Bank Spending Trends Show Why There Is Little Room for Innovation

  • JJ Hornblass
  • January 29, 2015
  • 1

canstockphoto20710606Are banks cutting or expanding their expense spending?

This is an important question because, invariably, innovation spending comes from an expansion of expenses. In other words, fewer expenses might mean less innovation.

The answer is  not good for the banking innovation sector. According to an interesting analysis from Sterne Agee, a boutique investment firm, operating expenses at super regional banks — an excellent benchmark for middle-of-the-road banks — fell 2.5% last year compared with the same quarter in 2013. Now, that year-over-year decline was less than in the previous two quarters, but the message is clear:

[M]any banks have instituted formal cost-cutting programs in hopes of improving operating efficiency. From something as obvious as closing branches to reducing the number of envelope styles to save money, it appears that banks haven’t left a stone unturned.

Just to put the expense reduction in perspective, 2014 compensation at super regional banks increased 7.7%. In other words, banks are spending on people, not on “stuff,” and that presumably includes innovation and technology.

According to Sterne Agee, expense levels might go higher in 2015.

Most banks project full-year 2015 expenses to be stable to up, with some normal seasonality in the first quarter largely due to employee compensation. Additionally, some management teams have commented that should rates rise meaningfully during 2015, expenses may track higher.

These expense trends at the super regionals deserve attention considering the comments late last week from Richard Fairbanks, the chairman, president and chief executive of Capital One Financial Corp., who declared that the bank’s spending on innovation and technology was decidedly a long-term bet. With overall spending at super regional banks expected to do no more than modestly increase in 2015, we think it is safe to say that the Capital One approach is likely in the minority, and that is unfortunate.


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JJ started the first iteration of Bank Innovation back in 2007, and has been working on it ever since. He also serves as President & Chief Executive Officer of Royal Media, Bank Innovation’s parent. He founded Royal in 1995 and oversees all aspects of the New York-based diversified media company. Prior to forming Royal, JJ was on the editorial staff of American Banker, the daily newspaper, and worked as an editor of a business magazine in Hong Kong. As a reporter and editor, he has won journalism awards from the National Press Foundation, Newsletter & Electronic Publishers Foundation, and the Reader’s Digest Foundation. He has a BS in Economics from Yeshiva University and a Master’s from the Columbia University Graduate School of Journalism. He was also a Fellow at the University of Wisconsin-Madison Graduate School of Banking. He lives in New York City with his wife, two daughters, and son. He counts among his accomplishments one New York City Marathon, two New York City Triathlons and the 2010 Father’s Day 5K, the first race he ever ran with his daughters. He can be reached at or 212-564-8972.

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