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What does the spending look like

Engineering majors increasingly find themselves being wooed by big banks as the financial industry continues to upgrade its technological capabilities. The executive director of the Master of Financial Engineering Program at the University of California Berkeley’s Haas School of Business, Linda Kreitzman, sees more students fielding offers from banks like The Group Inc. in addition to bids from Silicon Valley staples and fintech startups. “Investment banks are trying very hard to find talent from analyst to upper management with strong skills in engineering, computer science, machine learning and artificial intelligence,” Kreitzman says. “They want their consumers to have better digital banking experiences.” JP Morgan Chase employs nearly 50,000 people in technology at the company —more than 31,000 are in development and engineering jobs, and more than 2,500 are in digital technology. Financial firms aren’t always forthcoming with how big their tech budget is and where they’re spending those dollars. JPMorgan Chase & Co. appears to be a clear leader in the space. The New York-based financial institution budgeted annually for technology in 2016 and 2017. And JPMorgan Chase boosted the funds earmarked for IT to $10.8 billion. Bank of America appears to be setting the bar with an annual global technology and operations budget of nearly $16 billion. Business Insider estimates Citigroup Inc. is spending about half that — roughly $8 billion — on technology. Earlier this year, Citigroup CEO, Michael Corbat, of the firm’s expense budget was going toward tech. CEO James Patrick Gorman, said his company juggles roughly $4 billion on “investments for the future versus maintaining the ship.” Projected IT spending for banks
(in billions) 2018 2019 2020 2021 Source: Projections from the Boston-based research and advisory company Celent. The sum of bank IT spending across North America, Europe, Asia-Pacific and Latin America is expected to increase by a 4.2 percent compound annual growth rate from 2018 to 2021. Global Bank IT Spending $261.1 $272.6 $284.5 $296.5

Why bank customers might not see huge tech advancements

It’s unlikely the JPMorgan’s of the world will roll out the next hot banking app, platform or technology on their own, says Vasant Dhar, professor of information systems at New York University’s Leonard N. Stern School of Business. “Banks are in a hard place because they tend not to be the innovators in financial technology, they’re just not set up to do that,” Dhar says. “They’re basically doing what they absolutely need to do, and a lot of their budgets get taken up just by that.” “Yeah they’re upping their budgets but that doesn’t necessarily mean they’re innovating,” he added. Money going toward new investments accounted for only 27 percent of bank IT spending in 2017. The rest — a whopping 73 percent of spending — went toward maintenance, according to Celent. “What banks are good at doing, especially the big banks, is copying the things that fintech companies are doing,” says Stephen Greer, senior analyst with the banking team at Celent. “Fintechs are not nipping at their heels in the sense that they’re not really taking business from the banks. What they have done for the industry is show what is possible and push banks to think about their own user experiences, what they can do and what kind of functionality is out there. Ultimately, fintechs are trying to bridge the gap between banks traditionally always having bad technology and other industries having relatively better technology.” JPMorgan Chase is a good example. Of its roughly $9.5 billion tech budget in 2017, a little less than a third ($3 billion) was dedicated toward new initiatives and of that money $600 million was spent on emerging fintech solutions including building and improving digital and mobile services and partnering with innovators in the space, according the bank’s annual report. “The bottom line is spending on tech will continue to go up and a lot of that will be geared toward making the banks better,” Dhar says. “They need to get better. They’re going to have to cut down on error rates. They’re going to have to become more responsive to customers. All of that stuff requires better technology and more spending and that’s not going away anytime soon.” SHARE: Adrian D. Garcia

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