The $187 billion Citizens plans to increase its technology spend this year although, like other large banks, the bank declines to reveal any numbers.

“Overall, it [tech spend] is increasing; we’re definitely spending more year over year,” Michael Ruttledge, chief information officer and head of technology services at Citizens, told Bank Automation News.

The reason for the increased spend: Providence, R.I.-based Citizens is competing with fintechs and neobanks for customers, and those entities move swiftly and release advanced, feature-filled products, Ruttledge said.

Capital One CEO Richard Fairbank expressed a similar sentiment during this week’s fourth-quarter earnings call, noting that fintechs are pushing banks toward technical transformation.

“One of the most successful parts of fintech has been the platform companies building the shoulders for other fintechs to then stand on and build their business,” Fairbank said. “So the ability to enter businesses and move quickly and have modern technology is really striking.”

Technology spend rebounds post-early pandemic

Technology spend at many financial institutions is back on track and rising after a pause in 2020 and early 2021 during the height of the Covid-19 pandemic, Stephen Greer, analyst at research and advisory firm Celent, told BAN. It’s a trend across almost every bank that was surveyed for Celent’s 2022 annual IT spending report, which queries 400 to 500 retail and corporate banks from around the globe.

“We’re seeing almost every bank expects — especially globally, and then regionally — seeing the big increases in IT spending for last year, this year, and then continuing really on into next year,” Greer told BAN. “Most of the respondents showed that their IT spending was going to be growing well into next year.”

Pinning down technology spend

Technology budgets at banks can be challenging to pin down as they’re often spread throughout departments and not always broken out into one lump sum, Greer said.

“For a lot of institutions, IT spending is just the lifeblood of the organization and is becoming just integrated into a lot of areas that were traditionally pretty standard brick-and-mortar … non-IT operating expenses,” he said.

Today, global technology spend at banks averages around 25% of operating expenses, Greer said, up from 10% to 12% of bank operating expenses nearly 20 years ago when Celent first started tracking.

A deeper look at annual earnings reports reveals the difficulty in identifying banks’ annual IT budgets. JPMorgan Chase during its Q4 2021 earnings call showed that it spends around $12 billion annually on technology, but there is no line item in its report for tech.

Instead, there are categories that might contain tech spend: technology, communications and equipment expenses, and professional and outside services.

The $3.7 trillion JPMorgan plans to increase its technology spend in 2022 by $2.4 billion, or 20%. Its 2021 $12 billion spend was around 30% of its operating budget, Greer said. Bank of America and Wells Fargo currently spend $9 billion to $10 billion on technology, or approximately 25% of their operating expenses.

Besides Citizens, all of the banks BAN asked about their IT spending offered no comment or did not respond.

Meanwhile, earnings reports reveal the following banks either increased their technology spend in 2021 or reported that they will expand it in 2022:

• $3.1 trillion Bank of America: Breaks out spending for “information processing and communications,” which totaled $5.8 billion last year, up from $5.2 billion in 2020.
• $1.95 trillion Wells Fargo: Breaks out “technology, telecommunications and equipment” spend, which totaled $827 million in Q4, a 1% YoY decrease.
• $560.3 billion PNC: Reported that it will expand automation and “continue to invest in technology to enhance our capabilities.”
• $315 billion State Street: Increased “information systems and communication” spend 7% YoY.
• $444.4 billion BNY Mellon: Software and equipment spend up 6% YoY in 2021.

Of the large banks, only $573 billion US Bank reported at earnings that it expects technology investment to remain level.

What’s driving tech spend?

Banks’ No. 1 priority for spending is growing customer revenue and share of wallet, according to Celent’s survey, followed by enhancing customer experience and engagement, and reducing expenses and improving operational efficiency, Greer said.

That aligns with what Citizens’ Ruttledge told BAN.

“Given all the headwinds right now, we’ve got to make sure that we’re very focused on being as efficient as we possibly can,” Ruttledge said. That means focusing on digital banking services and automation, since they can broaden service reach and grow revenue, he added.

“We are focusing more of our capital spend on revenue-producing projects,” Ruttledge said. “It’s important that we really have great speed to market — that we’re able to really have the right quality and caliber of engineering resources where we can either build or buy very rapidly.”

Security and compliance did not make the list of banks’ top spending priorities, but Greer suspects it would have in 2021, if the survey had asked directly about it.

“One of the things we saw coming out of the pandemic was that a lot of institutions spent quickly on meeting customer expectations, and digital,” he said. They also spent on deploying software to the cloud to support digital engagement and remote workers, he added. After the 2020 rush to get these functionalities up, banks had to backtrack to spend on security and addressing vulnerabilities in 2021.

Tech talent may push budgets up

Tech labor costs are the “elephant in the room” for banks and the tech talent shortage is “the biggest imbalance” in three decades, Capital One’s Fairbank said during the company’s earnings call this week.

Citizens’ Ruttledge is also concerned and said recruiting more in-house talent will be another target for IT spending.

“We did a massive upscaling program within our team,” he said. “We also went on a really extensive hiring of last couple of years, where we’ve hired more than 50% of our current engineering staff.”

Spending shifts to cloud, SaaS

Banks are currently spending 15% to 25% on software-as-a-service (SaaS) and cloud, according to Celent’s survey. In the market overall, spend was previously less than 10% with the largest share of application spend going to large back-office platforms such as core, payments and lending applications, Greer said.

The movement won’t necessarily equate immediate savings in IT, he said.

“A lot of organizations think a cloud migration is going to result in a direct and immediate decrease and total expenses are going to be more efficient and all the benefits that people tout around the cloud, that they’re going to realize those in the next in the same year, or within 12 months or so,” Greer said. “That’s rarely the case.”

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