customers waiting at a bank teller

Banks are spending more on IT than any other financial services. Source: Shutterstock

Where are banks spending all their IT budget?

THE banking sector is spending more money than its peers in financial services.

A new IDC report predicts that globally, IT spend by financial services will reach US$500 billion in 2021. More than half that amount will come from bankers alone.

Overall, 70 percent of the total IT spend will be on third-party hardware, software, and IT services. The remainder will be reserved for internal staff development, maintenance, and integration.

According to the study, Asia Pacific is one of the regions showing above-average growth. This is mainly thanks to a strong software spend across the region.

The increase in IT spending is not limited to banking industry; the report showed an increase for both insurance and capital markets as well. Both industries are projected to spend more than US$100 billion on IT, each.

Karen Massey, research manager, IDC Financial Insights said, “We are seeing an uptick in transformational IT projects and investment in DX (digital transformation) enabling solutions that is changing how financial institutions approach and leverage IT.”

Massey explains that most of the spending will be used to modernize legacy core systems. This includes payments, core processing, lending, claims, policy administration, and trading.

This is a promising sign, as it shows banks adopting new innovations, which will contribute towards improving customer experiences.

Apart from improving infrastructure, financial services are spending more on risk-based IT. This includes solutions to mitigate and respond to fraud, security and compliance needs.

By 2021, risk IT spending will reach $94 billion, which translates to nearly 20 percent of the total IT spend by financial services globally.

Currently, the risk spending stands at US$80 billion, and the total IT spend at US$440 billion.

To make the most out of your IT spending, an earlier report by PwC suggests financial services focus in six key areas.

  1. Updating IT operating models to be ready for constant changes. This means less focus on core mainframe systems and more on keeping or improving functionality without being tied down by the platform.
  2. Reduce operating costs by simplifying legacy systems and adopting robotics/AI.
  3. Building technological capabilities that are flexible to customer’s needs, using real-time intelligence.
  4. Preparing architectures to connect and operate with the various systems, including cloud services, partners and suppliers, mobile devices and more.
  5. Constantly improving cybersecurity measures.
  6. Invest in talents and skills, they will be the one executing your technology framework.