U.S. government and business spending on tech might drop 5% in 2020 due to the pandemic, by optimistic estimates, whereas the 2008 financial crisis spurred a 2% drop, according to Forrester Research.  

“The pandemic’s effect on tech budgets is not only more than the 2008 financial crisis, but might also have a lingering effect on the sector,” said Jacob Morgan, senior analyst at Forrester Research, in a sponsored webinar with Bank Innovation and ABBYY.  

The research dug into three potential scenarios for economic recovery. In scenario A, in which the pandemic has already hit its peak, tech spending will drop by 5%. In scenario B, in which the pandemic extends into 2021, tech spending will drop by 9%. In scenario C, the worst-case scenario, the pandemic extends well into 2021, with tech spending dropping even further. 

No industry has been immune to the COVID-19 effect, including financial services and insurance sectors, whose annual budgets are anticipated to drop nearly 12% and 7%, respectively, according to the research.  

Morgan said financial services firms serving such verticals as the food, leisure and travel industries are in survival mode and slashing their budgets to survive. 

“But the majority of financial institutions are in adaptive mode, where they are able to understand their limitations and are managing to improve them,” Morgan said. “Some institutions that serve the payment, e-commerce and delivery verticals are experiencing growth since the start of the pandemic.” 

As customers across the globe have been forced to experiment with digital banking due to lockdown and social distancing measures, their experience has been “overwhelmingly positive,” Morgan said. In the U.S., 63% of people prefer to manage their finances online, while nearly 50% of the first-time users plan to stick to digital banking going forward, he added. 

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The U.S. e-commerce transaction volume experienced a meteoric rise due to the pandemic, increasing to 27% of total transactions in April 2020, compared with 16% year over year, according to a research by CB Insights.  

Once the pandemic subsides, tech budgets will see an exponential rise because consumers are adopting digital banking swiftly, according to Morgan. 

“Financial institutions have to keep on evolving their tech platforms because there is an appetite for it in the market,” Morgan said. “Institutions that have already developed or are developing their tech platforms according to the consumers’ needs will see high growth and customer retention.”