Why Don't Commercial Banks' Tech Budgets Support Innovation?

Commercial banks struggle to innovate in part because their Tech budgets, a key to financial innovation, support too many existing applications and processes. Maintaining existing core systems takes precedence over innovation. There's just not much budget left to support new innovations. This budget challenge, layered on top of bank culture and structure (previously reviewed), stifles innovation.

Here's a snapshot of the many areas that consume commercial banks' Tech budgets. The spend percentage varies across these areas for individual banks, but all banks have to cover these buckets before any innovation can be considered:

Steady state system support

Regulatory mandatory changes

Financial reporting

Existing product maintenance

Software updates / licensing

Hardware acquisitions

IT certifications and audits

Core system changes

Infrastructure

Cyber security

Fraud tools

Digital channels

Given the strain on Tech budgets innovation always comes last at commercial banks. This resource constraint forces banks to limit investment in new innovations.

Additionally, bank core system providers must be involved in any bank innovation projects. These core system providers - effectively a monopoly - are incredibly slow moving, expensive, and unresponsive. Forcing banks to manage this key outside vendor adds another challenging layer to the innovation cycle.