From cloud to AI, Wall Street firms plan to pour more of their IT budgets into cutting-edge tech, a survey says. Here's what's driving their focus on innovation.
- Financial firms plan to allocate more of their IT budgets towards cutting-edge tech, according to a recent survey by Broadridge.
- From cloud to AI, emerging technology is being viewed not just as a cost saver but a revenue driver.
- The leading adopters of new tech saw more than a 4% increase in revenue as a result of innovation.
- Visit the Business section of Insider for more stories.
Financial firms are planning on assigning a bigger chunk of their IT budgets towards cutting-edge tech, according to a recent poll by financial services giant Broadridge.
Artificial intelligence, blockchain, the cloud, and digital services are all set to get a larger share of firms’ tech spend. Over the next two years, so-called next-gen technologies will go from 11.8% to 15.7% of financial firms’ IT budgets, on average.
The 33% bump comes as early adopters of the techniques are not just motivated by cutting costs but the ability to spin up new offerings or lines of business as a result of the tech. The most aggressive users of new tech reported a 4.04% increase in revenue through the use of innovation. That’s compared to only a 1.74% boost in revenue from non-leaders.
Broadridge polled around 1,000 C-suite executives and their direct reports last fall from a variety of financial firms, including banks, hedge funds, brokerages, insurance firms, and asset managers, to see how they’re investing in emerging technology.
Emerging tech is benefiting first movers
Much of the tech development at financial institutions has been driven by a top-down recognition that existing business models need to be adapted to keep pace with the changing times.
Executives are telling themselves, “‘I need more optimization. My business model is changing quickly,'” Chris Perry, Broadridge’s president, told Insider.
“‘I also have exposure losing my clients if I don’t provide a more digital but human experience with my clients.’ So you put that altogether and this is a reinvention of the business model,” he added.
Firms that are leading the charge in tech investments will devote 20% of their IT budget to these new tools by 2023 and are already using tools like AI and blockchain, according to Broadridge.
But reducing expenses as a result of increased efficiency is only part of the motivation. Cost reductions from transitioning to newer technology was consistent across all firms at around 3%.
Meanwhile, the leading adopters of new tech are seeing a greater impact on their revenue compared to those firms that are less experimental with new tech.
That means that while efficiencies are shared across the industry from new tech, growth is not.
“There are a lot of firms that want to be fast followers. It costs you quite a lot to be a fast follower,” Perry said.
Financial firms are able to share costs in the cloud
The public cloud is one area that’s set to get increased attention in the coming years. The majority of respondents (60%) plan on increasing spend on the cloud in the next two years, with use cases for the tech across sales and trading, product development, human resources, and customer management.
More firms on Wall Street are moving data and services off physical servers onto the public cloud, working with tech giants like Amazon Web Services, Microsoft Azure, and Google Cloud. IBM’s head of cloud told Insider last June that he saw a $1 trillion business opportunity in working with large companies to upgrade their data services.
In February, Morgan Stanley tapped a longtime veteran of the bank to serve in a new role as head of cloud and architecture across the firm. Last November, Insider reported that Capital One had become the first bank in the US to operate exclusively on the cloud after exiting the last of its data centers. And in 2019, JPMorgan announced the opening of a cloud-engineering hub in Seattle in close proximity to Amazon and Microsoft.
When faced with a build-or-buy decision, many financial firms are finding it more inexpensive and flexible to work with cloud providers given the heavy lift involved in setting up the systems necessary to move data. In this case, Perry said, they have the benefit of being a consumer in an increasingly crowded and growing marketplace.
As more financial firms adopt AI into their business models, meanwhile — like a new robo-advisor that’s looking to handle high volumes and securely process client data, for example — the cloud will be increasingly important, Perry said.
“Cloud is an operating mentality and environment. AI is a technology that you can deploy in that environment, and it’s far more effective in that environment because you create ubiquitous access to data. You need to have a digitized experience, so you can provide data to your customer, to your intermediary, to yourself in a strong way,” Perry said.
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