European banks will spend £46bn on IT in 2017, with a large proportion of this sum being invested in new technology as the industry is transformed by competition.
In 2014, European banks spent £40.79bn on IT, but will spend £42.23bn in 2015, rising to £46bn in 2017, according to the research from Celent. Retail banks are the biggest spenders, with £18.5bn expected to be spent on IT in 2017.
The research report said the financial services industry has changed significantly over the past few years and technology is at the heart of that change.
“While economic conditions, regulatory issues, customer profitability, competitive pressures and customer needs have all contributed, a more fundamental area has truly revolutionised the industry – technology.”
“Although information technology and digital banking have played a significant role for some time, today they are a major competitive requirement for financial institutions. This is why financial institutions are investing a sizable chunk of their revenues in IT,” the Celent report stated.
Banks in Europe will make 21.9% of their IT budget available for new investments by 2017, compared with 13.7% in 2013 and 15% in 2014, the research found.
The majority of IT spending at banks is on maintenance to keep the existing technology running. Celent said this peaked at 87% of total IT spend in 2012, dropping slightly to 85% last year. In 2017, Celent expects this to fall to 78.1%.
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Some new investments will involve supporting customer experience demands.
Gareth Lodge, financial services analyst at Celent, said technology has been a barrier to change in the past, but going forward it can help banks differentiate. He said new customer demands will increasingly dictate bank investments.
“There are new customers coming to the market who do not care about bank branches. They want mobile apps,” said Lodge. But despite this, some banks still don’t have a mobile app.
With new banks entering the market, existing banks cannot afford not to invest in modern technology to support customers.
“New banks do not have legacy systems so they have technology that is cheaper to run and simpler to modify,” said Lodge.
But it is not about investing in technology to win customers, because if banks can address the expense and complexity of legacy systems they can collectively save billions of pounds every year, while also increasing new investments.