in the US insurance industry to remain relatively flat from 2004 to 2005 – with important differences in the way each business line will direct its resources. 2005 will see a slight increase in total IT spending for property and casualty insurance, reflecting a pent-up demand for new technology, while life and annuity will remain flat as insurers work hard to capitalize on existing investments.

“The recent intense regulatory scrutiny of the securities and investments industry has proven to be a significant and negative distraction from core business issues. In 2005, the insurance industry will face its own array of compliance and regulatory pressures. It is critical that insurers take to heart the lessons learned from the securities industry, and stay the course in the year to come by continuing to focus on growth, cost reduction and customer service,” said Deb Smallwood, vice president of the TowerGroup Insurance practice.

Securities & Investments:

  • As the global securities industry recovers from the after-effects of the technology bubble, it is resuming growth in IT spending at a more measured rate. Between 2001 and 2003, technology spending dropped at a compound annual growth rate (CAGR) of negative-7%. From now through 2008, TowerGroup projects IT spending to rise across the global securities industry at a CAGR of 4%.

“Regulatory intervention, market structure changes and loss of investor confidence are the Bermuda Triangle of the securities industry. These trends are forcing some of the most vaunted firms to entirely rethink their revenue and profit models, drastically revamp their organizations and realign their technology budgets. The good news is that investors have already begun to return to the markets, albeit cautiously,” said Rob Hegarty, vice president of the TowerGroup Securities & Investments practice.

TowerGroup has published four 2005 Perspectives reports examining business trends and IT spending for 2005: “Perspectives Across Financial Services Institutions for 2005: Investing in IT to Sustain Growth” (Kopp); “Banking and Payments Perspective 2005: Changing the Tires While Driving the Car” (Eckenrode); “2005 Insurance Perspectives: Under Scrutiny But Stay the Course”; and “2005 Perspectives: Navigating the Securities and Investments Industry’s Bermuda Triangle” (Hegarty).

All 2005 Perspectives reports are available to qualified members of the press for review. Those interested in purchasing a copy of any TowerGroup report may call +1.781.292.5200 or email [email protected].

About TowerGroup: TowerGroup is the leading advisory 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 leading financial institutions, technology companies, 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 North American, Europe, and the Asia-Pacific region, TowerGroup serves a global client base.