How Critical is IT in Financial Services? Cool $317.7 billion

Financial services forms are enjoying record profits and staggering year-end holiday bonuses. Goldman Sachs alone is planning to dole out some $16 billion in employee bonuses this year. In addition to smart people, financial services firms are heavily dependent on Information Technology (IT), seeking sustainable operational efficiencies. 

A WSJ's article today " Trading Firms Seek Edge Through Speed"  quotes that "algorithmic trading" in which computer programs buy and sell stock, has reached almost 25% of the overall stock trading, according to Celent. 

Celent, a research and advisory firm focusing on IT in financial services, estimates that global information technology spending by financial services institutions grew 8% to $317.7 billion this year.   Global financial services firms are expected to spend $351.2 billion on IT products and services by 2008, at a growth rate of 5.1% per annum. 

In a new report, IT Spending Trends: A Global Financial Services Review, Celent analyzes IT spending trends across different industry verticals (banking, insurance, and securities and investments) and different regions of the world.

Some Highlights from the report:

  • Financial services institutions in Asia-Pacific are expected to increase their investments in IT at a significantly faster rate of 11.4% CAGR compared to firms in other parts of the world from 2006 to 2008 
  • The financial services institutions continue to invest briskly in maintenance rather than in new investments, 74.5% of the total IT investments going to maintenance. 
  • Financial services firms in Asia Pacific will also contribute the highest regional growth in new IT projects at a CAGR of 13.0%.

“Globally, financial services firms are heavily dependent on an IT infrastructure that is flexible and reliable. In the fast-paced world of financial services institutions, it is critical to seek sustainable operational efficiencies. As the 'new investment initiatives' tally can tell, financial services institutions worldwide are keen to spend money to replace old systems, thus reducing IT maintenance expenses,” states Louise Westerlind, analyst in the Institutional Securities & Investments group at Celent and co-author of the report.

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