Re-Imagining the Back Office of the Future

Banks pour more into IT than the gross domestic product (GDP) of many countries, investing a higher percentage of revenue in technology than any other major industry. For banks, IT spending represents 6% to 12% of annual revenue. For the next-highest sector — telecommunications, media and technology — it plummets to around 4%.

The banking industry’s tech spending increased by 38% between 2013 and 2022, according to a report by McKinsey & Co. This year’s tech spend at JPMorgan Chase is projected to be $17 billion. By comparison, according to Bank Director’s 2024 Technology Survey, the median bank tech budget in 2022 was estimated at $1 million.

In this technological arms race, how are community banks expected to catch up, let alone compete?

Increasing Costs and Complexity
Banking leaders know that, outside of personnel, managing the ever-growing complexities of data and legacy systems has become one of the biggest cost centers. Tech debt adds another 10% to 20% to the cost of new projects, and the technological complexity keeps growing.

In addition to infrastructure and technological changes, the average number of applications vendors a bank uses grew from 131 to 209 between 2013 and 2022, according to the McKinsey report.

While banks have vast teams focused on IT, governance, fraud detection and compliance, keeping these systems up-to-date is relentless work. Though these functions are critical, they aren’t part of a bank’s core mission.

A Different Approach: Technology as a Service
Could outsourcing these critical, but non-core operations, result in modernizing the data architecture, create operational efficiencies, reduce costs, improve performance and ultimately profitability?

What if a bank could combine and outsource technical infrastructure, data as a service, compliance, anti-money laundering and fraud prevention in a single framework with one vendor?

An outsourced vendor specializing in technical infrastructure, data governance and security could be more cost effective than maintaining an in-house operation.

Outsourcing and consolidating these services could reduce annual operating costs. According to Forbes, outsourcing may help companies save up to 70% of operational costs over time. These savings could be redirected towards core growth initiatives, talent acquisition and other strategic priorities.

Leveraging Generative AI: The Real Competitive Advantage
“As the complexity and costs of managing data and legacy systems grow, banks are exploring new approaches. By outsourcing  essential yet supportive functions, we can streamline operations, reduce costs, and redirect resources toward growth and innovation.” – Bryan Luke, President and CEO Hawaii National Bank

Generative artificial intelligence (AI) is transforming business functions like customer service, fraud detection and marketing personalization. Generative AI can deliver competitive advantage, but community banks generally are not in a position to take advantage of technology that requires modern infrastructure and expertise.

An outsourced technical infrastructure as a service lets banks access a level of technological sophistication that would have been hard to achieve in-house. Because this AI is managed by a central data governance provider, updates are automatic as the tech evolves.

Future Proofing the Back Office
As bank executives and directors think about the future, they should consider how to future proof their back-office operations. Considering an outsourced technology as a service provider can help a bank become more agile, better focused on its core mission and more profitable.

Outsourced Technical Infrastructure as a Service Benefits
These benefits include:

• Annual operating cost reduction.
• Modern adaptable technical infrastructure.
• Better data governance and compliance.
• Reduced technical debt.
• Access to data orchestration and data consortium.
• Technology as a service to future proof infrastructure.
• The ability to effectively deploy artificial intelligence like generative AI.
• The redeployment of talent and resources.
• A stronger focus on core competencies and growth initiatives.

By outsourcing technology as a service, regardless of how technology advances, banks can harness these advancements to strengthen their core mission — without needing to invest in and build these capabilities entirely on their own. The bank of the future that successfully integrates technology into its operations can transform their technical infrastructure into a competitive advantage, deliver better margins and unlock enviable growth.