By Graham Underwood, managing director of GFT UK

Banking has a long history of producing innovative technology; from the Big Bang of the 1980s, through ATMs and debit cards, to this century’s online banking. Technology has repeatedly changed the way banking happens. Today, this combination of a strategic and innovative approach is vital if the financial services sector is going to transform itself. As Gartner suggests “banking and investment service providers need to make a critical shift to a more outward-facing set of objectives for IT that are risk-aware, but still innovative and bold ”.

This isn’t about technology as a cost-cutting tool, or as a quick route to new, but unsustainable, products. Now, rather than focussing on specific products, banks should develop innovative technology to create a better way of banking and respond to the challenge of new entrants into the financial services world; new entrants that have already established customer-focussed and trusted images, such as Virgin Money, Tesco Bank and Orange. The rise in peer-to-peer lending, predicted by Gartner to be $5bn by 2013, the cost of maintaining High Street branches and the necessary decline of the hub system of bank services, are all issues to which banks must find a response.

We’re also seeing a new generation of mobile natives becoming consumers of banking services as they enter adulthood. Although likely to be a mostly retail phenomenon, the impact of mobile phone technology cannot be ignored by the sector; payments and banking via your mobile phone will be the subject of much discussion throughout 2010.

All of these developments could have a game-changing impact on established financial institutions and business at a wider level. Tactical, cost-cutting use of technology will not be enough. Recent Datamonitor research for BT also cites the importance of technology as a general business driver, concluding that “greater investment in IT by businesses will help aid recovery in the wake of the anticipated economic upturn”. Despite this the Gartner report reveals that half of the banks it questioned will not have a budget or programme dedicated to technology in place by 2013.

Transformational and innovative projects could be the catalyst to refocus and rebuild banking and lead to positive growth prospects. Banks must seize the opportunity to bring technology out of the back room and into the boardroom. Innovative technology should be a key component of the banks’ strategy for the new decade, properly funded and resourced it will enable our financial institutions to adapt to what Gartner describes as the “new normal” and thrive in this changed economy.