Regional banks are spending heavily on tech. Is it enough?

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You can hear the sense of urgency in the name of BB&T’s digital strategy: “Disrupt or Die.”

During its investor day last week, technology investments took center stage, as the Winston-Salem, N.C., company discussed overarching plans to cut costs in areas such as branching and reinvest that money into digital platforms.

In a move that’s rare among its peers, the $223 billion-asset BB&T also provided a close look at its tech budget. This year, BB&T expects to spend $1 billion on technology, with the bulk of those costs going toward infrastructure such as data centers, and 20% going toward innovation, such as investments in fintech startups.

The company even highlighted how robotics and artificial intelligence have helped improve efficiency by eliminating time-intensive processes, such as the preparation of routine reports.

In his opening remarks, Chairman and CEO Kelly King said that BB&T’s aim with all this tech spending is to differentiate itself from its competitors.

“We are a different kind of bank,” he said. “We’re building a new bank — and we’re doing it within the context of our philosophy.”

Those are good talking points, but such bold pronouncements mask the larger truth that many regionals are investing heavily in technology because they simply can’t afford not to.

Perhaps the most important measure of competitiveness is deposit growth and, on that score, several regionals, including BB&T, have been outflanked by larger competitors with fat digital budgets.

At Sept. 30, BB&T had total deposits of $155 billion, a decline of 1% from the same date in 2017. By comparison, deposits at Bank of America — one of the biggest banks on its home turf — climbed by 5% year over year.

Other regionals, such as M&T Bank, Regions Financial and U.S. Bancorp also reported year-over-year declines in overall deposit balances during the quarter.

Regionals are trying to play catch-up by improving and upgrading their mobile apps, but that can be hard to do when the largest banks keep rolling out difference-making mobile products. Consider Finn, JPMorgan’s digital bank for millennials, or Erica, Bank of America’s mobile chatbot.

At the same time, regionals say they need to continue making tech investments that will improve overall efficiency. Few would disagree, but, to the frustration of investors and analysts, not all banks have been as forthcoming as BB&T in breaking down their tech spending.

“The question that we have — and it’s not always clear — is how much of that money is going to run the bank versus change the bank?” said Megan Fox, an analyst with Moody’s who focuses on regional banks.

At BB&T, the “Disrupt or Die” proclamation shows how the bank has become “more thoughtful” in its approach to digital banking, said Stephen Scouten, an analyst with Sandler O’Neill. Asked, though, whether technology investments will give the company a competitive edge, he struck a more skeptical tone.

“They honestly believe that some of this can set them apart — just allowing them to be quicker to delivery,” Scouten said. “But my personal opinion is a lot of this stuff is just pay to play — it’s stuff that you have to have. There’s no direct revenue attachment.”

Over the past few months, bank CEOs have been forced to defend their tech spending sprees amid questions from analysts about whether they have the flexibility to cut scale back on their digital initiatives if revenue growth falls short of expectations.

Banks rarely disclose how much they spend on technology per year. On the aggregate, though, total spending on information technology across the industry is expected to increase by an average of 4% each year over the next three years, according to data from the advisory firm Celent.

Big banks, of course, are spending most heavily. In its latest earnings report, Bank of America said it devotes $3 billion to “new initiative investment spend,” representing about a third of its total technology budget.

JPMorgan Chase said earlier this year that it plans to spend about $11 billion on technology in 2018. During an industry conference this month, Chief Information Officer Lori Beer said about $5 billion goes toward strategic investments, such as exploring quantum computing or the development of new retail products.

Beer emphasized that as JPMorgan has consistently found ways to cut costs as it has invested in new technology.

“Every year we are able to, through technology, find a lot of efficiencies,” Beer said during an appearance at a conference sponsored by the BancAnalysts Association of Boston.

Still, part of what makes the industrywide focus on technology challenging is that it’s hard to quantify the upside.

Asked how they evaluate digital strategies, analysts pointed to a range of metrics, including a bank’s efficiency ratio and its total base of active digital users.

Just as important, though, is whether banks demonstrate the ability to increase deposits, particularly as they scale back on branches.

Overall deposit growth is the “end-all-be-all,” Scouten said.

On that count, several regional banks, including BB&T, have quite a bit of disrupting left to do.

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Technology Mobile technology Deposits Consumer banking Digital banking Kelly King BB&T Bank of America M&T Bank Bankshot