BCG Tech in Banking 2025: Smarter Spending for Digital Transformation

BCG Tech in Banking 2025: Key Findings and Strategic Overview

Boston Consulting Group’s Tech in Banking 2025 report delivers a clear message to banking leaders: technology spending is rising rapidly, but most of it is going to the wrong places. With global bank IT spending projected to reach $606 billion by 2028 — growing at a 9% compound annual rate that significantly outpaces inflation — the question is not whether banks are investing in technology, but whether those investments are creating competitive advantage.

The report’s central finding is striking: more than 60% of bank technology budgets are consumed by “run-the-bank” (RTB) activities — maintaining existing applications, running infrastructure, and keeping legacy systems operational. This leaves less than 40% for “change-the-bank” (CTB) initiatives that drive innovation, customer experience improvements, and strategic transformation. The IT cost-to-revenue ratio for banks now exceeds 10%, making technology one of the largest cost items on the balance sheet.

BCG identifies three critical actions banking leaders must take: simplify business operations and refocus technology spending, leverage regulatory compliance investment to build operational resilience, and build powerful tech capabilities in data management, talent, and IT infrastructure. Success requires a fundamental shift in how banks align technology and corporate strategy, moving technology from a siloed cost center to a core enabler of business objectives. For organizations tracking banking risk management trends, these findings represent essential strategic intelligence.

Bank Technology Spending Trends: $606 Billion by 2028

The report presents compelling data on the trajectory of bank technology investment. Global bank IT spending grew from $369 billion in 2022 to an estimated $510 billion in 2024, and is projected to reach $606 billion by 2028. This 9% compound annual growth rate dramatically outpaces global inflation, which averaged 5.7% in 2023 and dropped to a projected 3.5% in 2024.

Several structural factors drive this relentless spending growth. Limited tech cost ownership by business unit teams undermines business-technology value assessments and leads to investment in non-critical features. An overly rigid risk posture forces IT teams to unnecessarily restrict new features for security purposes. Legacy infrastructure resists modernization and prevents cost-efficient integrations. Rising vendor costs and vendor lock-in make contract rationalization difficult.

Perhaps most concerning is BCG’s observation that complexity grows exponentially, not linearly. Individual technology business cases — whether for system replacement, new features, or integration projects — typically fail to capture this compounding complexity. As a result, run-the-bank costs steadily increase while tech budgets become a “black box” from the business perspective, with limited transparency on deployment and true return on investment.

The data mirrors trends documented across major financial institutions, where technology investment has become a defining competitive factor. Banks that fail to redirect spending toward innovation risk falling behind more agile competitors and fintech challengers.

Run-the-Bank vs. Change-the-Bank Investment Allocation

The report’s analysis of run-the-bank versus change-the-bank spending reveals the core challenge facing banking technology leaders. With over 60% of IT budgets consumed by RTB activities, banks are effectively spending to stand still rather than investing in transformation. BCG’s aspiration: banks should redirect enough resources to channel more than 50% of IT spending toward high-impact change-the-bank initiatives.

Run-the-bank spending encompasses infrastructure run-rate costs, application maintenance, IT overhead, and ongoing operations. While much of this spending is necessary, BCG argues that significant portions can be optimized through business simplification and technology modernization. The report estimates that banks can reduce RTB costs by 10-15% through targeted optimization, freeing substantial resources for transformation.

Change-the-bank spending falls into two categories: regulatory-led changes (accounting for roughly 35-40% of CTB budgets) and strategic transformation projects. The regulatory component is significant — compliance absorbs roughly 10% of overall IT spend, costing more than $10 billion for the 25 largest banks globally. BCG’s insight is that regulatory-driven technology changes, when approached strategically, can simultaneously satisfy compliance requirements and build competitive capabilities.

The practical implication is clear: banks cannot simply cut costs to fund innovation. They must fundamentally simplify their business models and technology architectures to reduce the structural cost of running existing operations. This requires deep collaboration between business and technology teams — a cultural transformation as much as a technical one.

Banking Simplification Strategy: Products, Platforms, and Processes

BCG’s simplification agenda provides a concrete roadmap for reducing run-the-bank costs. The strategy operates on three levels: product portfolio rationalization, platform-based customer journeys, and process streamlining. Each level targets a different source of technology complexity and cost.

Product portfolio simplification means consolidating undifferentiated, low-returning products and focusing on fewer clearly distinct offerings with high strategic value. Banks accumulate product complexity over decades, with each product requiring its own technology support, compliance processes, and operational infrastructure. BCG recommends not only reducing the number of products but also simplifying underlying features, policies, and procedures for both existing and new customers.

Front-to-back platform organization creates common processes across customer segments and streamlines interactions through a core set of horizontal platforms. A large European bank cited in the report moved from product-specific onboarding setups — where customers repeated the same information for each application — to three shared onboarding platforms (consumer, commercial, and international). The result: cost savings of 50% to 80% depending on product type and location, while simultaneously improving customer experience.

