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Banks to Spend More on Tech in 2016 — Especially Security

In a difficult environment for revenue growth, banks looking to control costs are by and large leaving technology budgets alone. Instead, driven by the need to secure computer systems, develop analytic capabilities and enhance customer-facing platforms, most banks are planning substantial increases in spending across a wide spectrum of technology in 2016, according to chief information officers.

Anticipated increases in spending on security are particularly intense, with most executives forecasting jumps in budget allocations of at least 10%. By contrast, banks are finding little to cut in the technology arena, with desktops one of just two categories where more CIOs forecast decreases than increases in spending next year.

The findings are based on an online poll of 50 bank chief information officers and senior technology executives fielded by SourceMedia's research unit in July. Since technology spending is not typically disclosed to the public in financial reports, the survey provides a unique window into the industry's priorities and budget plans. Respondents came from banks of all sizes, and the vast majority have long tenures in the information technology world.

Besides security, most bank CIOs to spend more next year on data analytics and mobile banking. Between 40% and 50% of executives also expect increases in budgets for compliance, online banking, "bring-your-own-device" management — to accommodate hardware employees own — and payment software.

About 28% of CIOs forecast decreases in spending on desktops next year. That figure outweighs the 12% of CIOs who forecast increased spending on desktops. About 18% predicted decreased spending on servers, but a larger 22% forecast increased spending on servers. Besides desktops, the only category where more CIOs forecast spending declines than increases is internal investment management technology.

No CIOs anticipate spending less on security, and percentages forecasting decreased spending in most of the categories considered here were negligible, ranging from 2% to about 6%.

About 13% expect to cut back on branch technology, but those CIOs were far outnumbered by the 35% who expect increased spending on branch technology. The number of branches across the country has been dropping sharply since 2009 as online and mobile channels displace traditional teller interactions, but branches themselves are becoming more technology intensive as banks install ever-more sophisticated automatic teller machines and rethink branch staffing, equipment and design in ways that contribute to the trend.

Among respondents anticipating higher spending on branch technology, nearly a third forecast budget increases of 20% or more, showing that a significant segment of the industry is planning major branch upgrades. A comparable fraction of executives anticipating increases in analytics spending forecast a jump of a similar magnitude in that category.

The scale of growth in security spending appears particularly large, however. A plurality of those anticipating higher security spending forecast increases in the range of 10% to 19% next year, and nearly 40% forecast increases ranging from 20% to a doubling in spending.

While the importance of investing in technology is borne out by banks' budget plans, CIOs report feeling the pinch of spending constraints. Asked to identify their top five challenges, 42% named "managing tight budgets." Only "keeping up with security issues" was named by a larger proportion, 60%.

Budget plans also align with areas that CIOs separately say are the subject of intensifying focus. As a group, executives reported pushing customer-facing technology, security and supporting "big data" and analytics to the top of their priorities.

In open-ended responses, CIOs said the recent string of high-profile data breaches, the "high cost of failure" — including damage to reputations — and regulatory scrutiny were driving attention and spending on security. One said that the rise in digital banking is increasing susceptibility to attacks, and that "data is money and it matters to consumers."

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