UBS survey: analysis of US bank tech spend finds growing gap

In late 2018 through early 2019, UBS Evidence Lab conducted phone interviews with 203 IT managers from 175 banks of varying sizes. Survey participants were asked about their technology strategies and operations, levels of technology spend, key initiatives, priorities and risks, and where they stand on core systems modernization, cloud computing, and investments in artificial intelligence and blockchain.

The survey results mostly confirm that larger banks are better positioned to leverage technology to gain share and improve efficiency. The largest banks have bigger technology budgets, yet they are more likely to increase technology spending in the coming years when compared to smaller bank counterparts, according to the survey results. Just as important is the mindset behind technology strategies.

Survey respondents from larger banks are more likely to view innovation and client/revenue growth as key priorities of technology investments, while smaller banks focus more on IT maintenance and operational risk reduction. Smaller banks are also much more likely to see budgetary constraints as major impediments to the successful execution of technology strategies.

The spending gap between larger and smaller banks is large and could widen. Larger banks not only spend greater sums on technology, but their technology budgets represent a greater proportion of total expenses. Some figures for annual tech spend are: J.P. Morgan at $11.4 billion projected for 2019; Bank of America at $10 billion; Wells Fargo at $9 billion; and Citi at approximately $8 billion.

The absolute size of technology budgets appears to be a constraint for smaller banks. About half of respondents from banks with $51-100 billion of assets and 66% of those at banks with $1-50 billion of assets indicated that their firms spend less than $100 million annually on technology. Roughly 88% respondents from banks with more than $100 billion in assets expect technology budgets to increase annually over the next three years, versus 66% of participants from banks with under $100 billion in assets.

Larger banks appear to be well ahead on artificial intelligence (AI),  blockchain, legacy system modernization, and cloud computing.  75% of respondents from banks with assets above $100 billion said they are already implementing AI strategies, while less than half of respondents from sub $100 billion asset banks noted that AI strategies are being implemented. 38% of respondents from $100+ billion asset banks are implementing blockchain strategies, compared to only 6% of respondents from banks with assets below $100 billion.

Perhaps significantly, the largest banks appear to be even more ahead of the curve on AI and blockchain.  Nine of ten respondents from banks with more than $500 billion in assets indicated that they are implementing AI strategies, and eight of ten responded that they are implementing blockchain strategies. Though coming from small sample sizes, these percentages are higher than those of other respondents.

Will technology trigger consolidation? UBS Evidence Lab analysts think so. The survey results suggest a growing gap between larger and smaller banks on technology spend. Respondents from banks with under $100 bn in assets already see budgetary constraints as the largest risk to their technology strategies. We also believe these banks could struggle attracting top talent versus larger banks and technology companies. The recently announced merger of BB&T and SunTrust attests to the importance of dedicating sufficient resources to technology initiatives. Both banks have highlighted the importance of technology investment in a rapidly changing banking industry. The combined bank plans to establish a new innovation and technology center in Charlotte, North Carolina to propel innovation and a technological transformation.

Related Posts

Previous Post
Report: The Future of Clearing, from the World Federation of Exchanges and Oliver Wyman
Next Post
ICE Benchmark Administration Successfully Completes the Transition of LIBOR Panel Banks to the Waterfall Methodology

Related Posts

1 Comment. Leave new

Fill out this field
Fill out this field
Please enter a valid email address.

Menu
X

Reset password

Create an account