Global spending on retail banking technology will increase by $3.6 billion (3.2 per cent) in 2012. And it will hit $135 billion over the next five years, according to Ovum’s Retail Banking Technology Spending Model Through 2016: Business Function Segmentation.

The technology investments will be mainly driven by the need to grow revenues and improve customer trust, but changing regulatory compliance will also play a part. Online banking is expected to be the fastest growing area globally in 2012, rising 5.3 per cent to hit $8.3 billion by year end. Areas such as other channels (including mobile), management information systems and multi-channel integration/customer information systems will also grow at high rates.

Banks still need to focus on improving customer trust and increasing sales and servicing effectiveness. This will lead to accelerated investment in channel technology, predominantly online banking or other channels such as mobile (an increase of five per cent globally in 2012, reaching $3.3 billion). Retail banks will invest in these areas in parallel to investments in channel integration and customer information systems, an increase of 4.2 per cent in 2012 globally, reaching $5.6 billion the same year. This is due to the fact that technologies that allow “smarter” selling and servicing, such as customer analytics and customer data management, are expected to remain hot areas in the near future.

Ever-increasing regulatory expenditure, which in 2012 will be predominantly related to Dodd-Frank and Basell III, will drive investments into technologies that reduce costs, such as data management, business process management, business intelligence, and analytics. Global spending on various middle-office components based on these technologies, such as risk management, anti-fraud, compliance, and performance management, will experience growth of 4.6 per cent, reaching $6.1 billion by the end of 2012 and $7.6 billion over the next five years.

Regulatory demands are also forcing banks to invest in their core systems. While in many cases tight compliance timescales lead to the “quick-win” type of enhancement strategies, the ongoing nature of regulatory demands, together with the need to revamp the wider bank to allow the adoption of newer business models, is now driving significant interest in core system transformation. This will lead to an increase of core banking technology spending by 2.5 per cent globally to reach $19 billion this year, and $22.5 billion over the five-year timeframe.

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