As traditional revenue sources of interest income and fees face downward pressure, banks and financial services firms will be forced to focus on innovation in products and customer experience to drive growth.
Pandemic-fueled demand shock, sustained low interest rates, and significant geopolitical shifts made 2020 a tough year for the Banking and Financial Services (BFS) industry. However, Everest Group reports that even as credit losses mounted and operating income fell, banks continued to invest in IT with the knowledge that it will be a major source of differentiation in the post-pandemic economy.
Everest Group research indicates the BFS industry will increase IT investments in the coming year. In general, large banks have indicated that they will increase their technology spending by 1-2% in 2021, despite a sharp decline in their revenue and operating income in 2020. Some, including JPMC, Bank of America and Citi, have indicated that they will increase spending by 3-4% in 2021. In addition, regional banks, credit unions and non-banking financial companies (NBFCs) have indicated that digital spend is poised to increase in 2021 to 2022.
These findings are shared in Everest Group’s recently released State of the Market Report, “Healthy Rebound in BFS IT Services Spend – Growth Themes and Cautions.” In this report, Everest Group discusses strategies that BFS enterprises have adopted to counter challenges, especially in the wake of COVID-19; how banks and financial services firms are accelerating recovery and executing cost and efficiency transformations; and the IT investments that will help banks navigate to recovery and drive future success.
IT Spend Areas for BFS in 2021
Everest Group’s prognosis for 2021 is that BFS firms will increase their digital spend to build an agile, intelligent, cloud-enabled, and composable IT operating model on their road to recovery. Digital imperatives will include:
- Reinventing the IT operating model: Banks have questioned the underlying assumptions of their IT operating model and are open to redesigning all aspects of their future of work and operations. Building resilient IT infrastructure that supports this journey is a critical spend area.
- Bridging the talent divide: Talent deficit has impacted the availability of deployable resources in a cost-effective model, hence BFS firms are redoing their global workforce planning to tap into the extended talent ecosystem and also improve workplace diversity.
- Consolidating to survive: Mergers and acquisitions in BFS will reshape the competitive landscape and trigger large-scale transformation programs with a short-term increase in consulting spend and long-term synergy in overall IT estate.
- Going all-in on the cloud: More than 70% of incremental IT spend will go towards cloud or cloud-enablement services. BFS firms are exploring how to move sensitive data and applications to cloud in a journey to unlock value, build data-driven operations, and exit legacy IT infrastructure.
- Embracing open banking 2.0: Open banking presents an opportunity to reinvent products and channels—both business-to-business (B2B) and business-to-consumer (B2C)—by using APIs and working with ecosystem partners.
- Pivoting from continuous modernization to continuous simplification: BFS firms are wary of added complexity from each modernization initiative, especially a series of RPA-based investments. BFS firms are now looking at building domain solutions that wrap around complex technology and extract data and services to simplify the digital operations. This philosophy of digital pragmatism of solving specific domain issues to make IT and operations simple, efficient, effective, and aligned is driving the modernization spend.
About Everest Group
Everest Group is a consulting and research firm focused on strategic IT, business services, engineering services, and sourcing. Our clients include leading global enterprises, service providers, and investors. Through our research-informed insights and deep experience, we guide clients in their journeys to achieve heightened operational and financial performance, accelerated value delivery, and high-impact business outcomes. Details and in-depth content are available at http://www.everestgrp.com/