Unlocking value from technology in banking: An investor lens

Over The Past Few Years

Technology spending in banking has grown at an average annual rate of 9%, reaching US$650 billion in 2023—outpacing revenue growth of 4%. However, measurable value remains unclear. US bank productivity has declined by 0.3% annually since 2010, and a strong correlation between staff count and revenue suggests limited economies of scale. Banks of all sizes spend roughly 10% of revenues on technology, yet often achieve similar outcomes, indicating minimal competitive differentiation. Technology costs continue to rise due to AI adoption, regulatory demands, and legacy system renewals, while traditional ROI measures overlook factors like technical debt and long-term maintenance costs.

The growth in technology spending

Despite innovations like mobile banking and algorithmic trading, many banks struggle to demonstrate the specific value enabled. A recurring issue is that initiatives are often small in scale, lack strategic alignment, and are executed with a cost-minimisation focus. Interviews with equity analysts suggest that most technology investments are viewed as necessary rather than differentiating. Analysts also called for greater transparency in how technology spending drives business outcomes.

The technology investment conundrum

Banks face challenges in investment governance. Around 70% of tech budgets at large banks are allocated to “run the bank” and “mandatory change” initiatives, leaving limited capacity for discretionary investments. Executive-level engagement is often lacking, with many tech decisions made in isolation from broader business strategy. This results in fragmented portfolios and diluted impact. Success is commonly measured by delivery of code rather than real business outcomes, and cost focus undermines quality. The report recommends a shift to top-down investment planning, outcome-based execution, and improved investor communication.

Investing strategically to drive shareholder value

Linking technology investments to shareholder value drivers is key. An analysis of 90 US banks (2013–2023) found that five operational metrics accounted for 90% of the difference in total shareholder returns (TSR): revenue growth (34%), earning-asset yields, cost of funds, noninterest income as a share of tangible assets, and operating expenses. Return on tangible equity (ROTE) drivers explained 55% of TSR differences, while reducing operating costs contributed less than 10%, indicating limited impact from efficiency alone.

Bank-specific prioritisation of value drivers and outcomes

Banks should tailor their tech investment priorities based on their performance. High-performing banks could focus on expense efficiency without hindering growth, while others may need to invest in revenue expansion and margin improvement. Using objectives and key results (OKRs) can help align tech investments with strategic outcomes, supporting clearer impact measurement and communication.

Five examples of strategic themes for technology investment

1. Data-driven relationship banking – Using customer insights to drive deposit growth and improve net interest margins.
2. Tech-enabled business building – Leveraging technology to grow fee income in payments, wealth management, and transaction banking.
3. Digitisation and AI – Improving operating leverage and customer experience through automation and AI, leading to revenue growth and cost reduction.
4. Tech-enabled risk and compliance – Reducing risks and regulatory penalties by modernising systems and improving resilience.
5. Technology transformation – Increasing tech capacity and delivery speed through platform operating models, modular architectures, and engineering excellence.

Implications for bank executives

Banks are encouraged to:

• Free up tech capacity by increasing productivity and optimising “run the bank” spend.
• Allocate investments based on strategic value drivers.
• Execute using outcome-oriented models.
• Provide transparency to investors by linking tech investments to ROTE and revenue growth targets.

Doing so may help banks break negative cycles and establish technology as a driver of long-term value creation.