Banks face budget squeeze from AI and legacy systems

Corporate IT allocations are projected to keep climbing through 2027.

Banks and capital markets will face pressures on their budgets to keep the levels of spending on innovation, as financial institutions are entering this year with competing technology priorities.

The life and health insurance market is likely to lead to an increase in the IT budget, with 13.8% expecting so, revealed Celent, a GlobalData company.

This was followed by property and casualty insurance (12.9%), corporate banks (5.8%), and retail banks (4.9%).

Gareth Lodge, principal analyst at Celent, said corporate banking IT budgets are likely to continue growing through 2027, but pressures will also increase. 

He noted that discretionary spending is tightening, as new technologies such as generative AI bring ongoing operational and upgrade costs. 

Banks must also balance investment in advanced capabilities for more sophisticated clients with the need to maintain legacy systems used by existing customers.

Meanwhile, life insurers are increasing budgets to catch up after years of underinvestment.

IT budgets are expected to increase by 7% in 2026 with significant variation across the financial services industry, according to Celent’s survey of over 1,000 executives from financial services firms.

The expectation that budgets will rise are forcing management to make better tech investment decisions.

"Insurers are ramping up their IT spend this year, with many moving from experimenting with innovations to full implementation,” Tom Scales, principal analyst at Celent, said in a report.

“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,” he added.

The lowest expected IT budget increases are seen in the capital markets segments, at only 3.7% on the buy side.

Cubillas Ding, capital markets research director at Celent, said firms continue to face margin pressure and challenges in achieving scale. 

He added that consolidation is ongoing, but investment in technology and AI remains necessary to support profitability and deliver tailored investment strategies. 

Firms are expected to pursue AI deployment alongside digital and cloud migration of core systems, the report said.