Banks and financial institutions are being forced to make tough budget decisions as technology and digital transformation become increasingly important for their businesses.
According to research and advisory firm Celent, IT budgets are likely to increase across the board, impacting a number of industries. Of the respondents, 13.8 per cent believed the life and health insurance market would increase, followed by property and casualty insurance at 12.9 per cent, corporate banks at 5.8 per cent, and retail banks at 4.9 per cent.
Despite more money allocated to digital transformation and other technology spending, Celent principal analyst Tom Scales said budgets will continue to increase next year, but the financial pressure of technological investments will also go up.
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“Budgets are rising, but so are expectations. Choosing the wrong technology bets can have real competitive consequences. It is great to see life and annuity insurers investing and catching up,” he said.
“Insurers are ramping up their IT spend this year, with many moving from experimenting with innovations to full implementation. Celent expects some real operational impact, with advances in generative and agentic AI, automation, real-time data platforms, and real-time risk monitoring. Not to mention that many insurers are modernising legacy systems.”
There are reportedly two observed core objectives for IT budgets: modernisation and migrations of core systems, and implementing and operationalising AI.
Celent capital markets research director Cubillas Ding said that margin pressure means achieving these objectives at scale is a major challenge for financial firms.
“The industry is consolidating, but technology and AI enablement remain critical for differentiated strategies that protect profitability, sustain relevance, and deliver tailored investment outcomes,” he said, adding that Celent expects the two core objectives to be the main initiatives pursued by the industry.
Banks, which have some of the most average rises that Celent recorded, will still have very limited marginal growth. The largest banks are spending majorly on essential costs, such as regulatory and operational expenses, meaning the leftover cash for innovation is slim.
“Corporate banking IT budgets will continue to grow through 2027, but so will the pressures on them. Many banks will feel as though discretionary spending has tightened further. While new technologies create opportunities, they also raise expectations of what these budgets must deliver,” said Celent principal analyst Gareth Lodge.
“Each innovation, such as GenAI, adds not only ongoing operational costs but also continuous upgrade requirements. Furthermore, banks must also balance investing in advanced capabilities for sophisticated clients while maintaining legacy systems relied on by existing ones.”
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Daniel Croft
Born in the heart of Western Sydney, Daniel Croft is a passionate journalist with an understanding for and experience writing in the technology space. Having studied at Macquarie University, he joined Momentum Media in 2022, writing across a number of publications including Australian Aviation, Cyber Security Connect and Defence Connect. Outside of writing, Daniel has a keen interest in music, and spends his time playing in bands around Sydney.