After much persuasion, and probably after the first instance of a major bank being asked not to digitally onboard customers, banks are willing to even give a ballpark number of the kind of money they spend on technology.
The spends seem to be 9-10 per cent of operating expenses, which is also much lower compared to global standards at 25-30 per cent of total expenses. In fact, JP Morgan’s Jamie Damon has been quoted in the past as saying that the bank has more developers and coders than bankers.
In India, the situation is very different, but that’s a topic for discussion some other day. For now, how about holding banks reveal how much they spend on technology. A ballpark number will help customers and other stakeholders understand if banks are putting their money where their mouth is and using it for the right purposes. Secondly, with a vast majority of banking transactions today done digitally, revealing the number would enable customers to take a calculated call on which bank they would like to trust for their digital banking needs. While tech spends aren’t a barometer of outcome, it still sets a base for some logical assessments.
Just like how ESG and CSR spends are beginning to take prominence in annual reports, it’s time we make tech spends by banks, or maybe all retail-facing financial service companies, a significant part of their annual report. This may be the baby steps to instilling confidence among customers that the money and intent are converging.
It would also help if we can have granular data on how spends go towards building products versus services cost for the upkeep and maintenance of the products. This again would help understand the kind of products built by the banks and the return on investment that they would generate over a period of time — a metric that can have a direct implication on the financials.
The question is whether banks would be willing to take that step towards transparency. Voluntary disclosure could help banks raise funds (a key element of spends must increase over time) for tech purposes in a precise manner going ahead. For now, most technology-related expense, whether capital or operating expenditure, are funded by internal accruals.
Unlike fintechs, banks barely get access to the kind of specialised capital that can go a long way in enhancing tech. In India, capital raising is linked to asset quality related issues or aiding high growth of the bank. With the former taken care of, banks may have to repurpose their capital raising plans, because depending only on accruals may not support big-ticket tech spends in the long run.
It’s time that the Reserve Bank of India takes notice of this issue, given how tech-related failures are tripping up the banking system. If banks aren’t willing to reveal the details voluntarily, how about some mandatory nudge from the regulator?