Cloud technology has moved to the centre of UK banking, giving institutions of every size access to scalable digital infrastructure that was once available only to the largest players. A Bank of England Staff Working Paper published in August 2026 measures what this has delivered, and the results are highly encouraging. The research links cloud adoption to leaner operations, larger deposit bases and a more open, competitive market.
The study, written by Alvaro Contreras, Peter Eccles and Paolo Siciliani, draws on 3,443 material outsourcing contracts held by 90 UK domestic banks over the past two decades. Of these, 457 involve cloud arrangements with external providers, covering annual spending of £1.57 billion across 72 banks. The authors combine this contract data with the Historical Banking Regulatory Database to track the effect of cloud adoption on costs, deposits and investment between 2010 and 2024.
Its central conclusion is that cloud outsourcing has helped lower the technological barriers to competition in banking. As with every paper in the series, the views belong to the authors and do not state Bank of England policy. The evidence nonetheless offers a clear view of the opportunity available to institutions investing in their digital future.
A thriving and varied cloud ecosystem
Cloud contracts have grown steadily in number and value, and they now form an established part of how UK banks operate. Software as a Service arrangements, where the product arrives ready for end users, account for 323 contracts, or 71% of the total, with an average value of £2.3 million. Infrastructure and platform contracts, which allow developers to build tailored products, number 134 and average £6.2 million each, with spending divided almost evenly between the two models.
Payments lead the way as the most popular area for cloud investment, supported by significant activity in deposits and lending. Both contract types serve similar business functions, giving banks the flexibility to choose the approach that suits their strategy. The provider landscape is healthy and diverse, with six banks already working with at least 10 different cloud providers.
Leaner established lenders
Large banks and building societies are turning cloud investment into measurable savings. Across the full dataset, a 10% increase in cloud spending is associated with a 1.2% reduction in non-interest expenses and a 1.0% reduction in staff expenses. These gains are strongest among the nine largest institutions, whose average cumulative cloud spending stands at £48.30 million.
The authors connect these savings to the modernisation of legacy IT systems and internal payment infrastructure. Cloud investment is also associated with deposit growth, with a 10% rise in spending linked to a 0.3% increase in deposits. For established lenders, the technology builds long-term franchise value alongside lower running costs.
Smaller lenders gain ground
The strongest customer response to cloud investment appears at small and medium banks and building societies. A structural model of the UK deposit market shows depositors valuing cloud-enabled improvements most highly at these institutions, where the technology helps close the service gap with larger competitors. Customers benefit from more reliable digital banking, better payment functionality, faster account management and improved interfaces.
Small and medium banks have embraced this opportunity with particular success. They have increased cloud spending the most relative to staff expenditure, recorded the strongest improvement in service quality according to Ipsos survey data, and grown deposits faster than any other group since 2010. Small and medium building societies show the highest average responsiveness of demand to cloud investment of all three groups, which places them in a strong position to accelerate growth as adoption expands.
Value created since 2015
The scale of the benefit becomes clear when the authors model the market without any growth in cloud spending after 2015. Against that benchmark, cloud adoption has added £1.13 billion in average quarterly depositor welfare, lifting it from £8.92 billion to £10.05 billion, an improvement of 11.2%. It has also kept market concentration 132 points lower on the Herfindahl-Hirschman Index, a sign of a more competitive deposit market.
Smaller institutions have been the biggest winners. Cloud adoption has helped small and medium banks secure 2.5 percentage points of additional market share and small and medium building societies 0.7 points. Their deposit franchise profits are more than twice what they would otherwise be for small and medium banks, and substantially higher for building societies, with these gains driven by growing customer demand and scale.
Capital fuels long-term investment
Well-capitalised banks are among the most active investors in cloud technology. A 1 percentage point increase in capital requirements is associated with around 4.2% higher cloud spending, with the effect strongest among large institutions. A separate measure based on capitalised software assets shows a similar pattern, with the same increase linked to around 8% more intangible assets.
The authors attribute this to a charter-value effect, where financially resilient banks place greater value on investments that deliver future efficiency and service improvements. Modelling a 1 percentage point reduction in capital requirements shows depositor welfare rising by £0.24 billion, or 2.53%, to £9.76 billion a quarter. Around 32% of the potential gain is linked to the investment incentive, which highlights how closely financial strength and technology spending work together.
A platform for the next stage of growth
Cloud platforms are increasingly the gateway to advanced data analytics, machine learning and artificial intelligence, which extends the opportunity for banks of every size. Institutions that build strong cloud foundations today are positioned to adopt these tools faster and more cost-effectively. The research indicates that the competitive benefits seen so far could grow further as these capabilities mature.
For the UK banking sector, the findings point to a market that has become more dynamic, more efficient and more responsive to customers. Established lenders are modernising their operations, while smaller banks and building societies are competing on service quality with growing confidence. Cloud outsourcing has helped widen the field, and the opportunity for further growth remains considerable.