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Despite financial services business volumes remaining flat and overall business optimism not improving, many UK financial services companies expect to significantly increase their spending on IT in the year ahead to support new services.
Meeting regulations around open banking and data privacy are also areas where funds are being directed.
According to a survey of finance firms carried from the Confederation of British Industry (CBI) and PricewaterhouseCoopers (PwC), the number of firms that expect to significantly increase their IT spending over the next 12 months rose 70%.
This is compared with a 20% rise in the number increasing spending on marketing, a 5% in rise in those spending on land and buildings, and a fall of 9% spending on vehicles, plant and machinery.
Some 72% of respondents said the main reason for the additional overall investment in the business was to offer new services. With many new services built on digital financial services technology, known as fintech, this fuels spending on IT.
Rain Newton-Smith, CBI chief economist, said: “Despite fairly subdued growth last quarter, it’s good to see financial firms stepping up hiring and investment, with digital technologies and new services seen as the best way to grow in a fiercely competitive environment.”
Open banking/Payment Services Directive (PSD2) regulation, as well as General Data Protection Regulation (GDPR) rules, are also fuelling investment, which involves significant IT work. They expect this spending to continue increasing over the next 12 months.
The EU’s PSD2 and the Competition and Markets Authority’s (CMA’s) rules for open banking in the UK mean banks must be able to give third-party financial services suppliers access to customer data, if the customer agrees, through application programming interfaces (APIs).
Meanwhile, GDPR is set to protect the privacy of citizens, which means banks that hold significant personal data on customers have to ensure it is secure.
“[Regulatory spending] is currently marked as their most important barrier to growth,” said the report.
Andrew Kail, head of financial services at PwC, said: “Reflecting on GDPR, 67% of financial services firms feel confident and 29% very confident about meeting the practical demands of the regulation, which captures the significant time and investment companies have made.”
But Brexit is still an area of uncertainty for the industry. “[Brexit-related] location planning, people movements and client retention remain at the top of the agenda, despite the extra time afforded by the transition period,” said Kail. “Firms are expecting further progress to be made at the negotiation tables of Brussels and Westminster.”
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