Investment, or expense? Growth move, or budget buster?
There are two ways to view the plans to increase technology spending at many banks, and at investor presentations Wednesday executives tried to put the best spin on near-term growth initiatives that, in many cases, include hefty spending on technology.
Those investments will pay off in one way or another, either by heading off hackers, roping in clients with slick apps or streamlined loan processes, or simply containing costs down the road, bank executives said.
“I don't really see an end to the fraud and cyber expense. I think you'll always have to sort of build around the fraudsters,” Christopher Nelson, president and chief operating officer of BB&T in Winston-Salem, N.C., said at the Deutsche Bank Global Financial Services Conference.
The $220 billion-asset BB&T now spends over $100 million a year on various risk management measures in the digital realm, he said. That can include robotics to help automate some of its Bank Secrecy Act and anti-money-laundering compliance processes, or fraud prevention for its client-facing technologies.
For years, the bulk of many banks’ tech spending has been concentrated in the less sexy side of digital, such as back-office functions that customers may never notice unless they fail in some way. But bankers stressed that their ultimate goal is to lay the proper foundations for initiatives they predict will produce more revenue or contain costs.
Much of PNC Financial Services Group’s tech spending over the last 20 years has been on infrastructure, with the aim of being able to spend money more efficiently as the Pittsburgh company builds client-facing products, CEO William Demchak said at the Deutsche Bank conference.
Over the next five years, he said, the $379 billion-asset PNC plans to spend more than $1.5 billion of its capital on retail technology.
And in a notable shift from years past, U.S. Bancorp CEO Andy Cecere said, the Minneapolis company now spends the bulk of its technology budget on customer-facing products.
U.S. Bancorp for years has focused its technology investments on back-office issues, such as compliance and on improving anti-laundering databases. The company is currently working through an enforcement order from the Office of the Comptroller of the Currency related to its BSA compliance.
As of March 31, U.S. Bancorp’s technology and communication expenses jumped 8% from a year earlier to $235 million. Total noninterest expenses, meanwhile, rose 5%.
With a slew of back-office improvements in place, U.S. Bancorp is now turning its focus to the digital experience it provides for customers. Roughly 60% of the company’s annual $1.2 billion tech budget is now devoted to customer-facing matters.
The $460 billion-asset company said in January that it would use a portion of its savings from the recent corporate tax cut to invest in its digital services, with the goal of acquiring new customers.
Citigroup has earmarked 20% of its total spending to investments in technology, CEO Michael Corbat said. The investments are being made across its operations, with the goal of not just keeping a lid on costs but also permanently reducing the bank's cost structure.
"The work that's being done in our call centers, the way we're onboarding clients, the way we're taking new applications, all those are changing" due to technology investments, Corbat said on Wednesday at the Bernstein Strategic Decisions conference.
Citi is ultimately targeting $2.5 billion in yearly cost savings, he said.
Corbat said, "As our chief financial officer [John Gerspach] likes to say, we're spending more this year than last year in an effort to spend less next year.”
Kristin Broughton and Andy Peters contributed to this story.