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Financial services sector set for major IT overhaul

DUBAI — With AGCC countries projected to spend more than Dh18 billion this year on IT, the region's financial services sector is in the midst of a massive IT overhaul in the backdrop of growing regulatory requirements for better monitoring of processes and developing secure systems.

According to industry watchers, central to this IT overhaul is software testing —specifically the automated type — which is gaining newfound respect and momentum in the region. This follows similar trends to the more mature markets in the US and Europe.

"Fuelled by widespread business expeditions into the Internet economy, testing has surfaced not only as a critical IT issue, but also as an even more critical business issue. This is true both in the private sector and the public sector where a majority of their services are becoming e-enabled," IT experts point out.

Sug Sahadevan, the London-based Managing Director of Testhouse, specialists in quality assurance of mission critical software systems, said third party software testing should be regarded as a business investment and not as an optional overhead.

"What's put into it will, if correctly implemented and well managed, directly correlate to the business value that's derived; unsurprisingly the opposite is also true. Like any good investment, businesses must think of their returns over the long term. Applications are rarely future proof, but fundamental strategy, architecture and component based development can be durable."

As population get younger, better educated and more demanding in a scenario of increasing diversity in financial products and services, banks and financial institutions across the region are investing heavily in systems and technologies that can comfortably match or outstrip their international peers, he pointed out.

While the annual IT spending in the Middle East is estimated to be more than $8 billion, total spending by the region's banks in 2004 stood at more than $1 billion. The sector roughly represents 12.5 per cent of the total IT regional market, which comprises other domains such as oil & gas, retail, logistics, e-governance, shipping and aviation and is growing by 12 per cent-15 percent per annum.

According to IDC, banks in the Gulf will represent the largest single vertical in terms of overall IT investments over the next five years. Madar Research says AGCC banks spend an average of 4.29 per cent of their revenues on IT. This is slightly less than the worldwide industry average of 4.36-6.90 per cent.

MENAFN Research estimates the increase in IT budgets of regional financial houses is set for more growth, and would eventually match the Western average by 2006.

Sahadevan said the objective of heavy IT spending is to leverage the power of information to enhance the business. "But often there is a clear mismatch against the expected desired results. This can be attributed to failure in subjecting the system to rigorous testing prior to the production environment. In other words, failure to foresee, analyse and manage risks."

According to Prakash V. Raman, an India-based expert in software testing, the worldwide market for automated software quality tools, including mainframe and distributed environments, reached $2.6 billion in 2004, a 23.6 per cent increase over 2003 figures, and the market is slated to double by 2007. Consequently there is a shift in services towards testing. In the Gulf too, demand for good quality testers with the right skills is growing at the same rate.

Raman said software programmes or products fail mostly due to multi-pronged issues that affect software quality itself. "For instance, various software available in the market comes out with disclaimers, end user license agreements and limited liability clauses from the vendor. Software solutions also fail because the vendor and the user companies find great difficulty in measuring quality.

While vendors display and market their products on common quality attributes like reliability, efficiency, and functionality, in reality there are many glitches that surface in user conditions. Oversight of these defects by the enterprises often leads to catastrophic consequences."

Testing which used to be an after thought has now evolved into a major activity. Moreover, software tools have brought significant changes to the approach, and as a result testing has become a specialised discipline.

"Independent third party testing is the peak of this maturity, it signals a new breed of software professionals and an industry by itself," adds Sahadevan. One of the biggest drivers that will infuse more quality into software will come when enterprises become more conscious of the deliverables promised by the vendor. About 80 per cent of applications go into production without automated testing according to Gartner.

Sahadevan said independent verification and validation services offered by specialist testing consulting groups are gaining prominence and momentum. These services facilitate the IT managers obtain crucial information in an environment organisationally free from the influence, guidance and control of the development effort.

In addition to the traditional vendors responsible for turning automated testing into a distinct discipline, there exists a new breed of vendors that are providing automated testing solutions built exclusively for the web. The industry leader for this is Mercury, which in partnership with Testhouse, now established in Dubai, offers the complete solution. This allows organisations to get into testing in the correct manner.

Today there is a growing recognition of the costs incurred due to defects in the software. Software bugs cost $59.5 billion to the US economy according to the US Department of Commerce. However, due to improved software testing some $22 billion was saved by the US economy.

"Testing should be regarded as a business investment. Given the undeniably complex array of technologies and the unpredictability of users' loads inherent in the web-enabled enterprise, automated testing practices will continue to gain business acceptance for companies participating in the Internet economy," he said.