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The Paradox of Plenty

Part 2: Show Me the Money

What resources do UK banking technology leaders have to work with, and what are they looking to achieve?

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In Part 1 of this series, we looked at the key issues facing banking tech leaders after almost six decades of banking transformation. We outlined some of the obstacles facing them as they seek to deliver value for their organisations and described the features of a comprehensive surveyi we ran with senior technology decision makers at UK-based banking and capital markets institutions. In Part 2, we shift our gaze to the fruits of that survey, looking at the investment strategies of these technology leaders, the resources available to fulfil them and the outcomes they are targeting as they navigate their course through uncertain waters.

On average, UK banking and capital markets institutions allocate around 4.5% of revenues to technologyii, but this blunt calculation masks a significant amount of variation between firm types. As Figure 1 below shows, different types of organisations are dedicating different amounts to technology.

Figure 1: Universal and investment banks (IBs) have a higher proportional tech spend than peers.

Source: Deloitte UK Banking & Capital Markets Technology Study, 2023

 In terms of how the figures shake out, complexity clearly plays a role here. Those firms with the largest and most complicated operations, as well as the greatest legacy technology challenges to solve, often as a result of years of M&A activity – universal and investment banks for example – are much more likely to dedicate a larger proportion of revenues to technology. Indeed, in the case of universals and IBs we found that 60% and 25% of respondents respectively in each cluster reported budgets in excess of 8% of revenues, almost twice the average rate.

In contrast, at the other end of the budget spectrum, we find building societies and dedicated small business banks. These institutions benefit from relatively lower levels of operational complexity than their larger universal and investment banking brethren. They were also more likely to dedicate less than 4% of revenues to technology spend.

So too did the so-called ‘digital natives’, who benefit both from a relative lack of complexity and a relatively higher level of digital maturity than other cohorts, built as they are by design for efficiency, flexibility and scalability. At first glance this may seem surprising, given that digital banks generally don't have the large physical footprints or complex organisational heritage of the longer-established incumbents. However, as we dig into further in fourth article in this series, there are a number of logical reasons behind this. Chief amongst them are the problems associated with start-up infrastructure built in the early stages of development that can be hard to efficiently scale with digital banks as they grow, leading to a build-up of so-called “technical debt”.

In terms of budget dynamics, 99% of survey respondents reported their budgets had grown during the pandemic. This makes perfect sense, since organisations of all stripes were forced to pivot rapidly to digital delivery for a wider range of customers and products in the wake of COVID-19. Looking forward, as Figure 2 below shows, more than 90% of survey respondents expected this upward trajectory to continue, with most respondents anticipating further budget increases between now and the end of 2025 as they accelerate beyond the pandemic.

 Figure 2: A large majority of BCM tech leaders expect further increases in post-COVID budgets

Source: Deloitte UK Banking & Capital Markets Technology Study, 2023

 On average, our respondents currently allocate 26% of their growing budgets to change activity, representing new spend focused on improving how their institutions operate. This covers everything from piloting and implementing new technologies to investing in the platforms and tools needed to support the development of new products and services. The remaining 74% was dedicated to so-called ‘run the bank’ spend. This covers ongoing, day-to-day investments in areas such as data, infrastructure, software licensing, applications and product support – essentially all the ingredients required to keep these firms ticking over. Moving forward though, this balance is expected to shift.

As Figure 3 below shows, 87% of respondents expected to see a greater focus on change spend over the next two years.

Figure 3: Most firms anticipate a shift to more ‘change the bank’ spend in the next two years.

Source: Deloitte UK Banking & Capital Markets Technology Study, 2023

The shift towards greater change reflects the growing need for firms to adapt in the face of rising challenges. In capital markets, for example, many firms are continuing to experience downward pressure on profitability as geopolitical risk intensifies and deal flow stutters, particularly in lucrative areas such as M&A and public offerings. With some sources predicting a bounce back in market activity in 2024, firms must be ready to capitalise on whatever opportunities the year ahead delivers.

Elsewhere, retail-focused operations continued to experience margin compression as the UK Government pressed lenders to pass more of their interest income back to savers in higher rates. UK interest rates are expected to normalise over the next 18 months, and with mortgage volumes under pressure too, banks continue to face a strained outlook, at least in the short term.

Against this backdrop, new sources of growth are needed to propel winning brands forward. And, for banking technologists, this creates an urgent need to innovate platforms, products and services to ensure their organisations are best placed to deliver future growth.

Hence, technology decision-makers across UK institutions must consider what they can do to best position their organisations to succeed. As Figure 4 below shows, the leading issues influencing technology leaders are “Keeping pace with innovation”, which was a Top 3 influencing factor for 55% of respondents, followed by “Meeting customer and client needs” at 49%. And so, by innovating, and moreover by being seen to be innovative, firms hope to position themselves to thrive in a more challenging and competitive business environment with differentiated, and increasingly personalised, experiences.

