The largest investment banks globally have continually increased investment in technology over the last few years, with technology now accounting for 20% of these banks’ overall expenditure, a Coalition Greenwich report has found.
The ‘corporate and investment banking: spending priorities’ report from Coalition Greenwich assessed the performance of the 12 largest corporate and investment banks (by revenue) globally since 2018, which comprised banks including: Bank of America, Deutsche Bank, JP Morgan, UBS, HSBC, and Citi.
The key driver behind the surge in technology spending, according to the research body, is the increasingly demanding regulatory and compliance requirements levelled at these institutions, with firms not only looking to manage new rules, but also invest in the systems required to ensure compliance and risk control.
Stephen Bruel, senior analyst at Coalition Greenwich market structure and technology, explained: “Investing in obligatory projects like compliance may not always generate excitement, but banks are required and increasingly [incentivised] – through the reputational risk of non-compliance – to keep these initiatives front and centre.”
The report also highlighted that technology investment had its biggest growth in 2023, increasing by 5.4%, and now makes up for 40% of all functional area spending.
An important element of this expenditure are the consistent themes across technology areas, with not all spend operational.
One key area of investment is risk and control systems – exacerbated by the emergence of new rules. Another is the cloud – while banks are yet to move their entire infrastructures over, use cases continue to prove that the model works. The third area, according to Coalition Greenwich, is client enablement, with the digitisation of workflows a key focus.
“Corporate and investment banks are balancing the need to grow their business with the need to invest in systems to create efficiencies through automation that enhance the client experience and accommodate new regulations,” said Bruel.
Elsewhere, the report addressed the changing revenues of these banks in recent years. Since 2019, revenues for the top 12 corporate and investment banks have grown 22.5% as of 2023 – indicating an annual growth of 5.2%, with post-pandemic stimulus having contributed significantly initially, with tailwinds slowing since a peak in 2021.
However, as revenues slow, the report confirmed that some areas have seen increases across the board as volatility drove market turnover. Namely, fixed income and equities were up 36% and 19% respectively.
This though is subject to change as the market continues to evolve at its rapid rate, with hard to predict developments in terms of geopolitical and social change. “Volatility in the markets leads to volatility in revenues for different divisions, and today’s revenue leaders may become tomorrow’s revenue laggards as macro conditions change,” said Coalition Greenwich.
Read more: COVID-19 compliance weaknesses to drive rapid surveillance technology spend
According to the research body, as banks seek new revenue opportunities, the new asset classes set to be explored by market participants include: carbon credits, cryptocurrencies and private credit, as well as a focus on assessing opportunities in Asia Pacific, namely China and India.