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- Banks are spending billions to upgrade their technology platforms.
- Citigroup CEO Michael Corbat said his firm is starting to see its $8 billion annual tech budget pay off with significant cost savings.
- The bank reached an inflection point in 2018 and Corbat expects tech spending to result in as much as $600 million in net savings this year.
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Big banks are spending massive sums of money to up their technology games.
Part of the calculus is keeping up with each other, as well as financial technology disruptors, in offering cutting edge services that boost the customer experience.
But it’s also about cutting costs over the long term — streamlining operations by quickening processes that cost time and money, reducing paper, and trimming excess headcount, among other things.
Citigroup has finally reached the inflection point where its substantial tech investments are starting to result in significant cost reductions, CEO Michael Corbat said Wednesday at a financial conference.
The bank spends $8 billion a year on technology, or 20% of its roughly $40 billion operating budget, partly on adding capabilities to grow the business, partly on cybersecurity, and partly upgrading and streamlining its operations to “shrink the cost of running the bank,” Corbat put it.
Those savings don’t start showing up in the bottom line immediately. But last year, Corbat said, the investments started to pay off in meaningful net savings.
“Last year, we crossed the inflection point of actually getting net savings on that,” Corbat said, adding that this year they’re expecting it to add up to $500 million to $600 million worth of savings.
Savings is only one of the objectives from that tech budget — Citi has also invested heavily in upgrading its digital banking platforms to kick-start growth in its underperforming consumer bank — but the cost reductions should help Citi in reaching its operating efficiency targets, which it just barely missed in 2018 amid the market turmoil in the fourth quarter.