As the financial sector embraces innovations like artificial intelligence, cloud, and open data ecosystems, what role will these technologies play for your financial institution? How does your budget support these strategic initiatives?
FIs’ approaches to investing in rapid technological changes were top considerations Celent addressed in a recent survey of 1,000+ executives at financial institutions to assess the pressures and priorities of financial services firms. AI is maturing, and IT spending remains strong. Here are some highlights from these findings that serve as useful benchmarks for FIs looking to evaluate their technology plans.
Consider some of the most pressing themes across industries. This look at the competitive landscape’s priorities, strategy, and spending insights can help executives within financial services evaluate where their organizations have opportunities for growth and differentiation in 2024.
Banking
Innovating at scale while effectively managing risk is a top focus for banks moving beyond the challenges they and their customers faced last year. Intelligent automation and low-code tools to enhance customer experience and reduce costs are gaining speed. Open banking ecosystems are moving from theory to practice. The use of generative AI is accelerating, with a growing number of banks testing use cases and planning projects.
- Corporate banking: Within corporate banking, a focus on speed and agility is driving innovation in payments, digital banking platforms, and data initiatives that are fueling artificial intelligence. Globally, IT spending is accelerating by, on average, 4.6% in 2024; in 2025, it is anticipated to grow by a further 6.0%. Most FIs (65%) are implementing strategies for engaging in the new banking ecosystem — crucial when half report that it’s harder to win and retain customers.
- Retail banking: Retail bank technology spending is growing strongly in 2024, at an average of 4.4%; in 2025, banks expect budgets to increase by 5.2%. GenAI initiatives are moving into production, with 68% of banks expecting to launch customer-facing services that use this technology in 2024. Consumer banking channels are the biggest single product-level priority; open banking and open finance, digital account opening, and investments in digital identity round out the list of top product priorities.
Capital Markets
Both the buy-side and sell-side of capital markets are focusing on (albeit in slightly different orders) enhancing the customer experience, reducing expenses and improving operational efficiency, and greater speed and agility.
On the buy-side, AI is the top tech priority in 2024, moving beyond the hype and into broader adoption. 64% of respondents plan to launch customer-facing services using GenAI in 2024 before shifting toward externally focused use cases. Capital markets firms are now uncovering the most salient use cases to embed in business and operational models while continuing to navigate their own internal risk postures and concerns. The buy-side strategically invests to increase efficiency, reduce costs, and enhance accuracy and compliance.
On the sell-side, AI is the #3 tech priority (tied with adopting cloud-native approaches and core platform investments), with the top priorities being low- or no-code tools/platforms and robotic process automation (RPA)/workflow automation. This is balanced with pragmatism to meet compliance and regulatory requirements. The sell-side is spending to ensure efficiency, ensure compliance, and improve quality service.
Insurance
Cybersecurity is a top business priority for insurers in 2024. While cost containment remains a concern, many insurers significantly increase their cybersecurity budgets. GenAI and large language models are actively being pursued, with most insurers having allocated budgets to GenAI/LLM projects or being in the research phase.
- Life insurance: The estimated average IT budget in 2024 for life insurers is 4.6% of direct written premiums. Tech investments, seen as a driver of success, are used to balance the innovation available through new technologies with the maintenance of core (legacy) systems. Significant investments are planned for front-end functions (such as policyholder portals, quoting systems, etc.); underwriting is set to be the area with the greatest enhancements for the back office.
- Property & casualty insurance: Servicing and operations are the areas with the greatest overall perceived value for the potential impact of GenAI. Insurers’ cloud adoption (particularly for analytics, portals, and support systems) is another area set to grow. To meet these and other IT priorities, overall IT spend as a percentage of premiums increased from 4.7% to 6.1% from 2022 to 2023; in 2024, the average percent increase in IT budgets was 7.5%.
Risk & Compliance
In this area that touches all industries within financial services, IT budgets for risk management and compliance functions at financial institutions are set to grow by 4.6% globally in 2024. Fighting financial crime is a top priority, with anti-financial crime (AFC) initiatives cited as a top investment priority, as 53% of respondents cited. Compliance is now a top enterprise-level priority for banks and other financial institutions.
AI and machine learning (ML), cloud technologies, and other digital technologies are used to transform or augment financial crime operations. Other top priorities include AI readiness, managing emerging risks, operational resilience, and GenAI. Today, 54% of respondents are exploring use cases for traditional AI, with nearly a third of respondents seeing GenAI as the most impactful technology in the coming five years.
Wealth Management
Wealth management IT spending is accelerating and driven by strategic compliance, agility, and tech modernization needs. The average year-over-year (YOY) growth in IT spending reported by wealth management executives is 4.6% in 2024, accelerating from 3.4% last year; IT budgets are expected to accelerate again in 2025 to 5.3% growth YOY. The top driver of IT spending strategy is meeting regulatory and compliance requirements.
The front office remains a key priority for IT investment, where investments lead initiatives to improve advisor/client portals, client acquisition, and onboarding. 70% of wealth management firms see automating advisor workflows and delivering personalized client experiences as core priorities for 2024. Public cloud is gaining traction, with 69% of respondents moving more business-critical workloads to the public cloud in the coming 18 months.
Conclusion
Technology planning requires a clear understanding of today’s market context. Across the financial services industry, FIs will do well by evaluating the product areas likely to experience significant change, gaining clarity into overall IT pressures, and prioritizing investments aligned with technologies that can help drive growth at their financial institutions.
The views and opinions expressed in this article are those of the author and do not necessarily reflect those of CDOTrends. Image credit: iStockphoto/peshkov
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