In 2016 it was estimated that technology spending increased by around 4% compared to 2015 (based on Banks in North America, Europe, Asia-Pacific and Latin America). This startling fact is a growing concern across the banking industry, with some banks fearing that they could have to cut down if costs continue to spiral.
So what exactly is causing these increased IT costs?
Cyber Security
The increased threat of cyber attacks has led to an increased spend on cyber security. Whilst the government has allocated a large budget of $19 billion on cyber security, banks are still required to pay for upgrades to their cyber security systems and processes.
Cyber attacks have been increasing at a rapid rate and banks are top targets for cyber criminals. Heightened regulatory requirements also means that banks have had to spend money on ensuring they have the right teams and policies in place to comply with the demands from regulators. This leads to increased costs in hiring additional cyber security experts and conducting risk assessments and other related work.
Modernization
The rate that technology has advanced in the last decade has been phenomenal. These improvements are great but for banks this means costly technology, as there are constant innovations being introduced across the banking industry. Whilst some banks are well ahead of the market with their systems, there are many banks who have neglected spending money on their IT systems and are paying the price by having to invest even more to catch up with their competitors.
A lot of banks that haven’t invested money in modernization face increased costs when it comes to fixing systems and have much longer processes that in turn cost the company a lot more. This is why more and more banks are biting the bullet and opting to modernize their technology assets.
Training and other staff costs
As the technology world changes, so too does the requirements of people’s roles and the training that they need. If regulators are saying that banks need to evidence that their staff are competent in identifying cyber security threats or data protection measures, then money must be spent on training the staff to a level of competency.
The demands from regulators are getting significantly higher to ensure that banks are protecting their customers, so the training and policies that from part of this will cost more to deliver.
Despite all of these IT spend rises, the banking industry remains one that is profitable for many well-organized companies. Investment companies and experts like Fahad Al Rajaan are still able to build successful businesses despite these increasing IT costs for banks and all other types of businesses.
As technology progresses through the coming years, banks will continue to face increases to their IT spend, some to the extent that when the costs become too high to operate. There has already been a significant impact in terms of the digitization of banking, with many banks investing money in online banking solutions and reducing headcounts. This provides long term savings but costs a lot of money in the short term.
