Financial firms' IT budget increases sink to 18-month low

The tech budgets inside Britain’s financial services industry have been scaled back to the weakest planned increases in IT spending for a year-and-a-half.

Employers’ group the CBI and accountancy firm PwC, which uncovered the plans in their joint-index, said the scaling back reflected banks’ plans to “hold IT spending steady.”

Even though general insurers and insurance brokers are taking a similar approach to their IT budgets, only the banks were warned by PwC not to neglect their fundamental infrastructure.

The firm’s financial services leader Kevin Burrowes said: “In recent years, banks have enhanced many of their customer-facing operations with digital solutions, most notably through the introduction of mobile apps.

“The next wave of innovation lies in the digitalisation of the back-end processes, many of which still rely on a high degree of manual processing. Ensuring a continued spend on core IT is critical to the success of banks.”

Critical to growth for all firms in the industry are IT systems and applications, which the biggest proportion of general insurers for at least 12months are going to invest in, to expand their operations.

Life Insurers agree (a balance of +94 out of 100 will pour more into apps and systems), in contrast to insurance brokers whose interest in using such technology to grow is at its lowest level since June 2014.

But these general insurance firms are keen to ‘reach new customers’ – an investment motive that is “particularly strong” among all financial service companies, ranging from building societies and asset managers to securities traders and brokers.

“Intensifying competition was seen as the most significant factor likely to constrain business activity in the next twelve months,” Mr Burrowes added, referring to the financial sector as a whole.

“Competition is increasingly seen as coming from outside firms’ own sectors. Dealing with statutory legislation and regulation was seen as another important factor likely to constrain business activity in the next twelve months.”

He also said that the EU referendum and macro economic factors have, at least initially, “dampened the outlook” of financial firms, where the balance due to approve more money for IT has slipped to +38, the lowest reading in 18 months.