- Banks spend 60%+ (often up to 70%) of tech budgets on run-the-bank and regulatory work, squeezing change-the-bank investment.
- Tech spend is rising about 9% annually and now averages 10%+ of bank revenue, with inefficiencies from legacy complexity, redundant tools, and vendor lock-in.
- Compliance consumes roughly 10%+ of IT spend (over $10B across the top 25 banks in 2023) but can be turned into resilience and risk-management advantage.
- Leaders are shifting to more insourced, developer-heavy teams and modular/cloud service platforms to improve transparency, productivity, and reallocate spend toward transformation.
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The BCG report “Tech in Banking 2025: Transformation Starts with Smarter Tech Investment” paints a picture of banks under tension: rising technology costs largely consumed by maintaining existing systems, compliance obligations, and legacy infrastructure (RTB), with relatively limited funds allocated toward innovation and transformation (CTB). These trends—backed by McKinsey analysis—suggest that in many large banks, RTB and regulatory/mandatory spending may absorb up to 70% of the tech budget, significantly constraining resources available to drive differentiation.
Key cost pressures include vendor lock-in, overlapping or redundant tools and licenses, and lack of clarity in business ownership over technology spend, which lead to inefficiencies and limited value capture. The growth in tech spending—average 9% annually—without commensurate innovation, implies diminishing returns unless banks rebalance their spend mix.
Compliance, commonly viewed as a cost sink, is shown to present opportunity: it takes up ~10% of IT spend and exceeds US$10 billion annually across the largest banks, yet when leveraged correctly—through investments like digital twins, risk-scenario modeling, and resilience improvements—it strengthens operational resilience and regulatory readiness.
On talent and infrastructure, banks are making strides. BCG data indicates that top banks are increasing internal, technical “doers” in their workforce (roughly 70% insourcing) and targeting ~80% of tech staff being developers, contrasted with “orchestrator” roles. Skill-based role definitions, cloud and modular infrastructure, and standard service catalogs with usage transparency are essential levers to shift spending from RTB to CTB and improve velocity and adaptability.
Strategic implications for banks and advising entities include the need to re-evaluate technology budgeting and governance models (Raise RTB/CTB transparency and governance), develop roadmaps to modernize legacy systems and reduce vendor entrenchment, embed regulatory compliance as a source of differentiation, invest in data foundations and role/talent architectures, and target a reallocation of resources to meaningfully grow CTB spend—potentially toward a 50/50 split or better.
Open questions include: What is realistic rebalancing for different bank types (regional, G-SIB, digital challenger)? How do regulatory regimes in different jurisdictions affect the appetite for risk and CTB spending? What is the lag or risk in shifting platform or cloud architectures in highly regulated environments? And how will talent markets evolve under competition from Big Tech, fintechs, and remote work pressures?
Supporting Notes
- BCG reports that more than 60% of banks’ current tech spend goes toward “run-the-bank” activities, limiting CTB investments.
- Banks’ tech budgets average over 10% of revenues, and are growing at about 9% annually globally.
- Regulatory compliance absorbs approximately 10% or more of overall IT spending and exceeded $10 billion for the top 25 banks in 2023.
- Large banks seek to have roughly 70% of their overall tech staff inhouse and expect 80% of tech roles to be developers vs. support/orchestration.
- McKinsey finds up to 70% of spending in many banks is non-discretionary (RTB and regulatory compliance), leaving limited discretion for change-oriented investment.
- Compliance operating costs (second line of defense) for G-SIBs can reach 2.5% of total bank costs; smaller banks less.
- Compliance IT costs for G-SIBs are about 26% of second-LoD compliance spend; for regional banks closer to 11%.
- Banks converting only 5-10 cents of every tech dollar into additional business value; top performers raise that to ~15-25%.