Figure 4: IT investment decisions are informed by a range of external factors, led by innovation and customer experience.

Source: Deloitte UK Banking & Capital Markets Technology Study, 2023

Nevertheless, technology leaders must also consider a range of other core ‘hygiene’ issues that are just as important to the running of the bank. This includes the important role technology plays in talent acquisition and retention – for example, by facilitating flexible working – regulatory compliance and cybersecurity. In larger organisations, risk, compliance and cyber will typically have dedicated IT teams with ringfenced budgets. This, then, may explain the relatively low priority ascribed to these key functions by respondents. That, and the fact that so much investment has already gone into these essential areas.

Interestingly though, we do see some variation between the different segments within banking and capital markets. Looking at sustainability, for example, in Figure 5 below, while only 1-in-5 respondents prioritised ESG as a Top 3 driver of investment strategy, we can see that those in the Retail and SME Banks clusteriii were almost three times as likely to consider it (27%) as universal banks (10%) and almost twice as likely as wholesale and investment banks (16%) reflecting perhaps the growing value placed on sustainable investment products by customers.

Figure 5: Influences are not uniform across BCM, with priorities varying by sub-segment.

Source: Deloitte UK Banking & Capital Markets Technology Study, 2023

This variation between segments also extends to the outcomes that tech leaders are targeting with their investment strategies. As Figure 6 below shows, steps to manage the balance between delivering enhanced customer experiences and cost reduction rate highly amongst respondents, with 44% and 39% respectively prioritising these as Top 3 target outcomes from their technology investment strategies. Importantly, generating better business intelligence ranks third here, indicating a strong commitment to driving better insight-led decisioning at these firms off the back of actionable data.

Figure 6: Tech decision makers at UK BCM firms are targeting investment towards enhanced customer experiences, greater efficiency and deeper business intelligence.

Source: Deloitte UK Banking & Capital Markets Technology Study, 2023

And once again, essential ‘hygiene’ factors like risk and compliance, both of which sometimes have their own dedicated IT teams and budgets, rank lower down the chart. This is most likely attributable to the fact they are each considered to be ‘under control’ after years of intensive post-GFC investment. Equally, the existential pressure on firms to ensure they manage and report consistently in these critical areas makes them a matter of continuance for all regulated firms. Instead, with these areas well-resourced and managed, leadership attention turns to more problematic areas demanding more immediate focus.

Nevertheless, the priority given to different target outcomes also varies by segment, as did the external influences driving them. For example, as Figure 7 below shows, while customer experience was a leading priority across all sub-segments, cost reduction received far higher priority in the Retail & SME Banks cluster (48%) where it topped the list, versus other segments.

For universal banks, cost reduction placed only mid-table (30%) behind more pressing objectives such as building operational resilience (35%). Meanwhile, in wholesale and investment banking, cost reduction fell level with cybersecurity and counter-financial crime measures (33%). In all cases, these relative positions give us useful clues concerning the specific challenges facing institutions in each of these market segments.

Figure 7: Targeted investment outcomes also vary by BCM sub-segment.

Source: Deloitte UK Banking & Capital Markets Technology Study, 2023

And so, while influences and priorities ebb and flow across the different sub-sectors represented in banking and capital markets, in terms of where budgets are being allocated we see much greater uniformity, and a strong focus on data. In the next article– Part 3 in our five-part “Paradox of Plenty” series – we will look at how these objectives are manifesting in the investment decisions of banking technology leaders.

To read more on this, please see our full five-part series linked below:

  1. The long and winding road… key challenges facing today’s BCM tech leaders after decades of banking transformation.
  2. Putting budgets to work… how are BCM tech leaders allocating their resources?
  3. More money, more problems… navigating the potholes along the path to business impact.
  4. Solving the paradox… how should high performing tech leaders in BCM respond to these challenges?



i Our survey was run in September 2023 with the assistance of an external B2B survey company called Coleman Parkes. The survey itself was anonymous, reaching 151 senior technology decision-makers at 68 separate BCM organisations across the UK satisfying a discrete set of criteria. The Long & Winding Road in this series provides more detail on these criteria, showing the constituency we reached as well as the roles and responsibilities of the respondents who answered our survey – 80% of whom held CxO technology titles. Our respondents represent firms across UK retail, digital and SME banking as well as mutuals and wholesale and capital markets, the latter of which included the UK operations of various US and International investment banks. All were asked a series of questions concerning their technology investments, of which a cross-section of results is presented here.

ii Respondents were guided to calculate their budgets based on the most relevant revenue measure available. Hence, UK HQ’d firms made their calculations based on total revenues, while the UK offices of overseas entities were encouraged to calculate their figure based on UK revenues or the closest equivalent.

iii For ease of presentation, our “Retail & SME Banks” cluster aggregates survey responses from those representing mutuals, high street retail banks, digital natives and SME banks into a single category.

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