The financial crisis dealt a hard blow to banks’ IT spending, and forced a budget reallocation in favor of solutions promoting regulatory compliance and risk management, a trend that will endure for a while.

After a muted couple of years, technology spending by the financial services industry is now showing signs of revival. Of the several analyst reports I’ve come across, most agree that banks will spend about 4% more on technology in 2011 than they did last year, and account for nearly half of the US$ 364 billion which will be spent globally by financial firms.

Although the biggest spending regions of North America and Europe will each take an approximately one third share of total expenditure, they will follow different growth trajectories. 

Besides spending on compliance and risk management, North American institutions will invest in retail and corporate banking, software and services, and most importantly on new investments. That is good news in a world where most technology expenditure still goes towards upgrading and servicing legacy systems, but now American and Canadian banks are bringing their maintenance costs down by creating service oriented architecture to reduce application redundancy and improve data management. They are also looking to enhance their retail banking offering by investing in online and mobile banking and Personal Financial Management.

On the other hand, technology spending by European banks is not showing signs of growth. The lackluster outlook is attributed to the continuing budgetary crisis in several economies, which is leaving its mark on the financial industry. Consequently, European banks will spend mostly on ‘compulsory’ regulatory and related issues.

And what of Asia-Pacific? Well, this region is undoubtedly the growth engine of financial services and its institutions will increase their tech spending by 6% or more each year over the next couple of years to cross US$ 100 billion by 2013. Japanese banks will spend the most on retail banking technology whereas China and India will enjoy the highest growth in spending. The investment focus of Asia Pacific banks will be spread across Internet and mobile banking; regulatory compliance, fraud protection and risk management; and technology for branches, especially in less penetrated markets.

Is the pattern of IT spending indicating the emergence of a new world order?