Y2K and Euro boost IT

A date that sounds like a Sydney radio station and a currency that sounds like an Australian marsupial are the bases of an information technology sales boom in Europe. IT spending in Europe is rising fast to meet new demands by the financial services sectors.

Coping with millenium changes - the Y2K process - and the 1999 advent of the single currency, the euro, will "hugely" increase the sector's spending on IT which will reach US$44 billion in 2001, according to Datamonitor, the London-based economic research agency.

Europe has not had a single currency since the time of the Roman Empire, which ended in Western Europe 1500 years ago. Rome was not built in a day but with the help of computers the currents of the Europe's new currency will flow smoothly.

Datamonitor's latest report on IT in European financial services to 2005 says there are likely to be three distinct phases of growth in expenditure in and by the financial services.

The report says the European market for external software and services to banks and insurers is now worth US$11 billion annually, with the top ten IT vendors controlling 48 percent of the market.

According to Datamonitor, total expenditure on IT by the European financial services sector is set for "staggering" growth over the next decade, with expenditure peaking at US$44.5 billion in 2001. After that, the growth rate will decline. So IT companies need to act quickly to take full advantage of the boom in spending by banks, insurers and brokers.

Between 1997-1999 the key growth area for IT will be in investment banking. In 1998-2001 there will be large opportunities in the retail banking sector, and the insurance sector will maximise its expenditure on IT between 1999-2002.

Datamonitor calculates that growth in European investment bank spending on IT will peak in 1998, as the banks push to achieve compliance for the first stages of monetary union and the EU single currency (the euro).

Thereafter, as euro-denominated bond and money markets develop, additional investment in settlement systems and networking will ensure that the IT market remains buoyant after 2002. European investment banks will remain a stable and increasingly profitable market for IT suppliers.

Preparations for use of the euro will cause IT expenditure by the European retail banking sector to peak at US$21 billion next year. Retail bankers will focus on updating ATMs and "re-educating" their customers.

The competitive advantage from increased investment in IT will be greatest for those banks which focus on retaining lucrative pan-European corporate clients. They will be the first customers to demand settlement services denominated in the euro.

The European market for new retail banking technology is enormous - as much as US$19 billion in 2005. IT solutions targeted at corporate customers will probably profit most in the spending peaks between 1999 and 2001.

Investment in IT by European retail insurance will lag behind both the retail and investment banking sectors in preparations for monetary union. The single currency will not overshadow issues of market liberalisation and operational concerns, so IT spending by insurers will peak in 2001 at US$18.8 billion.

The technology companies will have to offer hardware and software solutions for premium collection and pay-out, as well as ways for compliance with single currency systems.

The European market for external software and services to banks and insurers, now worth US$1 1.1 billion, will reach US$15.6 billion by 2005, according to Datamonitor estimates.

The top European IT suppliers who are actively targeting this market are being advised to focus on outsourced services in particular, first for retail banks then for insurers.

Demand for outsourced operations in European financial services will grow at an estimated annual average rate of 12.7 percent until 2006. Outsourcing could consume 18 percent of retail bank budgets in 2005, 10 percent higher than the 1997 level. This represents a potential market of US$3.5 billion for suppliers of services, including IT.

The top ten IT companies currently account for 48 percent of the market for externally-provided software and services technology to Europe's banks and insurers. The five strongest suppliers have 38.8 percent of contracts and orders, with IBM leading with a 20 percent market share.

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