Will the Financial Services Sector
Continue to Invest in 2024?

By: Dr. Ashish Kakar, Research Director, Financial Insights, IDC Asia/Pacific

IDC says yes! Spending on core banking technology is expected to increase by 9.7% while Insurtech will grow even faster between 10 - 13% depending on insurance product given the growth forecast by most central banks across the region.

BFSI Forecasted Tech Spends Increase (2024)

BFSI Forecasted Tech Spends Increase (2024)

Source: IDC Worldwide Banking IT Spending Guide, Aug 2023

While IDC is projecting increased spending to keep pace with the macroeconomic growth rates, the financial services sector will move with cautious optimism, and may even consider shifting some of their technology investment priorities around. This means the technology providers will have to fight for a share of the pie on their hands and will have to choose their marketing narrative smartly.

In banking, the top technology growth focus in 2024 is on AI and leveraging data which banks and financial institutions are especially excited about the prospect of what AI could do for them. Major BFSI players such as Citibank and HSBC are requesting for data driven AI use cases while others such as Axis Bank in India have plans to invest in their own LLM models.

Given market conditions and the early indications of worsening credit, data alternates and AI will become critical for lending and for fraud management. This is what we saw in the aftermath of the global financial crisis, with revenue growth and risk management at focus, and that is where we think the current focus would be.

IDC predicts that “By 2025, 50% of the banks in Asia/Pacific will adopt alternate data models to supplement legacy credit approval and fraud detection decision-making models*.” Lending origination and fraud risk management-related costs make up 21% of a bank’s spending, with a projected 16% annual increase. If your goal is to grow your share of banking’s tech spending wallet, you can choose to highlight how your solutions can minimize loan loss provisions and mitigate risks.

The other opportunity could be in Insurtech, which is around a third of banking technology spend. Historically, insurers have stuck to their core processing systems longer than their banking counterparts. But a more significant push towards new technologies is leading them to seek outside platforms and solutions. Focus of transformation projects include the entire servicing process and infrastructure. Hence, IDC is projecting a faster growth at 10% - 13% from the sector. For example: HDFC Ergo is upgrading its entire core system.

If you are a technology provider, here are some tips on how you can help Asia/Pacific banks and insurers protect and grow their business in 2024 and beyond:

  • Forge partnerships with third parties that enable banks to benefit from a greater lending volume and wider market access.
  • Understand the regulatory revamps across the region and provide critical guidance to your clients.
  • Solve the complexity of dealing with external data on a bank’s behalf. You can do this by demonstrating tangible value from harmonizing alternative data.

For more insightful and actionable guidance, you can subscribe to IDC Financial Insights: Asia/Pacific Financial Services IT Strategies for direct access to IDC analysts and reports published on idc.com. Until then, you can catch me and the region’s banking and financial services leaders at our upcoming Asian Financial Services Congress from 6 – 7 May at 'The Next Big Thing' Conference in Singapore.

* Source: IDC Futurescape: Worldwide Corporate Banking 2024 Predictions - Asia/Pacific Implications