As the banking and finance sector forms its views and predictions for 2008, the credit crunch is the predominant topic on everyone’s lips. While the recent EUR5bn losses incurred by a rogue trader at Société Générale may have provided some distraction, the industry is still assessing the short- and long-term repurcussions on the market.  

Since August last year, there has been a growing fear that banks will cut technology budgets following the fall in business volumes. The stock market downturn on 21 January has clearly added to this concern, with the FTSE 100 closing at 323 points down that day. However, opinions and research among the analyst and media community show a diverse range of views and in some cases a more upbeat picture. 

In early January 2008, TowerGroup declared that it is still not defining the credit crunch as a crisis because although the mortage industry is in crisis there is little evidence of a palpable affect on full service banks.  

In the treasury and capital markets sector, according to reports on Finextra in November 2007, UBS analysts stated that banks were reviewing all spending programmes and predicted a 20% decrease in licence sales for the first half of 2008. However, the annual dealing room survey from Kimsey Consulting in December showed a different picture in just the UK, with trading technology expenditure rising by 4% to £3.4 billion in 2008. While this illustrates a slowdown when compared to the estimated 10% increase in 2007, it does suggest that trading operations are looking to maintain investments, albeit on a far more modest scale. In a separate report looking at the global market, Stephen Kimsey, principal of Kimsey Consulting, commented that “though growing economic uncertainty is likely to see mature markets remaining comparatively static, continuing development and expansion of financial, commodities and energy trading activity in emerging markets will support continued growth of the global market for trading and related technology and services”. 

Looking at the broad banking sector, a survey in January 2008 by the Confederation of British Industry (CBI) and PricewaterhouseCoopers (PwC) also predicted a rise in technology expenditure. While there has been two years of strong growth, there is now a clear turnaround in the financial services sector with business volumes falling at their fastest rate since 1991. Ian McCafferty, CBI Chief Economic Adviser, stated “the credit squeeze has delivered a sharp shock to business volumes over the past three months, and it seems that difficulties are likely to persist for some time yet. This is however a very resilient sector that sees better prospects over the horizon, and it is encouraging that profitability, job creation and investment plans are all still positive."  

Other reports paint a similar picture. According to Pierre Audion Consultants in December 2007, software and services spend is expected to rise by 7.7% between 2007 and 2011, while Celent’s report on the “top tech trends in banking 2008” predicted IT spending to climb by 3.6% for the year.  

Among the driving technology trends for 2008, Celent’s report highlights SOA as a particular hot topic, predicting that early success stories will fuel further projects across the midsize to large bank segments. It also highlighted that in the tier 1 and 2 markets, SOA will become the method to “incrementally modernise core systems”. With many banks continuing to struggle with outdated legacy systems, there have been many predictions in recent years of a surge in replacement projects. With the advent of SOA, the expectation now is that banks will address the problem through the more manageable route of core renewal, where they upgrade or migrate selected elements of their infrastructure.  

In the payments arena, TowerGroup recently predicted an increase in the number of in-country mergers between banks. With SEPA driving the potential for cross-border consolidation, national banks are looking to merge in a bid to fend off the threat of acquisition from larger regional and global players. In addition, Celent predicts 2008 to be the year in which enterprise payment management finally becomes a reality. While so far it has largely been a theoretical concept for many banks, a growing number of US banks will contemplate recent advancements, particularly in Europe, sparking a marked increase in enterprise payment initiatives.   With the inevitable increase in competition among banks, financial instituions and vendors for limited volumes and budgets, the emphasis is likely to be on cost control, increasing efficiencies and growing profits. As such, vendors will more than ever need to focus their initiatives to address these specific issues, helping firms to stretch their IT budgets and deliver maximum value.