Bank executives who manage information technology often share misconceptions about how to get the best value from IT investments. Some have long believed that in this sector, operating scale is a critical competitive factor because it creates cost advantages; others think that spending more on IT to improve operating efficiency directly yields better performance. Many feel that newer platforms are more likely to generate value; others hold that what really matters is the country where a bank operates, because certain places deliver factor-cost and market advantages.

McKinsey research shows that these commonly held beliefs fall apart under close scrutiny. As part of an annual effort aimed at understanding what really matters in IT for banks,¹ we studied the financial performance and underlying IT practices of 105 of them in Europe, Asia, and Latin America. Our research examined many facets of the banks’ IT performance, including governance and organization, outsourcing and offshoring practices, the complexity of the application architecture, and the utilization rate of hardware.² We then looked at the key financial metrics of the banks, cross-referencing their operational effectiveness (using cost-to-income—and in Asia, growth as well—ratios against their spending in IT as a percentage of income). These metrics...