BFS tech spend faces uncertainty in a flip-flopping trade war

This global tariffs and trade crisis is being viewed as seriously as the 2008/9 financial crisis and the 2020/21 COVID-19 pandemic. Banking and Financial Services (BFS) firms must get ahead of the impact and be prepared to act quickly to absorb the impact of market events. A speedy, smart, and agile game plan is the only way BFS leaders can combat uncertainty.

US protectionism will intensify cost pressures on BFS firms that are already balancing innovation demands and operational resilience. Enterprise leaders must recalibrate tech priorities before transformation stalls.

Be ready for impact—even if tariffs remain uncertain

If implemented, US tariffs will accelerate a tightening of technology budgets across BFS. While banks aren’t directly taxed on imported goods such as steel or electronics, cost hikes facing corporate borrowers in manufacturing, logistics, and retail will increase credit risk and reduce capital spending, which will ripple into the banks’ revenue streams.

Enterprise leaders should plan for a slowdown in discretionary spending even before the policies take effect. Historical trade shocks and economic slowdowns have shown us that innovation initiatives are often the first to be paused or canceled when the environment becomes unstable (see Exhibit 1).

Exhibit 1: The three major financial crises affecting the BFS sector in recent times

Source: HFS Research, 2025

The prudent course of action is not to wait for certaintybut to prepare now. This is not alarmism; it’s about contingency planning. By modeling various scenarios now, BFS leaders can identify mission-critical areas and ensure they maintain momentum while building flexibility to pause, redirect, or accelerate investments as the macro picture evolves.

Innovation will slow as cost control reshapes tech priorities

In times of economic uncertainty, discretionary technology spend is almost always the first to go. Current signals from banking leaders suggest that a round of budget cuts is likely. GenAI pilots, blockchain use cases, and customer experience overhauls will be reevaluated unless they demonstrate near-term cost benefits or productivity.

Areas such as core modernization and compliance-driven initiatives, cloud migration, AI-powered process automation, and data integration efforts—especially those that enable efficiency or support mandatory reporting requirements—are more likely to survive the scrutiny (see Exhibit 2).

Exhibit 2: IT spending during economic disruptions

Source: HFS Research, 2025

The data makes it clear that no tech investment is immune if the economic uncertainty intensifies. Even AI—often considered essential to future competitiveness—is at risk. If tariffs affect businesses, BFS firms will double down on compliance, cybersecurity, and cost-efficiency while delaying innovation bets that don’t deliver immediate impact (see Exhibit 3).

Exhibit 3: Investment priorities for Ai in BFS firms

Source: HFS Research, 2025

This is not to be considered a rejection of innovation—but a refocusing. Enterprise leaders must identify which tech investments build resilience, cut costs, and protect core business value in the next 6–12 months. Everything else can wait.

Global sourcing strategies face new scrutiny amid protectionism, as BFS leaders are likely to accelerate GCC investments further

Trade restrictions and inflationary pressures are prompting BFS firms to rethink their sourcing models. The risk of overreliance on a single geography—particularly for critical tech delivery—has shifted from an operational concern to a board-level priority. As we have discussed extensively at HFS, there has been considerable investment in Global Capability Centers (GCCs) in the past couple of years which shows no signs of abating. For instance, Citibank recently announced it would reduce its IT service partners from 144 to 50 and increase internal hiring of IT staff, especially in its Chennai location. There is a strong possibility that rising tariffs will increase GCC investments as banks look to avoid unpredictable tariffs on outsourcing exports and gain more control over their operations. 

Effective GCCs are closely integrated with their parent organizations, aligning with corporate goals to ensure optimal resource allocation, effective project management, and a deep understanding of their parent company’s culture and objectives. In short, many major BFS firm leaders feel more in control over their operations in this market of rapid technological development and economic uncertainty. All the significant US and Global BFS firms, including JPMC, Goldman Sachs, HSBC, BofA, Wells Fargo, and Amex have GCC setups across Delhi, Hyderabad, Bangalore, and Mumbai. We are also seeing more regional banks in the US such as Citizens Bank and Fifth Third, exploring GCC expansion to improve their agility in these unstable times.

BFS leaders are building delivery resilience to withstand this instability

BFS leaders have been exploring hybrid sourcing models that diversify delivery across Latin America, Eastern Europe, and North America. This exploration could lead to new investments. While India remains a foundational hub, it’s no longer sufficient. This initiative is more than mere supply chain management; it’s about building delivery resilience to withstand political and economic shocks.

BFS leaders must take the lead in pressure-testing vendor strategies, ensuring that location diversity aligns with risk exposure, compliance needs, and customer proximity.

Not all tech budgets will shrink. Focus where spend is resilient

Some domains will continue receiving funding even as BFS firms revisit discretionary spending. These include:

• Payments innovation: Driven by real-time demands, embedded finance, and wallet-based ecosystems
• Retail banking digitization: Customers still expect fast, frictionless, and mobile-first experiences
• Commercial banking onboarding: Faster, more intuitive corporate client journeys are non-negotiable
• Cybersecurity: Regulatory scrutiny and rising threat volumes make this a spending constant
• Compliance and RegTech: Mandatory KYC, AML, and stress testing investments won’t pause
• Cloud infrastructure: Most banks are mid-stream in multi-year cloud journeys—these are rarely abandoned

Leaders should shift budgets toward these resilient domains to maintain the forward momentum while mitigating risks in their tech portfolios.

The Bottom Line: BFS leaders can’t afford to wait—preparing now for tariff-driven disruption is the only way to safeguard innovation, protect margins, and stay ahead.

BFS leaders must take the threat of tariffs seriously—not because they are certain, but because the uncertainty itself is already having ripple effects on decision-making, credit appetite, and innovation pacing. If protectionism is left unaddressed, supply chain disruptions and policy instability could derail transformation agendas. BFS firms that build forward-looking plans, rebalance technology portfolios toward resilience, and stress-test sourcing models will be best positioned to navigate what’s next.

You don’t need to overreact—but you do need to be ready. In times of disruption, being prepared is the most potent competitive edge.