The banking and investment services industry is undergoing a significant technological transformation, with organizations worldwide recognizing the critical role that IT plays in driving business outcomes. As the global economy faces unprecedented challenges, banking institutions are strategically allocating funds to harness the power of technology and enhance their competitive edge. According to Gartner, Inc., a leading research and advisory firm, worldwide IT spending on banking and investment services is expected to reach an all-time high of $652.1 billion in 2023, an impressive 8.1% YoY growth.
Let’s take a look at the key findings of Gartner’s report on Global IT spending in the banking and investment services sector before we delve into the specifics of how each category is anticipated to perform this year.
Major highlights
- The YoY growth of software spending in banking and investment sector is projected to be the most significant, with a notable increase of 13.5% in 2023, reaching a total of $174 billion.
- IT services will retain its position as the largest spending category, with a forecasted growth of 9.3% YoY in 2023, amounting to nearly $269.7 billion.
- The expenditure on data center systems is expected to grow by 5.7% in 2023, reaching $36.4 billion. However, this growth rate represents a significant decline from the 13.2% growth observed in 2022.
- Telecom services spending is anticipated to increase 2.4% YoY in 2023, totalling $79.6 billion. This category accounts for 12.2% of the overall banking and investment services IT spending.
- Due to the global talent shortage impacting the industry, spending on internal services is projected to grow only 4.2% YoY in 2023.
- Spending on devices is anticipated to decline 2.1% YoY, amounting to $37.1 billion in 2023.
“Spending on software, for example, is shifting away from building it in-house, in favor of buying solutions that generate value from investments more rapidly,” said Debbie Buckland, Director Analyst at Gartner.
Now, Let’s witness the breathtaking transformation of the banking and investment services industry, where technology holds the key to success!
Software Dominance
In the ever-evolving world of technology, organizations are embracing a remarkable shift when it comes to software development. Rather than spending countless hours and resources on in-house development, they are turning towards ready-made solutions that offer a myriad of benefits. This new approach allows them to unlock the power of advanced software rapidly, ensuring a faster time-to-market and maximizing their return on investment.
The significance of this shift is underscored by the latest insights from Gartner as well. Notably, worldwide spending on IT software is set to surge by an impressive 13.5% year-on-year in 2023, reaching an unprecedented milestone of $174 billion. This yearly growth is even higher than the 13.2% YoY growth in 2022 that was seen in spending on data centre systems.
Cloud Investment Remains Robust
The global investment in cloud computing continues to grow steadily and shows no signs of slowing down. The cloud has revolutionized the way businesses operate by providing scalable and flexible solutions for storage, computing power, and software applications.
In a dynamic landscape where banking and investment services are seeking innovative solutions, the latest Gartner survey has unveiled an intriguing shift in priorities. According to the survey, CIOs in these sectors are blazing a trail by investing heavily in cybersecurity, data and analytics, integration technologies, and the ever-expanding cloud.
Surprisingly, more than half of these CIOs in the banking and investment services sector are ramping up their cloud investments while simultaneously reducing spending on their own data centres. What makes this shift even more remarkable is the noticeable slowdown in data center systems spending, which has dwindled from a growth rate of 13.2% in 2022 to a mere 5.7% projected for 2023. This strategic move is a clear indication that these institutions are reevaluating their long-standing strategies and wholeheartedly embracing the era of services and operating expenditure.
Pete Redshaw, VP Analyst at Gartner, highlights this notable shift in priorities, stating, “This is a change from previous years when outright growth – new territories, new customers, new lines of business – was the primary objective of banking CEOs.”
IT Services Reign Supreme in Spending Landscape
In the dynamic world of banking and investment services, the spotlight is on IT services like never before. With jaw-dropping projected spending of nearly $269.7 billion in 2023, IT services are reigning supreme as the largest investment. This year, IT services spending will increase a significant 9.3% YoY compared to the modest 5.2% YoY in 2022.
So, what’s fueling this surge in IT services spending?
This surge in spending is driven by two key factors: the rising demand for consulting services and the adoption of infrastructure as a service (IaaS).
Consulting services have emerged as a vital resource for banking and investment services organizations, providing valuable guidance and expertise in navigating the ever-evolving landscape. These services offer strategic insights, industry knowledge, and innovative solutions to help institutions seize emerging opportunities while effectively managing challenges. With disruptive technologies, changing customer expectations, and regulatory complexities, banking and investment firms rely on consulting services to stay ahead of the curve and drive sustainable growth.
In parallel, the adoption of infrastructure as a service (IaaS) has become a game-changer for the industry. By leveraging IaaS, organizations can tap into scalable and flexible computing resources delivered through the cloud. This empowers banks and investment firms to optimize their operations, reduce costs, and enhance agility. Additionally, IaaS enables rapid deployment of cutting-edge technologies, such as artificial intelligence, machine learning, and big data analytics, enabling institutions to leverage data-driven insights and unlock new avenues of innovation.
According to Buckland, a renowned industry expert, economic uncertainty is reshaping the way organizations approach their IT projects. In response to this uncertainty, companies are opting to break down long-term contracts into smaller, more manageable projects. Additionally, there is a reluctance to enter into new long-term commitments, initiate major initiatives, or engage with new technology partners. As a result, there has been a notable rise in the utilization of IT consulting services.
Shortage of Talent Fuels Investment in Internal Services
Due to the global talent shortage impacting the banking and investment services sector, organizations are projected to increase their spending on internal services by 4.2% in 2023. This rise in investment aims to support the higher costs associated with hiring and retaining top talent.
According to Redshaw, an industry expert, traditional banks are no longer automatically considered the most appealing or stimulating career destinations for top talent, even after recent layoffs at technology giants.
To address this talent shortage, organizations are exploring alternative approaches. This includes reevaluating university education requirements, incorporating benefits such as lifelong retraining programs, forming hybrid teams, adopting agile methodologies, and forging partnerships with fintech companies. By embracing these innovative strategies, banking and investment services firms aim to create more enticing and stimulating work environments to attract and retain sought-after professionals.
Are you prepared to embrace the exhilarating technological revolution reshaping the world of banking and investment services, or will you be left behind in the wake of transformative innovation? Let us know your views in the comment section below.