Process streamlining reduces unnecessary steps in customer journeys and internal workflows. This includes removing redundant checkpoints in loan applications, streamlining approval gates, and reducing the number of teams involved in decisions. BCG emphasizes this is not about increasing risk tolerance but about eliminating steps that add time and cost without improving underwriting quality or outcomes.

The bottom line: a simpler business operating model leads to simpler tech architecture. Banks that implement these changes across all three levels can achieve the structural cost reduction needed to fund meaningful transformation — a lesson relevant across the financial services landscape.

Agentic AI in Banking: Automating the Technology Stack

The report highlights agentic AI as a transformative force that can fundamentally reshape banking technology economics. Unlike traditional AI applications that augment specific tasks, agentic AI workflows can automate entire processes end-to-end, with profound implications for both run-the-bank costs and change-the-bank capabilities.

BCG identifies three primary areas where agentic AI delivers value. First, accelerating automation in the software development lifecycle — AI agents that can write, test, and deploy code can dramatically increase developer productivity and reduce the time from concept to production. Second, simplifying the technology stack by replacing costly redundant SaaS applications. BCG projects that the cost of many SaaS applications increases by 15% or more annually, making AI-driven consolidation an increasingly attractive alternative.

Third, agentic AI can transform customer-facing operations through intelligent automation of customer service, loan processing, fraud detection, and personalization. Leading banks are deploying AI agents that handle complex customer interactions autonomously, escalating to human operators only for exceptional cases. This approach can simultaneously improve customer experience and reduce operational costs.

However, BCG cautions that AI implementation requires robust data foundations. Just 20% of banks implement robust quality frameworks for structured and unstructured data, and only about 10% have clearly documented data that can be easily leveraged by authorized users. Without addressing these data quality gaps, AI investments will underperform their potential. A global financial institution cited in the report used generative AI to automate data lineage capture and metadata generation, achieving 40-70% productivity gains in specific tasks and 20-25% improvement in data onboarding during the pilot phase.

Banking Technology Talent: Shifting from Orchestrators to Doers

BCG’s analysis of banking technology talent reveals a significant structural imbalance that limits innovation capacity. The report recommends banks increase the percentage of developers and engineers — the “doers” who build and deliver technical solutions — toward 75% of their technology workforce. Currently, most banks fall below 50%, with a disproportionate share of resources dedicated to planning, orchestrating, and managing rather than creating.

This imbalance creates compounding inefficiencies. Excess orchestration roles add layers of approval, coordination, and reporting that slow delivery without improving quality. Each additional management layer introduces communication overhead, reduces developer autonomy, and extends decision-making timelines. The result is a technology organization that is expensive to run but slow to deliver.

As highlighted in Gartner’s technology trend analysis, the shift toward technical talent is an industry-wide imperative. BCG recommends three talent actions. First, reduce overhead roles and simplify organizational structure, shifting the workforce mix toward technical builders. Second, implement outcome-oriented performance measurement appropriate to each role, replacing activity-based metrics with results-focused evaluation. Third, invest in upskilling existing talent, particularly in AI and data science, to build internal capabilities rather than relying exclusively on external hiring.

The talent challenge is exacerbated by intensifying competition for technology professionals. Banks compete not only with each other but with technology companies, fintechs, and other industries for a limited pool of skilled engineers and data scientists. Banks that maintain bloated management structures while underpaying technical talent will increasingly struggle to attract and retain the people needed to execute their digital transformation strategies. Organizations must consider how talent strategy integrates with broader asset management and financial services transformation.

Operational Resilience: Turning Compliance into Competitive Advantage

One of the report’s most innovative recommendations is reframing regulatory compliance from an unavoidable cost to a strategic opportunity. With compliance absorbing more than $10 billion annually for the world’s 25 largest banks, BCG argues that this massive investment should be leveraged to build genuine operational resilience — a capability that creates competitive advantage beyond mere regulatory satisfaction.

The regulatory landscape has intensified significantly following events like Silicon Valley Bank’s collapse and major technology outages at CrowdStrike and Azure. The European Banking Authority, Bank of England, and other regulators have increased oversight and stress testing on how banks monitor and report technology risk and ensure resilience.

BCG highlights the deployment of digital twins as a particularly powerful approach. A digital twin is a virtual replica of a bank’s technology system that reflects all components, dependencies, data lineage (including third-party integrations), and the impact of external factors such as market movements. Through a centralized control center, banks can run advanced “what if” scenarios including cyberattacks, third-party failures, geopolitical developments, infrastructure disruptions, and market shifts.

