The Bank of England published a staff working paper finding that cloud outsourcing has partly lowered technological barriers to competition in UK banking. Analysis of proprietary contract data links spending on Cloud Service Providers (CSPs) with lower operating costs and higher deposits, particularly at large institutions, while structural estimates indicate that the benefits to depositor demand are substantially greater for small and medium banks and building societies. The study covers 457 external cloud contracts involving 72 banks and GBP 1.57 billion in annual spending. A counterfactual that freezes CSP spending at 2015 levels produces greater market concentration, reduces smaller institutions’ market shares and lowers average quarterly depositor welfare by GBP 1.13 billion, or 11.2%. Higher capital requirements are also associated with increased CSP investment, with a 1 percentage point increase linked to about 4.2% higher spending. Conversely, lower capital requirements reduce CSP adoption incentives in the model, offsetting about 32% of the direct welfare gain from lower funding costs.
Bank of England2026-08-14
Bank of England research finds cloud outsourcing has reduced barriers to UK banking competition
Bank of England research finds that cloud outsourcing has reduced technological barriers to UK banking competition, with the strongest depositor-demand benefits accruing to smaller institutions. Restricting CSP spending at 2015 levels would have increased concentration and reduced average quarterly depositor welfare by GBP 1.13 billion. Lower capital requirements also weaken CSP investment incentives, offsetting about 32% of their direct welfare benefit.