The global financial services industry will spend a combined US$362 billion on information technology in 2005, research firm TowerGroup said today.

TowerGroup also suggested that the top drivers of tech spending by banking, securities and insurance institutions will be the quest for organic growth, greater operational efficiency and networked services.

“TowerGroup sees fundamental shifts in the way financial institutions will manage their estimated $362 billion in IT investments in 2005, as technology affects the productivity of over $2 trillion in global operational expense,” said Guillermo Kopp, vp of the TowerGroup Cross-Industry research practice.

Kopp added that it will be increasingly critical for financial institutions to lay out a strategic road map to cut across organizational silos and fulfill their customers needs more proactively.

TowerGroup sees cautious spending in the global securities industry, as it recovers from the after-effects of the technology bubble. Between 2001 and 2003, technology spending dropped at a compound annual growth rate of 7%, it reports. From now through 2008, TowerGroup projects IT spending to rise across the global securities industry at a CAGR of 4%.

“Regulatory intervention, market structure changes and loss of investor confidence are the Bermuda Triangle of the securities industry. The good news is that investors have already begun to return to the markets, albeit cautiously,” said Rob Hegarty, vp of the TowerGroup Securities & Investments practice.

TowerGroup projects that technology spending by the banking industry in 2005 will represent at least a 4.4% increase over 2004 levels. Of this amount, the bulk of spending (72%) will occur in the European Union and North America. Consumer banking will continue to command the greatest share of overall IT spending across all regions of the world.

TowerGroup also predicts that overall IT spending in the U.S. insurance industry to remain relatively flat from 2004 to 2005. 2005 will see a slight increase in total IT spending for property and casualty insurance, reflecting a pent-up demand for new technology, while life and annuity will remain flat as insurers work hard to capitalize on existing investments, it suggests.

“The recent intense regulatory scrutiny of the securities and investments industry has proven to be a significant and negative distraction from core business issues. In 2005, the insurance industry will face its own array of compliance and regulatory pressures. It is critical that insurers take to heart the lessons learned from the securities industry, and stay the course in the year to come by continuing to focus on growth, cost reduction and customer service,” said Deb Smallwood, vp of the TowerGroup Insurance practice.