Bloomberg reports that the investment by U.S. financial institutions in IT and digital infrastructure has been booming. Bloomberg expects Bank of America, Wells Fargo and Chase bank to spend $30 Billion on tech in 2019. Interestingly, the investment made in the U.S. by American financial institutions far outweigh that being spent in Europe. Much of this massive investment is explained by the need to keep up with creative fintech organizations. Fintechs seem to be less than impressed with the big bank spend, believing it is intended to help traditional banks catch up, not exceed the smaller financial firms that often enjoy the benefits of a narrow focus on a unique services and have less pressure to return a profit:
For now, fintechs say they aren’t spooked by the sizable tech budgets. Traditional lenders are merely trying to catch up, not push innovation, according to Monzo’s head of marketing, Tristan Thomas. “So far they seem to be focused on skating to where the puck is, rather than where it’s going,” he said.
And while most fintechs are turning losses, they have one big thing going for them: they don’t have outmoded technology weighing them down. Many major banks would need to spend billions of dollars just to bring their IT systems into the 21st century. Even Santander’s Parthenon back-end software platform is increasingly antiquated even though it is newer than what a lot of the other European banks use.
“While they can copy our features, they cannot copy our cost base,” Starling Bank said in a statement. “They have to contend with legacy technology, not to mention the massive costs of maintaining a branch network and the slowness to action that is inevitable with large bureaucracies.”
Overview by Sarah Grotta, Director, Debit and Alternative Products Advisory Service at Mercator Advisory Group