Discretionary IT spending is showing early signs of revival, led by banks, insurers, and retail firms prioritising AI, data modernisation, and digital customer experience initiatives.
Discretionary IT spending is showing early signs of revival, led by banks, insurers, and retail firms reallocating budgets toward AI, data modernisation, and digital customer experiences. Analysts note that while overall tech budgets remain cautious amid macroeconomic uncertainty and tariff concerns, enterprises are increasingly prioritising “change-the-bank” initiatives, especially in AI and hyper-personalisation.
However, this recovery is likely to be selective, rather than broad-based, and overall tech budgets are likely to remain flat or grow only slightly, as spending in new areas often comes at the expense of legacy operations or support.
AI shifts from pilots to real deployments in US bank
Major U.S. banks have moved beyond AI experimentation to large-scale, production-grade deployments, as observed during 2024–2025. This transition is visible in technology strategy and tangible business gains.
Biswajeet Mahapatra, Principal Analyst, Forrester, noted that institutions like J.P. Morgan Chase and Bank of America stand out for their multi-billion-dollar technology budgets, with AI alone delivering substantial annual value. While total technology budgets remain focused on maintaining core operations, there is a noticeable increase in discretionary tech spending, focused on AI, data modernisation, and customer-facing innovation.
“The shift is driven by clear productivity gains, enhanced customer experience through hyper-personalisation, and the ability to streamline operational processes via agentic AI. As banks simplify tech stacks and migrate legacy data systems to optimise for AI, more than 50% of IT spend is expected to be directed towards these transformative initiatives, which is a signal of early revival in discretionary tech allocations,” he said.
While discussions around a revival in discretionary spending have been ongoing, a full recovery in FY26 remains unlikely. At the same time, AI is not only a major disruptor but also unlocks new areas of investment.
“Businesses can now make their platforms or products far more valuable and individualistic. The idea of building AI into your product opens up a net new area of spending. In their own enterprise or product landscape, businesses are looking at differentiation. Today, whether logically or because of the fear of missing out, the answer is AI. They are saying ‘I will use more AI to differentiate myself, more than my competitor’,” explained Nitesh Bansal, CEO & MD of digital product engineering company R Systems.
AI unlocks new budget areas; legacy spend gets reallocated
With AI dominating enterprise conversations, discretionary tech spending is bound to rise, even if overall IT budgets remain flat. To fund new AI-driven initiatives, companies are reallocating resources from areas like routine operations, support, and legacy systems. While total spend may stay the same, decline, or grow slightly depending on macro conditions, investment in building new digital capabilities is expected to increase, often at the expense of “business as usual” functions, he said.
During Wipro’s Q1 FY’26 Earnings Conference Call, Aparna Iyer, the company’s CFO, shared that the discretionary spend environment seems to have stabilised.
“There was hope of it improving at the start of this calendar year. However, this financial year, it will be stable. Green shoots have emerged in sectors like retail, whose eventual rebound will be backed by the demand for digital customer experiences picking up. Automotive and public sector verticals demonstrate stability with selective deal activity, while healthcare sees steady investments in infrastructure and cybersecurity.”
Rajesh Ranjan, managing partner at Everest Group, echoed this, adding that a few pockets of discretionary spending are opening up, especially in the Banking, Insurance, energy and utilities, and Life Sciences Sectors. With declining interest rates in Europe, there may be a higher uptick in that geography as well.
However, discretionary tech spending remains under scrutiny, given the ongoing uncertainty caused by the US tariff situation. Most deals in tech services continue to be focused on cost efficiency and optimisation.
Published on July 25, 2025
