Where Canada’s banks rank on the IT maturity curve

A study by Technology Business Research highlights the differences between Canadian and U.S. banks when it comes to investing in IT as a business driver

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Compared to their American counterparts, Canadian financial institutions are seen as cautious and conservative, slower to make changes to their core IT strategy. But a large-scale study of financial institutions across the continent shows that both countries’ banks recognize the importance of investing more in IT—they’re just putting their money in different places.

Driving forces: the economy, customer relationships and market position.

As a whole, the figures are staggeringly high: the study by Technology Business Research (TBR) predicts that big North American financial institutions will invest $73.8 billion in hardware, software and professional services in 2014.

During a webinar discussing the study, TBR senior analyst Allan Krans said that banks are more likely to view IT investment as a way to differentiate themselves in the market than other industry sectors. They’re also moving aggressively on new business delivery techniques and more willing to speed up their purchasing processes, running more pilot projects and getting more plans off the drawing board.

The economic climate still has the biggest effect on financial institutions’ IT spending, he said, but also high on the list are threats from other external forces, particularly “non-traditional entrants to banking” such as AMEX and PayPal, and grappling with regulatory issues, said Krans.

Another key concern: direct customer interaction. Banks are trying to create better platforms that get them closer to their customers. “They’re seeing these IT services and tools as ways to heighten their relationship with end-customers [and] improve their position in the overall market.”

Canadian banks twice as likely as U.S. banks to be late tech adopters
In an interview, Stuart Williams, TBR’s software practice director, broke down the results further. He says U.S. and Canadian financial institutions are on the same trajectory, but Canada tends to be lower on the “maturity curve” when it comes to IT investment.

“There’s a lot of stuff that we see happening on an emerging basis or a high-priority basis like mobile banking on cell phones in some sections of the United States, [whereas] I think it’s still emerging in Canada,” says Williams. Nevertheless, he adds, the technological changes are happening in the same ways.

But on average, the behaviour of Canadian banks is clearly more conservative, he says, and their IT investments tend to be different. TBR puts banks in two different categories. The first is what it calls “empowered,” those that make aggressive IT investments and are characterized by “distributed decision-making across IT and the line-of-business people,” as Williams puts it, with CIOs deciding where to spend IT dollars, for example.

Then there are the “bureaucrats,” late adopters of technology with highly centralized IT environments. They lag a little behind the market, perhaps waiting for others to make the first move and then adapting already proven concepts. “Maybe there are cost efficiencies. This is not to knock it—this is just strategy,” he stresses.

According to Williams, About 40 per cent of Canadian banks are considered “bureaucrats,” which is roughly twice as high as the figure for American banks.

Empowered banks tend to spend their money on mobile and online banking, treasury management and automation. By contrast, bureaucrats focus more on bolstering existing IT investments, he says: “self-service solutions, service desk, they were working with payment-related solutions, and customer and channel management solutions.”

Keeping the lights on is innovation
On the surface, it might seem as though Canadian banks are getting left behind when it comes to creating a smarter IT strategy. But adoption of new technologies and a higher tolerance for risk in itself doesn’t equal innovation. Williams notes that economic factors and market forces are what drive financial institutions to change, but money that’s spent prudently on existing IT infrastructure can be the appropriate response depending on conditions. He also cites the example of TD Bank Group, which operates in different ways on either side of the border, and does so quite successfully.

The importance of slow, methodical and “internal” innovation is often understated. We’ve all heard the cliché about the supposed dangers of allocating too much IT money to “keeping the lights on” rather than “innovating,” and perhaps it’s time to take a more nuanced look at what that really means.

For large financial institutions, developing a new mobile banking app is hardly their greatest business challenge. Going much deeper than front-end IT, we see banks forced to cope with enormous mission-critical legacy systems that handle millions of transactions every day. We should recognize the magnitude of the task of modernizing—or even simply maintaining—IT infrastructure that’s been around for decades. In the coming years, that could be where the most profound innovations occur.

For more on Canadian banks and technology, download ‘A How-To Primer on Sharpening IT and Financial Performance in the Financial Sector,’ an Allstream case study. 

Image courtesy of ddpavumba at FreeDigitalPhotos.net

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