UK banking sector software and IT services spending will grow at 7% between now and 2011 with IT and business process outsourcing, off the shelf products and security and fraud detection becoming priorities.

With around 700 banks operating in the UK market sector spending reached £4.3 billion on software and services in 2007.

In a report on the sector research outfit Pierre Audoin Consultants found that the recent market risk exposure means that IT services players will face tightening margins and that banks are more willing to spread contracts around a number of suppliers.

‘For the larger IT services players (like IBM and EDS), tighter margins will be further fuelled by the rising trend of multi-sourcing and offshoring trend as the larger suppiers are forced to settle for smaller contracts in terms of size and volume,’ it said.

The report said cost pressure will increase from the Indian players, such as TCS, Cognizant and Infosys, that are pushing hard to increase margins and growth in the UK banking sector through building competencies around the higher value service offerings. These players are focusing efforts on increasing their consulting and domain expertise in attempt to win new business.

Among other technologies software as a service is starting to be adopted in the banking sector but the report said that wide scale Service Oriented Architecture adoption was being hindered by uncertainty. Market consolidation in the banking market is driving systems integration demand.