U.S. Banks’ Outlook on IT Spending for 2024
In today's rapidly evolving world, technology is the driving force behind transformative change across all industries, and banking is no exception. From meeting customer expectations to driving operational efficiencies, banks need to invest in technology to stay competitive – and they know this.
According to a recent survey of U.S. bank executives regarding their IT spending plans for 2024, over 80% of banks intend to increase their investments by 10% or more. The survey was conducted from June 12-30, 2023, among 2,271 executives at U.S. banks. This collective commitment to bolstering IT spending signals the industry's recognition of technology's crucial role in driving innovation to stay ahead.
A significant proportion of U.S. banks, nearly 20%, are even more ambitious in their plans, intending to raise IT spending by 20-49% in 2024. This level of investment demonstrates a strong commitment to technology-driven growth and a desire to leverage cutting-edge solutions to address emerging challenges and opportunities.
Additionally, as banks play “catch up” with IT investments that were either paused or hurried during the pandemic, IT spending is expected to increase. Notably, not a single U.S. bank plans to reduce IT spending in 2024.
Where do banks plan to invest?
Cybersecurity has taken center stage for almost 30% of U.S. banks, reflecting their heightened apprehensions about potential cyber breaches. As cyber threats grow in both frequency and sophistication, strengthening security measures has become a priority for financial institutions. The imperative nature of cybersecurity investments lies in their role in preserving the integrity of customer data, fortifying defenses against potential breaches, and upholding the trust of clients amid the evolving digital banking environment.
More than 20% of U.S. banks are prioritizing investments in External Services, including Cloud Infrastructure, Software-as-a-Service (SaaS) and Platform-as-a-Service (PaaS). Embracing cloud-based solutions presents a myriad of advantages, including heightened scalability, cost-efficiency and enhanced flexibility. Banks can also optimize their IT infrastructure and strengthen their ability to adapt to changing market dynamics.
Digital transformation also remains top of mind for bankers. More than 40% of executives rank digital transformation as their No. 1 focus, reflecting the industry's recognition of its importance and relevance.
Advanced analytics was ranked a third priority by one-third of U.S. banks and a fourth priority by over half (53%) of banks. While still significant, this suggests that banks are currently prioritizing other technology investments.
Banks’ priorities align with broader trends.
Adoption of SaaS is growing across various sectors, including banking. The advantages of SaaS applications are far-reaching, including faster deployment, automatic updates, and reduced IT maintenance costs. By investing in SaaS applications, banks can streamline their operations, increase productivity and deliver innovative services to customers.
Cybersecurity has also gained significant attention in the financial sector due to the rising number of cyber threats and attacks. Investing in state-of-the-art security solutions is top of mind for many bank executives. Banks that prioritize cybersecurity can mitigate risks, protect their reputation and ensure regulatory compliance, thereby maintaining the trust of their customers and stakeholders.
Additionally, the importance of digital transformation for banks cannot be overstated. In an era where technology shapes every aspect of our lives, banking must evolve to meet the changing needs and expectations of customers. Digital transformation enables banks to offer seamless, convenient, and secure services through online and mobile platforms, enhancing the overall customer experience. It also allows banks to leverage data-driven insights for better decision-making, optimize operational efficiency, and stay competitive in an increasingly tech-driven financial landscape.
Moreover, digital transformation empowers banks to adapt to regulatory changes swiftly and expand their reach to underserved markets. Simply put, embracing digital transformation is not just a choice but a necessity for banks to thrive in the modern age and remain relevant to their customers.
Banks face IT service satisfaction gap despite ongoing technological investments.
Amid investment plans, the level of satisfaction with IT services in U.S. banks remains surprisingly low. Only 13.33% of the surveyed bank executives believe their IT service is great, indicating a significant gap in their perception of the quality of technology support.
Meanwhile, 67% report they are content with their current IT spend, indicating a lower appetite for increased investment despite less than stellar satisfaction with existing service and resources. These seemingly conflicting points may support the notion of shrinking budgets nationwide. Banks may want to invest more heavily but feel they can’t.
Despite the advancements in technology and the increasing importance of digital transformation, nearly half (40%) of U.S. banks rate their IT service as "OK," while a mere 13% consider it "great." This finding raises concerns about the effectiveness and competitiveness of the IT infrastructure supporting these banks' operations and customer interactions.
The IT service satisfaction gap calls for a renewed focus on technology investments and strategic planning.
Banks must prioritize improving their IT support systems to bridge the divide between current perceptions and the desired level of service excellence. Investments in cutting-edge IT infrastructure, innovative software solutions and talent development will play a crucial role in enhancing the overall quality of technology services.
Collaboration with reputable IT service providers and fintech partners can also offer valuable expertise and innovative solutions to address specific challenges faced by banks. By leveraging external expertise, banks can optimize their IT service offerings and ensure a smooth digital transformation journey.
Ultimately, forward-thinking banks are leveraging technology to differentiate themselves, streamline operations and create new revenue streams. Those who fail to innovate and rely on outdated technology will be left behind.
Cal Roberson, Director of Strategic Partnerships, Integris IT