Global tech spending on banking hit $650b in 2023, but few benefitted.

Few banks are able to fully capture the benefits of their tech spending, despite combined investments coming it at billions per year, according to McKinsey & Co.

Global tech spending on banking has been increasing at 9% per year on average, outpacing 4% revenue growth averages, according to McKinsey & Co. In 2023, spending totaled $650b— roughly the GDP of Belgium and Sweden.

But few banks have been able to fully capture the benefits of their tech spending, the management consulting firm said in its report.

US banks’ productivity, for example, has been falling 0.3% per year on average since 2010.

One issue that banks face in their technology investments is that they don’t disclose specifics on where they spend.

“At large banks that do disclose this data, “run the bank” and “mandatory change” spending often represents up to 70% of technology budgets. These categories include infrastructure hardware and software, IT operations, regulatory compliance, and other types of unavoidable spending, leaving only limited capacity for investments that can drive competitive differentiation,” said McKinsey experts Aamer Baig, Vik Sohoni, and Xavier Lhuer with Zane Williams.

Many executives also feel ill-equipped in dealing with tech and just delegate important investments to their tech department. Tech departments, however, may struggle to understand the business strategy and in seeking out business collaboration.

Banks should look into investing more strategically in order to drive shareholder value.

Banks in the US who delivered value are those who aligned their investments to what they are targeting to expand on. For example, investing in a mobile app could boost digital sales and service, but will reduce branch footfall and contact-center volumes.

Investing in a branch platform, meanwhile, might improve in-branch sales and employee satisfaction.

“Business leaders should determine where the greater opportunity lies, based on the corporate strategy and expected financial outcomes,” the report said.

Stability over time is rewarded by investors, too, McKinsey said.

“Banks with consistent revenue growth and less volatile return on tangible equity (ROTEs) tend to outperform their peers,” it said.

For 2025, banks are face labor productivity, regulatory changes, and increasing presence of non-traditional competitors, McKinsey said.