In terms of what is happening in the banking industry and IT spending, Celent sees both huge changes and many things remaining constant throughout the crisis. No one could have imagined the consolidation we have seen at the top of the market in the U.S. The top five banks have changed dramatically: Bank of America, J.P. Morgan Chase/Washington Mutual, Wells Fargo/Wachovia, Citibank, and PNC/National City.
This group of banks now controls 36 percent of all FDIC-insured deposits (Source: FDIC, June 30, 2008, plus Celent analysis). This will trigger integration projects that could have a major impact on the entire industry and perhaps a rethink of what a large bank IT infrastructure should become.
While the top is consolidating, the bottom is shrinking and the middle market is growing. One reason for the decline in the smallest banks is their lack of economy of scale. These banks need many of the same systems as a larger bank, yet they lack the scale to run them in-house and lack the buying power to drive low ASP pricing. This translates to a high (read: bad) efficiency ratio.
Celent expects banks to invest in deposit-gathering initiatives that include:
- Remote deposit capture for the business and the consumer. Banks should take notice of successful deployments of remote deposit capture at consumer locations. For example, Digital Federal (Marlborough, Mass.) enrolled 16,000 members -- nearly 10 percent of its online banking clients -- on its consumer capture service in the first five months of availability.
- Health savings accounts to attract a new type of deposit. As high-deductible health plans (HDHP) gain acceptance, the corresponding health savings account (HSA) will experience concomitant growth. Going into the 2009 plan year, Celent expects banks' HSA accounts to increase significantly, with major banks enjoying a 40 percent to 70 percent increase in accounts over January 2008. HSAs represent a relatively low-cost approach to deposit base growth, and account holders are increasingly looking to local/community banks as HSA custodial alternatives to larger, national banks.
- Web 2.0 Internet banking to engage and retain customers. PNC's unveiling of its Virtual Wallet in July 2008 marks one of the boldest enhancements to the online banking experience. The site is not a wholesale replacement of the bank's primary online banking site, nor is it an add-on. The Virtual Wallet is a separate site designed to appeal to the unique financial needs and preferences of its target market: young consumers.
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