Ronan Bradley's FinanceTech Directions

We are clearly still in the maelstrom of the credit crunch and do not yet know what the banking sector will look like when things settle down - even in a little. Of course, this makes it hard to determine what the IT demands of a reinvented sector will be. However, we can begin to speculate a little.

Unfortunately, we can’t really speculate on the future trends based on what is happening right now to IT spend. What we are seeing are simply reactions to reducing budgets: people are cutting back on some projects and leaving others in place. However, this is not due to any long term strategy review. Rather in the absence of any better idea, the pre-crunch strategies are being adjusted and trimmed – not reinvented. Since we are the middle of the storm wait-and-see is the only option.

Equally, I think the view I have read and heard that the current trends will simply continue and be amplified (for instance even more need for low latency, high performance systems) is as simplistic as those who predict a return to ‘old-fashioned’ almost local banking based on some sort of subjective assessment of trust and reputation.

Fidelity International's Michael Gordon's article in the FT got me thinking a little more about what we could be facing in a while. Taking some of the ideas from the article, I will make some of own leaps into the dark and suggest what the future holds for IT:

(1) Banks will be much more tightly supervised by their ‘home nation’ authorities. In theory this may increase the requirement for regulatory enforcement systems. However, it depends how the regulation is manifested – if it takes the form of direct government supervision rather than reporting, it may not result in extra investment in IT-driven compliance. The emphasis of regulation may well shift - particularly in Europe where the EU has focus on customer friendly regulation intended to level the playing field across Europe (e.g. SEPA and Mifid). In contrast, the new age of compliance will focus on protecting and controlling banks.

(2) There may be a move away from the very complex (and hard to understand) financial instruments and potentially a reduction or at least a slowdown in the increase in overall trade volume. This would be a major change of focus for investment banking IT which has struggled for years to keep up with requirements for ever greater transaction volumes and requirements to support new and complex derivatives in ever shorter time frames.

(3) There will be a requirement for better transparency in every aspect of the bank’s business. This one should actually drive additional IT investment – in solutions which support better and more rapid transparency (BI, CEP et al).

I said that these are leaps in the dark – however that is all we can do right now. But the greatest leap of faith right now is to expect that the shakeout in banking will not result in an equally major shakeout in the way banks will use IT.

Ronan