What could happen if large banks really invest in fintech

The collective investment capacity of the largest bank is tremendous. Moody's estimates that if the largest banks were to direct 50 percent of their tech spend towards new technologies, the total fintech investment capacity of this group would equal nearly $112 billion over the next five years. The environment for big banks: Over the past decade, banks have had a variety of things to wrestle with:

• low interest rates
• declining product margins
• onerous regulation
• legacy litigation and legal costs
• taxation issues

What banks spend their tech budgets on: For the most part, banks spend their tech budgets on maintaining their legacy systems. But that's changing as some banks get more strategic about developing new technology to compete with fintech offerings. What technology banks should spend on: Some of that money is flowing through to robotics and AI to help automate a lot of back-office operations (See our cheatsheet on Robotic Process Automation). JP Morgan's $9.5 billion tech budget allocates a big chunk to this effort, with the capacity to spend 10 percent of its annual revenue on technology -- 50 percent of which could go to "change the bank" type initiatives. According to Moody's, banks should first "cut back the complexities and inefficiencies stemming from years of underinvestment into digital technologies as well as from the incompatibility of acquired or newly developed platforms with legacy IT systems". Don't compete, collaborate: Large banks, with diversified operations in investment banking, capital markets, and cash management, have an opportunity to partner with fintechs. Technology firms can help banks by:

• raising their efficiency
• providing digital infrastructure
• helping enhance clients' digital experience (important for retaining clients) with payments, cash management, transaction banking and automated trading operations

Figuring out the right mix of technology, user experience, and professional advice will differentiate the leaders from the laggards in the future.