Cost cutting

The increasing size and complexity of big banks is outstripping the ability of their CIOs to provide effective IT and operational support, according to analysts Gartner.

Gartner says the exponential increases in demand for IT are a problem for all banks, particularly because IT budgets have failed to keep pace with demand. A 2013 Gartner survey of financial services CIOs has once again shown only a "minute" increase in IT budgets - an average of 0.4%.

Gartner says big banks' internal economies of scale - which makes them better able to absorb fixed overheads due to a larger customer base and stronger buying power - should give them an advantage over smaller banks.

However, Gartner's data continues to show that these supposed economies of scale are actually being overwhelmed at big banks (typically those with annual revenue greater than $10 billion) by "accelerating demand and complexity".

"The poor performance of big banks cannot be adequately explained as a reflection of poor economic conditions and overall constraints on enterprise budgets," Gartner said. "Gartner believes a more comprehensive and overarching force is at work one that we have identified as the 'law of diminishing IT returns'," said the analyst.

The analyst house said that increasing digitalisation has created an exponential growth in demand that exceeds the big bank CIO's ability to supply IT cost-effectively. It adds that IT spending outside the bank CIO's control also renders traditional management models obsolete.

Gartner says bank CIOs have to address the impact of the law of diminishing IT returns in executive management steering committee meetings. It says initial investments in IT efficiency need subsequent investments in superior delivery and management, such as more automation and self-service portals, due to increased demand.

CIOs also need to calculate product support costs. Gartner says the continued proliferation of products, added to the lack of product retirement, adds overheads to IT and introduces additional costs to work around operations that were designed to fit to an original product set.

They also need to evaluate non-financial services management models. "Google, Facebook, Amazon, and so on, provide role models and a source of ongoing best practices for financial institutions", says the analyst

CIOs must also run an exercise to assess which roles can be replaced using artificial intelligence, agents and computational processes, added Gartner.