If you watch any news broadcast or political talk show, it seems that everyone is dancing around the letter R! Only recently have people been willing to say that awful sounding R-Word………Recession…….now I have gone and said it. Sorry!

And technically we are not even close to being in a recession yet. By definition, it takes two consecutive calendar quarters of negative GDP growth for a recession to be declared….at least by economists. Could the pundits and the politicians talk us into a recession before one officially occurs? Can behaviors be changed so businesses start acting like they are in a recession? If that is the case, then fear the R…..the Rhetoric before the Real Recession.

Since most of us are in businesses that depend on our ability to sell our products and services to other businesses, we need to have our Radars tuned to purchasing trends in our industry.

Banks and other financial services companies plan to spend a little more cash in 2008 when it comes to their IT operations. Amidst the doom and gloom of the credit crunch, a down housing market and talk of an impending recession, financial institutions still see the need for investing in technology to stay competitive and compliant, according to a joint survey of nearly 140 banks, capital markets firms and insurance companies conducted by Bank Systems & Technology and its sibling publications, Wall Street & Technology and Insurance & Technology.

Of course, not all of financial institutions' budget dollars will go toward developing or buying the latest and greatest technology. As always, the specters of maintenance and compliance loom large over IT managers' heads. Still, they somehow find ways to squeeze their budgets to allow for at least some innovation.

At banks, for instance, IT spending will see an overall increase at institutions of all sizes. The largest spending increases appear to be at midsize banks -- 60 percent of survey respondents in that category said they would increase their IT budgets by at least 11 percent to 30 percent, compared with a minimum of 1 percent to 10 percent growth at small and large banks.

This modest increase in spending among banks is in keeping with recent trends, according to a Celent report. Spending will be similar to trends over the last two or three years where we saw an average growth rate of about 4 percent. But it is moderate. One concern with this moderate growth forecast is whether banks will have much to invest in innovation since they will have to invest more in regulatory, in compliance and in maintenance related activities. This compliance and maintenance burden has been an ongoing problem for bank IT departments, particularly for small and midsize banks, and it might explain their slightly higher budget increases for 2008.

According to a major bank CIO, often smaller financial institutions cannot handle the high cost of security and compliance. Although the larger banks have more compliance to worry about, there is not as much revenue to spread that spending over at the smaller banks, and they just cannot innovate on their own.

When asked about the three areas of IT in which they expect to increase spending the most, security, by far, was at the top of the list for large (80 percent) and midsize (50 percent) banks. Other important areas of spending for large banks included network infrastructure, storage and outsourcing, all at 40 percent. For the mid tier banks, enterprise applications and application development also factored into the top three (both at 50 percent).

Small banks, meanwhile, place emphasis on three very interconnected areas: 75 percent identified both network infrastructure and communications -- such as phone, E-mail and teleconferencing -- and 50 percent pointed to mobile computing. This could indicate that the little guys know they have to offer similar channels and services to the big guys in order to survive going forward. Among the top three IT priorities at banks for 2008, cost cutting in IT only appeared on large banks' lists, though it was at the top, at 60 percent. This finding could be a sign of prudence on the part of banks. Many large banks have forecasted that their 2008 IT spending will increase in real terms, but not percentage-wise. Another large bank CIO stated, "We have made several acquisitions that require integration, and we are also investing in new products and services for our clients. But I am also challenged to find efficiencies."

Among midsize banks, improving risk management was most important (50 percent). Adopting mobile devices and applications was far and away the top IT priority for small banks (75 percent). But, similar to their larger counterparts, they also showed interest in improving security (25 percent) and risk management (25 percent).

When it comes to spending on specific banking applications, the results varied widely. For large banks, the online channel (60 percent) was tops, followed by core systems (40 percent). However, anti-fraud technology (20 percent) and branch optimization (20 percent) also were among the targeted applications.

More and more banks are realizing that they can gain good payback from investments in the online channel as they divert customers from the branch and call center. Many banks will be busy updating their Internet offerings or adding mobile access during 2008. Meanwhile, for midsize banks, lending technology topped the list at 50 percent. The credit crunch aside, midsize banks still can gain much efficiency at both the front and back ends of the lending process. Core systems, payments, risk management and anti-fraud technology all tied for second place at 33.3 percent.

As for small banks, risk management technology and payments technology (both at 75 percent) appear to be the front-burner issues, followed by core systems (50 percent) and lending technology (50 percent).

There are a lot of niche players in payments that want to serve the community bank marketplace. These small banks still have to find a way to compete with the mega-banks that have great technology. All banks eventually have to innovate to compete effectively. Unfortunately, it is this segment that might be the first to succumb to reduced IT spending as their senior management teams often look on IT as a discretionary expenditure.

So, how has your 2008 started off for your company? Has early sales met expectations?

Are there any signs of the R-word on the horizon for your organization?

We all need to conquer the letter R before any other letters step into play to negatively impact us during 2008…….like maybe M&A!

Good luck and happy transacting!

Calvin D. Johnson, Publisher
publisher@tpatlanta.com
Trans Atlantic Systems, Inc.