Boom time for financial services IT say CBI and PWC

IT investment by the financial services sector is booming but the rate of future growth could slow, the Confederation of British Industry and accountants PricewaterhouseCoopers have predicted.

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IT investment by the financial services sector is booming but the rate of future growth could slow, the Confederation of British Industry and accountants PricewaterhouseCoopers have predicted.

The financial services sector has enjoyed a third quarter of strong growth, with business volumes growing at their fastest rate in seven years over the last three months, the two organisations said in their latest financial services survey.

But conditions could be turning, as the sector expects a tougher quarter ahead, with hardly any growth in business volumes, a modest decline in incomes, and a squeeze on profitability.

Technology remains high on the agenda for financial firms, with building societies, banks - both retail and investment - and fund managers expecting to spend the most on technology over the coming year, the survey of 68 firms found.

Lai Wah Ko, principal economist at the CBI, said the investment in technology was driven by a number of factors. "The main reason the respondents cited is to increase efficiency," she said.

"Banks and building societies want to provide new services, in order to reach new customers, and are spending on technology to do so. There is also the concern to remain competitive.

For fund managers, the priority is to expand capacity. Fund managers are doing well and anticipate they will continue to do well, so are increasing scope to cope with this increased demand."

Compliance requirements, such as the forthcoming Markets in Financial Instruments Directive (Mifid), are also contributing to this increased spend, especially in the securities trading sector.

The survey also found continued growth in the value of e-business, although this was at a slower rate than in the previous two quarterly surveys.

The proportion of firms reporting that more than 10% of their customers used web-based services fell from 69% to 49% - the lowest proportion since December 2004.

The biggest barrier to e-business was customers’ preference for using other channels. Customer concern about security and data protection was the second most important barrier.

Despite a prosperous quarter, there were signs that activity in the sector may be "starting to come off the boil", CBI chief economic adviser Ian McCafferty said.

"The outlook for the coming quarter is one of flat business volumes, falling income values and lower profitability. This may yet turn out to be another temporary soft patch, similar to last September, but could be the first sign of the impact on financial markets of recent rises in global interest rates."

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