20% of Banks’ IT Spending is ‘Valueless’

The stakes have never been higher for technology in banking.

What banks want to deliver, and what customers apparently demand, will likely require heavy tech investments from most banks. And yet it goes without saying that money thrown at IT is not always well spent. Bob Dvorak, CEO of KillerIT, a company that arose in the wake of the financial crisis to help banks cut technology costs, told Bank Innovation that approximately 20% of what banks spend IT dollars on has no value, not even keeping the lights on. (He later clarified it could range anywhere from 10% to 40%, and that 20% was not universally applicable.)

He might well say that, since it’s his business, but many bank executives agree. A May report on Top Tech Trends for 2015 released by CDW gives the following data points:

• 35% of bank executives plan to upgrade their technology to cut costs and improve efficiency
• 43% of executives believe that coping with tech changes will be a top driver of organizational transformation
• 27% of executives name cybersecurity as their #1 worry
• 79% of executives say their cybersecurity spend will increase in the next three to five years
• 60.8% of executives believe delivering a “customer-centric” experience is very important
• 33% of executives say upgrading and simplifying core platforms is the single most important investment to improve the customer experience

Dvorak says banks should divide their IT spending into Buy, Hold or Sell buckets. He estimates 40% of bank enterprise software should be “sold,” meaning jettisoned, another 40% held, and 20% bought. KillerIT is currently streamlining the application portfolio of a Top 10 bank, Dvorak said.

“Saying to the board and C-level executives, ‘We need to spend 20% more,’ is not working,” Dvorak said. “Now they say, ‘You have to figure it out for equal or less money.’ ”

It is too easy — and indeed, incorrect — to equate innovation with technology, as bank consultant Ron Shevlin has pointed out. Equally important are the processes underlying the use of technology, and perhaps most crucially, the culture underlying the processes. A company like KillerIT may help bring down tech spending and cut down redundancies, but processes are a deeper and perhaps thornier problem.

Still, most bank executives would be pleased to see anything that is truly “valueless” go into the trash bin, especially if that means cutting costs by 20%.

This post was updated to reflect additional comments from Bob Dvorak.