Banking Environment Refocuses Technology Opportunities

MBA (7/1/2008 ) Palaparty, Vijay
The impact of bank consolidation could result in fewer purchase points for financial technology vendors. However, according to Financial Insights, Framingham, Mass., top tier banks worth $10 billion or more control 77 percent of non-interest expenses, which includes IT spending.
Bill Bradway, president of Bradway Research, Framingham, Mass., said the number of smaller banks could shrink by an additional 2,000 by the end of 2014. He said acquired bank IT spending has already shifted to larger banks.

Similarly, smaller vendors could also face difficulty in the near future, Bradway said. “Financial institutions in this climate are more risk averse and conservative with new IT spending budgets,” he said during a webcast, The FinTech Vendor Marketplace: Is the Future Dynamic or Dull? He added that larger, broad-based technology providers will continue to acquire smaller, specialized firms.

However, Bradway sees opportunities for vendors that can help financial institutions reduce complexity and also provide better integration. Areas such as business intelligence and business analytics were on his list of financial institutions’ high-growth spending areas.

“Risk management, including Basel II, isn’t going away,” Bradway said. “Compliance, as dull as it may seem, isn’t going away and the topic isn’t dull. Compliance will continue to be a hot category.”

Bradway said the payments area—including card-based, corporate and enterprise payment technology—is popular among financial institutions along with selective infrastructure, including both sourcing and outsourcing.

“These hot spots will be much more dynamic going forward, especially because there is pain associated with the problem that these solutions can deliver,” Bradway said. “Unfortunately, there is nothing sexy to offer. There is no Internet coming, but what you will see are vendor opportunities in back office, analytics and infrastructure projects. Industry-wide, the picture looks more dull than dynamic—except in the Asia Pacific, Eastern Europe and Latin America regions.”

Bradway said consolidation waves will continue and that large vendor transactions will have increased operational risk factors. “There are many risk factors associate with absorption and contracts in the financial services industry,” he said. He emphasized that vendor mergers and acquisitions need symmetry between business models, cultures and buyer’s acquisition strategy.

“Otherwise, it can unravel rather quickly and you will see rapid turnover in the seller, staff and customers,” Bradway said. “Vendors need to plan for their customer portfolio of the future. Looking at your current customer list—that list will change in the coming years. Two to three of the top 10 institutions may be gone or acquired. Carefully planning for the portfolio of the future is essential.”