According to research from Celent, European banks are said to spend £46bn on IT in 2017, with a large proportion of this sum being invested in new technology as the industry is transformed by competition.
Throughout 2014 banks spent £40.79bn on IT but are likely to spend £42.23bn in 2015, and will rise to £46bn in 2017.
The research report said the financial services industry has changed significantly over the years and technology is at the heart of that change.
The Celent report stated: "Although information technology and digital banking have played a significant role for some time, today they are a major competitive requirement for financial institutions. This is why financial institutions are investing a sizable chunk of their revenues in IT."
The research found that banks in Europe will make 21.9% of their IT budget available for new investment by 2017, compared with 13.7% in 2013 and 15% in 2014.
The majority of IT spending at banks is on maintenance to keep the existing technology running. Celent said that this peaked at 87% of total IT spending in 2012, dropping slightly to 85% last year. The report expects this to fall to 78.1% by 2017.
Financial services analyst, Gareth Lodge, said technology has been a barrier to change in the past, however going forward it can really help banks differentiate. He feels new customer demands will increasingly dictate bank investments.
He said: "There are new customers coming to the market who do not care about bank branches. They want mobile apps.
"New banks do not have legacy systems so they have technology that is cheaper to run and simpler to modify."
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