May 13 2022

3 (and a Half) Things Worth Spending on as Banks’ IT Budgets Climb

Institutions are spending more on technology — but do they have the right priorities?

Digital transformation is now the expectation for banks, and the pace of change is accelerating. Because of the pandemic, experts suggest that financial firms are on track for 10 years’ worth of progress in half that time.

As operational pressures ebb and economic recoveries begin to take hold — research firm Deloitte reports there was an 89 percent increase in the number of mergers and acquisitions in 2021 compared with 2020 — many banks find themselves with enough capital on hand to boost IT budgets over the next few years.

So, what’s worth the investment? Where are banks best served spending this “found money” to deliver maximum operational impact?

1. Cloud Computing Offers Flexible Work Options for Banks

Banks have historically been a step behind other industries when it comes to the cloud. Not only were financial firms wary of putting sensitive data into the cloud, but pre-pandemic only 29 percent of banks had 60 percent or more of their employees working from home at least one day per week.

Now, however, many banks are offering flexible work options to reduce the risk of staff turnover and keep their competitive edge. None of this is possible without the cloud. From providing anytime, anywhere access to mission-critical services and applications to enabling staff to have the same work experience at home and in the office, cloud investment comes first on the list of IT spending priorities.

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2. Banks Must Improve Customer Experiences to Meet Expectations

Customers are now willing to share personal data with banks if financial firms can offer clear value in exchange. By and large, this value takes the form of highly personalized services that treat clients as valued assets.

As a result, it’s critical for banks to spend some of their burgeoning IT budgets on the tools and technologies required to improve the customer experience. From better mobile application design and delivery to the use of machine learning and robotic process automation solutions that help reduce corporate reliance on manually intensive tasks, banks can capture a dual benefit from this type of investment: Customers are happier and more likely to stay, while IT teams already grappling with staffing shortages can better focus on line-of-business objectives.

3. Managed IT Services Can Assist With Handling Voluminous Data

Sixty-one percent of banks now report that they are “highly reliant” on managed services and outsourcing to help bolster IT expertise. It makes sense: 52 percent of financial firms say they’re not effectively using the data they have, and 31 percent are concerned about their reliance on outdated technology.

To help address these issues, it’s smart for banks to double down on managed services spending. In practice, this means finding providers that have both technical and financial expertise. For example, the unique position of banks across compliance regulations such as the California Consumer Privacy Act, General Data Protection Regulation, Payment Card Industry Data Security Standard and others necessitates the use of managed services that offer cutting-edge technology backed by regulatory expertise.

EXPLORE: Learn more about the state of the cloud transition in financial services.

3.5. Security Solutions Remain a Top Priority for Financial Institutions

No matter what type of technology spending banks take on, effective security is paramount. That’s why it takes the “and a half” spot on our list — it’s a critical addition to any technology adoption.

There’s no single way to secure key banking tools and technologies; instead, security must be baked into every IT approach that banks take, and budgets must always reflect at least some room for security.

When it comes to cloud computing, for example, banks are well served by spending on security tools that enhance end-to-end visibility. For customer-facing applications and services, solutions such as zero-trust access can reduce total risk, and for managed services,

Bank IT budgets are on the rise. To make the most of this new money, financial firms can invest in the cloud, customers, managed services and security to help lower risk and boost ROI.

This article is part of BizTech's EquITy blog series. Please join the discussion on Twitter by using the #FinanceTech hashtag.

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