Investing in technology is set to enable "the biggest capital for labor swap in the history of banking," according to a Wells Fargo Securities report from bank analyst Mike Mayo. That investment will allow banks to reduce non-tech spending.
Wells Fargo projects the sector will shrink its headcount by 200,000 over the next decade because of technology. Most cuts will stem from back office, branch, call center and corporate employees, according to the report.
The banking industry spends about $150 billion per year on technology, eclipsing other industries, according to the report.
Financial services allocates the largest percentage of revenue to technology when compared to other sectors.
IT budgets in the sector are 5.75% of revenue, Deloitte research found. The next closest — technology, media and telecommunications — allocates 5.64% and government and public sector spends 3.84%.
This year, J.P. Morgan Chase & Co. set aside $11.4 billion to technology and Bank of America spent $10 billion in 2018.
The scale is enormous and the financial services industry is ramping up tech spending as it modernizes and searches for new revenue streams.
Banking prioritizes consumer-facing, self-service technology through online portals and robust banking apps.
As the report notes, technology will create jobs, but the sector is facing a net reduction. Jobs in the technology, selling, advising and consulting spaces will be spared.
When banks operate like tech companies the effort is not without risk. Capital One implemented an aggressive public cloud strategy and was heavily criticized when it disclosed a breach in July.
According to Wells Fargo, outdated infrastructure also poses a risk. The key is implementing a digital strategy that anticipates bad actions from bad actors and establishes a clear response plan.