Planned tech spending highlights digital transformation in financial services sector, says expert

Most UK financial services companies intend to spend more on technology this year than last, according to a CBI and PwC survey of 100 UK financial services firms. Of those surveyed, 56 said that they expect their IT expenditure to rise in the next 12 months, compared with 2 that said they expect it to fall. The remaining respondents said they anticipate no change in IT expenditure. Marketing is the only other area in which a majority of financial services companies intend to increase their expenditure, according to the survey.

Reasons respondents gave for authorising an increase in IT investment include to reach new customers, increase speed and efficiency, expand capacity, respond to new laws and regulation, provide new services and/or replace legacy systems, a statement on the survey results issued by the CBI said.

Expert in financial services and technology Yvonne Dunn of Pinsent Masons, the law firm behind Out-Law.com, said: "Everyone in the financial services sector understands just how critical digital transformation now is. These figures highlight that a ‘no change’ strategy towards legacy technology is no longer an option. Existing financial services businesses cannot assume that they will overcome challenges from the fintech sector without extensive and sustained effort."

"Retail banks similarly should not assume that the currency they have in their financial services brand will be enough to take on fintech businesses which have already themselves taken significant market share in terms of remittance, lending and payments services away from the banks," she said.

Dunn said that fintech companies pose a threat to banks in markets beyond remittance, lending and payments too.

"Every aspect in which banks engage with customers is being challenged by smaller fintech businesses, as is the effectiveness of every business process and every use of data," she said.

Rain Newton-Smith, CBI director for economics, said that the rise of financial technology (fintech) companies has put pressure on traditional incumbents in financial services markets.

"There is a great deal of uncertainty within the financial services industry over the impact of fintech," Newton-Smith said. "Firms in most sectors are looking to upgrade their own platforms over the next five years rather than acquire fintech firms. However, partnerships with fintech firms are seen as a high priority by companies in some sectors, particularly finance houses, insurance brokers and investment managers."