Banks facing spiralling IT costs

The "oligopolistic" Australian banking sector will need to spend "more and faster" on IT infrastructure in order to keep up with technological change, according to an AMP Capital report.

The 2015 AMP Capital Corporate Governance Report contains the results of an environmental, social and governance (ESG) analysis of the Australian banking sector in light of "relentless" changes in information technology.

According to the findings, changes in the IT landscape are characterised by "significant complexity, breadth, cost and associated risk factors".

"With the success and execution of major IT projects likely to impact their profitability, companies are understandably cautious with regard to their overall IT and IT security spend," AMP Capital said.

The report notes there is a "suggestion" that Australian banks have under-invested in IT, "possibly as a result of our oligopolistic market".

"To keep up with the high pace of technological change, there is now a risk that banks will need to spend more and faster," AMP Capital said.

"There is a risk that increased operational and geographical diversification, and product complexity, could add to execution risk and costly delays along the way.

"The appropriateness of a company’s IT strategy and the effectiveness of implementation are difficult to determine from outside the company," said the report.

As well as developing technology, the banks will have to be careful about the way data is "collected, managed, stored, leveraged, understood and protected".

The move away from bank branches (and ATMs) to online and mobile services has only taken "a few years to occur", the report noted.

"Risks associated with disruptions in technology include disrupted service and reputational damage caused by anything from human error, malicious attacks or natural disasters," AMP Capital added.

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