First Horizon also is taking a dynamic approach to its budgeting due to the uncertainty around pending federal legislation, according to the bank's Livesay. "If you look at the legislative pipeline, it's difficult to plan for things," he says. "You have to understand the basics first -- which pieces of legislation likely won't change. We need flexible solutions. So not only do we do the annual budget, but we do a quarterly reassessment of the budget as well."
Brian Stanfill, SVP of operations with Delaware County Bank & Trust ($700 million in assets) in Lewis Center, Ohio, and a 2006 BS&T Elite 8 honoree, suggests that as a result of the uncertainty over compliance spending, as well as the economy, 2010 will be a conservative year for bank technology spending. "It's harder for bankers to get their boards to take [budget proposals] seriously because they're so risk-averse today," Stanfill says. "What do the regulators want? What are they going to do to us? There's a lot of nervousness in the industry. ... But we also have to be nimble and ready as soon as the CEO says we need a differentiator."
Banks will invest in IT in 2010, assures Whitney National's DeArmas. But it won't be on the whiz-bang gadgets and projects to which the industry has become accustomed.
Where the Smart Money Is
Technology spending, according to DeArmas, will be smarter and more focused on what really matters: making money and keeping customers happy.
From the start of the downturn, DeArmas relates, Whitney National determined that if a project was part of the bank's larger strategy, it would proceed as planned. For instance, he reports, a major systems consolidation currently under way will continue. But a plan to install a stand-alone document imaging system was altered to incorporate the project with the bank's larger Jack Henry & Associates (Monet, Mo.) core system in order to cut costs.
In general the bank is looking to reduce costs that don't directly impact its customers or impede the ability of its bankers to remain competitive, DeArmas explains. "So we're looking to reduce travel expenses," he says. "We're also going to be renegotiating major contracts to drive efficiencies and cost savings. We're ratcheting down things that aren't adding day-to-day value to us or our customers."
Delaware County Bank also is committed to its large, strategic initiatives, such as a channel renewal/integration project that includes the addition of mobile banking and an upgrade of its online banking platform from Austin, Texas-based Q2, according to SVP Stanfill. Related to this is a larger infrastructure project that was enabled by the recent availability of less expensive point-to-point fiber optic cable in the bank's market. "Now our branches are better connected, with better quality and throughput," explains Stanfill.
At First Horizon, IT investments actually will increase in 2010, the bank's Livesay reports. "Our capital investment budget tripled for 2010 due to our good capital position," he explains. "So we're going to renew our core infrastructure and make technology investments in relationship management -- those customer-facing technologies that will influence our competitive differentiators. This is the perfect time for technology investments as we get ready for what's next."
Like Delaware County Bank, First Horizon also is investing in a channel integration project, in which retail and commercial customers will be given a more seamless experience, notes Livesay. The company is spending on automation of business processes and its data warehouse so that it will provide better information on customer relationships.
"This is all being looked at under the broad umbrella of risk management," Livesay relates. "I think it will be a major focus for other banks."
In addition to risk management, security is an area that banks cannot ignore. Both are on the short lists of 2010 IT priorities assembled by Bradway Research and Celent, and all the bankers interviewed for this article say they will spend on these capabilities next year.
"You cannot cut security," says Delaware County Bank's Stanfill. "We're putting in place tools that are better and more timely."
Whitney National also plans to beef up security. "Fraud has started to shift from the retail clients to commercial clients," explains the bank's DeArmas. "So we want to help our customers fend this off. We're looking to add more staff and more layers to the [security] onion in general."
As DeArmas suggests, banks will emphasize their commercial business in 2010. And an anticipated explosion in the treasury management space should spur spending on related systems.
Even in 2009 there was a shift in spending from the retail side to the commercial side, notes Celent's Jegher. "It was a factor of banks realizing where profits lie: transaction banking. Large corporates will drive business at banks. They'll require help to achieve their business goals," he asserts. "There will be massive announcements and spending of IT dollars in this area. Banks view the future in treasury."
Notable 2009 treasury services announcements included the launch of CitiDirect BE by New York-based Citi ($1.8 trillion in assets) and Bank of America's (Charlotte, N.C.; $2.3 trillion in assets) latest iteration of its CashPro treasury services portal.
According to Bradway Research's Bradway, spending in payments in general will be a highlight of the 2010 IT budget season, especially as it relates to payments hub initiatives and payments messaging, areas of importance in the treasury space. "Payments can be a big-ticket item at the large institutions," he comments.
Speaking of big-ticket items and large institutions, many banks still are integrating major acquisitions from the past year, and more M&As are likely in 2010, especially as the FDIC gets through its logjam of collapsed banks and readies them for sale. "We're going to see more FDIC-forced M&A," states Financial Insights' Capachin. "So there will be a lot of IT integration work, rationalizing systems [and] investment in new technologies in some cases."
As the big banks complete 2009 acquisitions, Bradway adds, they will have money to spend in other areas. "The big players will see a fulfilling of their long-term integration efforts from acquisitions," he explains. "They will be able to recycle money saved into incremental spending that will keep the [tech spending] bubble from shrinking completely. They'll be incented to leverage their new footprint for organic growth. ... [This] will help the industry as a whole in sustaining modest growth."