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Spending on technology by global banks has reached 20%
Spending on technology by corporate and investment banks has reached 20%, according to Coalition Greenwich. This refers to the implementation of various automated systems to improve service levels. In 2023, financial institutions increased investment in this area by 5.4%, leading to increased costs.
Over the past 4 years, the revenues of the world’s 12 largest banks have grown by 5.2%. This peaked in 2021 as the market recovered from the pandemic. In addition, the government provided additional incentives, which also contributed to profit growth. However, by 2022, the momentum was already slowing due to the impact of inflation and rising interest rates.
Within 4 years, the total expenses of the largest banks increased by 12.1%, reaching US$139 billion in 2022. The breakdown of this amount is as follows:
- 48% goes to the front office for the compensation and benefits of the people involved in the processes;
- 52%, or US$72.2 billion, goes to functional expenses, including operations, technology and controls.
According to research by Coalition Greenwich, technology spending is at an all-time high. It now accounts for around 40% of all functional sector spending and 21% of total expenditure.
Stephen Bruel of Coalition Greenwich says corporate and investment banks are in a tricky position. On the one hand, they need to invest in efficiency and automation. On the other hand, they need to grow the business, which also requires investment.
Regulating banks’ costs
Ideally, a business should be able to direct all its costs towards increasing revenue and improving profitability. In reality, however, it is impossible to achieve such a result. Banking activities include some mandatory functions, including:
- risk management;
- compliance with rules and regulations;
- the organisation of administrative activities.
All of these entail costs that are difficult to optimise and reduce. Additional pressure comes from new regulatory requirements. These regulations demand the development and implementation of various technology products. At the same time, most of these are not financially attractive to companies.
Yet progress is unstoppable. AI, machine learning and cloud computing have reached a relatively new technological level in just a few years. This has presented banks with a difficult choice: to fall behind or to increase their investment in innovative technologies.
As the analysis shows, most companies prefer to invest in digitalisation. They are developing and integrating technology adoption strategies into their overall business development plan.