Technology spend in BFSI: Why are costs rising, and how are institutions responding?

Over the last two years, technology spending in the Banking, Financial Services, and Insurance (BFSI) sector has moved from being a discretionary investment to a structural necessity. For capital market institutions such as brokerages, the conversation is no longer about whether to invest in technology, but where costs are rising, why they are rising, and how to manage them responsibly.

While technology has clearly enabled scale, speed, and resilience, it has also introduced new cost dynamics that senior management teams must actively govern.

Where technology costs have increased the most

Cloud infrastructure and usage-based services have seen the sharpest escalation. Cloud platforms have helped organisations move faster and respond better to market volatility. However, unlike traditional infrastructure, cloud costs are variable and directly linked to consumption. Compute-intensive workloads, traffic spikes during peak trading hours, data replication, and always-on high-availability environments have significantly increased operating expenditure.

The growing use of data analytics and artificial intelligence/machine learning (AI/ML) further amplifies these costs. Without clear usage discipline, cloud bills tend to grow quietly but consistently.

Another major area of escalation has been cybersecurity and regulatory compliance technologies. Regulatory expectations and the evolving threat landscape have made security investments unavoidable. Spending on Web Application Firewalls (WAF), Distributed Denial of Service (DDoS) protection, endpoint security, identity and access controls, and continuous monitoring platforms has grown year-on-year. These are not optional spends; they are foundational to maintaining trust and regulatory compliance.

In a broking environment, market data, connectivity, and low-latency infrastructure form another significant cost head. Higher trading volumes and increased expectations around uptime and system resilience have pushed up expenses related to exchange connectivity, leased lines, co-location facilities, redundancy, and premium market data feeds.

Finally, specialised technology talent has become more expensive. Skills in cloud engineering, cybersecurity, site reliability engineering, data engineering, and AI are in short supply. Sustained wage inflation in these areas has had a direct impact on IT operating costs.

Areas where costs have remained more stable

Not all technology costs have grown at the same pace. Core infrastructure, such as traditional compute and storage, has seen relatively controlled cost growth. Mature virtualisation practices, standardised hardware stacks, and longer refresh cycles have helped contain expenses in this area. This underlines an important point: cost escalation is largely driven by new capability layers rather than legacy infrastructure.

External factors driving cost escalation

Several external forces have shaped the current cost environment.

First, regulatory mandates from institutions such as SEBI, RBI, and CERT-In have significantly raised the baseline for cybersecurity, data retention, business continuity, and operational resilience. Compliance today requires not just policy alignment but sustained investment in tools, audits, and controls.

Second, the intensifying cyber threat landscape has forced organisations to strengthen defences. Ransomware attacks, DDoS incidents, and supply-chain vulnerabilities are no longer isolated events. Best-in-class security frameworks come at a premium, but the cost of failure is far higher.

Third, vendor pricing and licensing changes have altered long-term cost structures. Global technology providers are increasingly moving towards subscription-based and usage-based pricing models. While this improves flexibility, it also reduces predictability and often results in higher cumulative spend over time.

Lastly, inflation and global supply-chain pressures have affected the cost of hardware, networking equipment, and specialised components. Currency fluctuations add another layer of volatility, particularly for imported technology.

Internal drivers of rising technology spend

Internal business dynamics also play a critical role.

Rapid growth in digital adoption has increased transaction volumes and peak-load requirements. Systems must now be designed to handle extreme surges without compromising customer experience or regulatory obligations.

Another factor is over-provisioning for resilience. BFSI systems are typically sized for worst-case scenarios. While this approach is prudent, it can lead to inflated costs if capacity is not periodically reviewed and optimised.

Technology sprawl is a more subtle driver. In fast-growing organisations, teams sometimes adopt overlapping tools to meet delivery timelines. Over time, this leads to duplication of licences, fragmented data, and higher operational overheads.

Additionally, legacy modernisation programmes temporarily increase costs. During transition phases, legacy systems often run alongside modern platforms. The cost benefits are realised only after consolidation and simplification are complete.

How institutions are reducing and controlling costs

Despite these pressures, organisations are finding meaningful ways to optimise technology spend.

One effective approach has been cloud cost governance, often referred to as Financial Operations (FinOps). By introducing clear visibility into cloud usage, right-sizing resources, scheduling workloads efficiently, and automatically shutting down non-production environments, institutions have been able to eliminate avoidable expenditure.

Another impactful measure is tool and vendor rationalisation. Consolidating platforms that serve similar purposes reduces licensing costs and simplifies operations. Structured vendor negotiations, multi-year contracts, and volume-based pricing have helped achieve better commercial outcomes.

Architectural improvements have also played a role. Better use of caching, traffic optimisation, and selective deployment of multiple Content Delivery Networks (CDNs) have helped control network and bandwidth costs without affecting performance.

What will the next few years look like?

Across the BFSI ecosystem, technology budgets are expected to continue growing, but with far greater scrutiny on value creation.

Most institutions are likely to see annual IT budget increases in the range of 10% to 15%, with the higher end, potentially up to 18% — applicable to organisations investing heavily in AI-led automation, cybersecurity resilience, highly available digital platforms, and regulatory-driven transformation initiatives.

However, the narrative is clearly shifting. The future is less about spending more and more about spending smarter. Technology leaders are increasingly expected to demonstrate measurable business outcomes, tighter cost governance, and architectural discipline.

For BFSI institutions, technology is no longer just a support function. It is a strategic capability, one that must be scaled thoughtfully, governed rigorously, and aligned closely with business priorities. Those who strike this balance well will not only manage costs better but also build more resilient and competitive organisations in an increasingly digital financial ecosystem.