U.S. Financial Institutions To Spend $118 Billion On IT In 2005

U.S. financial institutions will spend $118 billion on IT in 2005, up 4.3% over 2004, according to a report released Monday by research firm TowerGroup. And, on average, IT spending by financial-services companies is projected to rise by a bullish 4.7% a year for the next several years, reaching $136 billion by 2008.

Banks will spend $50 billion on IT this year, followed by insurance companies ($36 billion), and securities and investment companies ($31 billion), the report says.

The pace of investment will accelerate in the second half of this year as companies ramp up spending on compliance-related and legacy transformation IT projects.

The adoption of new technologies such as Web services and component-based platforms will reduce the percentage of IT budgets dedicated to maintaining older systems from 64% this year to 58% in 2008. Spending on new technology, which will absorb 29% of IT budgets in 2005, is projected to climb to 40% by 2008.

Most of the increase in IT spending through 2008 will be on external resources such as outsourcing, professional services, and hosted services. Spending on outsourcing, for example, will jump from $11.4 billion in 2005 to $16.1 billion in 2008. Spending on internal resources, still the largest chunk of IT budgets at 48% this year, is projected to remain flat through 2008.