A multinational UK-headquartered bank adopted this comprehensive approach, implementing stress tests that factored in internal tech outages, global disruptions, and third-party supplier failures. These tests enabled better visibility on potential risks and improved resilience capabilities that went far beyond compliance requirements. BCG recommends three key actions: align on consistent definitions of business operations mapped to appropriate criticality levels, define and document risk tolerance levels with severe yet plausible scenario testing, and maintain updated prioritized backlogs of contingency measures and remediation plans.

Bank IT Infrastructure Modernization and Cloud Strategy

The report addresses IT infrastructure modernization as the third pillar of building powerful tech capabilities, alongside data foundations and talent. Legacy infrastructure remains one of the most significant barriers to banking innovation, creating both direct costs (maintenance, specialized talent) and opportunity costs (inability to integrate modern capabilities).

BCG’s infrastructure recommendations center on cloud migration, API-driven architecture, and platform consolidation. As documented by the Basel Committee on Banking Supervision, infrastructure modernization intersects directly with regulatory expectations. Cloud adoption enables elastic scaling, reduces infrastructure management overhead, and provides access to advanced services including AI and machine learning platforms. However, the report cautions that cloud migration alone does not solve complexity problems — banks must also rationalize applications and eliminate redundant systems during the transition.

API-driven architecture is essential for creating the horizontal platforms that enable business simplification. Well-designed APIs improve information flows between customer-facing and back-end systems, enable better cross-selling through richer customer views, and reduce integration costs. Banks that invest in robust API infrastructure create a foundation for rapid innovation, enabling new capabilities to be built on existing platforms rather than requiring standalone implementations.

Platform consolidation addresses the proliferation of redundant tools and licenses that results from lack of centralized governance and excessive customization. Banks often accumulate dozens of partially overlapping tools across different business units, each requiring separate licensing, maintenance, and integration. Centralizing governance and standardizing tooling can generate significant savings while improving consistency and reducing operational risk. The infrastructure modernization challenge mirrors patterns seen across major financial institutions, from Wells Fargo to Citigroup, where legacy technology transformation remains a multi-year strategic priority.

Data Management Strategy: Building AI-Ready Banking Foundations

BCG dedicates significant attention to data management as the foundational capability that enables all other technology advances. Without high-quality, well-governed data, investments in AI, automation, and digital transformation will underperform. The report identifies three critical areas where banks must improve their data capabilities.

First, banks must treat data and content as core assets with clear ownership and accountability. Each data domain — customer, transaction, market data — should have an owner with deep understanding of who contributes to and consumes the data. This clarity ensures no aspect of the data lifecycle is overlooked and enables better alignment between data supply and demand. Banks must also design modular, scalable, and flexible data management systems to meet evolving demands.

Second, banks must enhance both structured and unstructured data quality. The report cites concerning statistics: only 20% of banks implement robust quality frameworks, and fewer than 10% have fully documented, easily accessible data. Generative AI offers promising solutions, including automated data lineage capture that maps information flows, metadata generation that improves data discoverability, and quality correction that addresses duplication and formatting errors.

Third, enhanced data enables new value creation opportunities. These include AI-powered fraud detection through continuous signal monitoring, personalized financial advice based on transaction history, improved cross-selling through AI-driven product recommendations, and better risk assessment through comprehensive data integration. The data foundations built for compliance and operational purposes become the platform for competitive differentiation — connecting BCG’s simplification, resilience, and capability themes into a coherent transformation strategy.

Strategic Implications for Banking Leaders in 2025 and Beyond

BCG’s Tech in Banking 2025 report synthesizes into a clear strategic framework for banking leaders. The path to technology-driven competitive advantage runs through simplification, not just investment. Banks that continue adding technology layers without addressing underlying complexity will see diminishing returns on increasing spending. The 9% annual growth in IT budgets is sustainable only if a growing share delivers strategic value.

The three-action framework — simplify, build resilience, develop capabilities — provides a sequencing logic for transformation. Simplification comes first because it frees resources and reduces the surface area for subsequent changes. Resilience investment follows because it addresses regulatory requirements while building competitive capabilities. Capability building in data, talent, and infrastructure creates the foundation for sustained innovation.

Critical success factors include deep business-technology collaboration, where technology leadership has a seat at the strategic table and business leaders understand and own technology costs. Cultural transformation is equally important — shifting from risk-averse, process-heavy organizations to agile, outcome-oriented teams requires sustained leadership commitment.

For banking executives, the message is urgent. The competitive gap between technology leaders and laggards in banking is widening. Banks that achieve the 50%+ change-the-bank spending target will have fundamentally different innovation capacities than those stuck at today’s sub-40% levels. With agentic AI poised to accelerate both cost reduction and capability creation, the window for strategic repositioning is narrowing. Leaders who act decisively on BCG’s recommendations will build the resilient, innovative institutions that define the next era of banking, as tracked across institutions like Mastercard and other BCG financial services research.