Fiducitation: Trends in Systems
Integration Service Offerings in the UK and Europe
Author: Ray Ferrara
and Brian O’Keeffe
Date: January 7,
2002 © 2002 Fiducite.com, Inc.
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by Fiducite personnel.
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The purpose of this Fiducitation is to provide an overview
of where the expected growth will occur in system integration
opportunities in the financial services sector. This report is focused
primarily on opportunities in Western Europe, including the UK, but it also
draws on current growth opportunities in the U.S. financial services markets,
where they appear to precede similar developments in Europe. This report also
builds on an earlier Fiducitation published in November, 2001, “Opportunities
for Financial Services Institutions in the Current Market”, which
highlighted the business areas where most growth is expected over the next few
years. Not all of these business growth areas also represent target
opportunities for systems integrators as well (e.g. exchange traded funds), but
those that do are included here.
Our general consensus is that that the market for financial
services systems integration will be somewhat better in Europe than the US for
at least the next two years. The major reasons are that European IT budgets
will be less constrained, and the big forces propelling IT spending growth in
the US for the past two years are nowhere nearly as played out in Europe as
they are in the US. These driving forces include both generic forces affecting
systems integration opportunities across all industries – such as
web-enablement of business processes and ERP package installation – as well as
some financial-industry-specific factors, such as the movement to
straight-through-processing in capital markets or electronic bill payment and
presentment in the banking industry.
Additionally, European-based systems integration firms have their own
set of Europe-specific drivers as well, such as the movement by pan-European
financial services institutions to replace their myriad country-specific
applications portfolios with truly pan-European infrastructures as EU
regulations gradually supplant country-specific regulations.
As in the US, the events of September 11 will also cause
more emphasis on security and disaster recovery, According to one of the
citations included in the first section of this report, security and disaster
recovery will receive the highest incremental spending and priority. This same
report also indicated that there will be substantial incremental spending on
continued ERP installation and web deployment, as well as Windows 2000
upgrading and storage enhancements. But these are overall industry trends. The real key to success in systems
integration is not fulfilling every potential type of IT need well, but in
picking a few specific key growth areas where the SI firm can specialize and
excel over other SI firms or in-house IT staffs, gaining resource as well as
market leverage. In other words, the
key is in picking the RIGHT growth areas, where there is less internal and
external competition and where sustainable competitive advantage can be
achieved. Additional factors which should be taken in consideration are using
the right, reusable underlying development platforms (where the major choices are boiling down to .Net or J2EE, at
least for web-enabled applications a services), and the propensity of potential
clients to take on large, multi-year engagements using outside expertise. As
they say in the consulting business, it’s easier to make money and retain staff
utilization levels on five £50M deals than fifty £5M deals.
By these measures, the key areas that we feel will be most
productive for the larger Europe-based systems integration organizations to
specialize in are the following:
Insurance – Though
the large European insurance firms appear to be as ponderous and slow moving as
their US counterparts, this is one area where we feel there will be substantial
SI opportunities in the next few years, as the
industry makes an effort to integrate cross-border systems and products as well
as bring in more effective enterprise risk management systems. We expect one or
two multi-national SI firms to emerge as the insurance industry’s favored
providers.
Straight-Through-Processing – Though
already becoming quite crowded in the US market, with several tiers of SI
vendors (see the January, 2002 Fiducitation on STP and operational risk in
capital markets), the full-blown movement to STP in Europe seems to be just
beginning, with several firms in position to become dominant purveyors of SI
services to this niche. The
postponement of T+1 may alleviate some of the pressure to move to STP
immediately, but make no mistake that all capital markets participants will
move to STP eventually. We believe that SI firms that make the investment and
move now to establish themselves as leaders will reap the benefits over the
next few years. We believe that the
European market will sustain a handful of top-tier integrators with substantial
buy-side and sell-side opportunities.
Payment Systems – As
payments move from the more conventional check and debit/credit card realm to
the world of on-line payments, we feel there is a significant opportunity for a
few “trusted” systems integrators to
establish themselves as the leaders – say by providing outsourced payment processing
options, or by offering an easy combined solution to the divergent
Visa/Mastercard schemes, or by establishing themselves as thought leaders in
pioneering payment processing solutions. The beauty of gaining market position
and branding in the payment area is that it is truly at the nexus – buyers and
sellers of all types, banks, merchants, exchanges, on-line sales all interact
with and use the payment system. All these parties are thus exposed and
potential clients of integrations services related to payments.
E-business and Web deployment – Along
with ERP package installation, this has been the workhorse of the SI industry
of late. In our opinion, it will continue to be – as more and more
organizations webify their internally and externally-facing business processes.
Although this growth area violates our “low competition” preferences, there is
just so much business here that it is impossible to ignore it. And you ignore
it at you peril in the sense that the movement to web-based services lays at
the fundamental core of virtually all current systems integration. We not
connecting via RPC or even message-based infrastructures as much anymore, the
world is going to object-based .NET and J2EE services and communicating via
XML, Soap, and HTTPx protocols or their derivatives. The trick in e-business
and web deployment is to target some unique specialty sub-area, perhaps in
combination with some of the areas previously mentioned, such that the SI vendor can establish a
leadership position in that unique sub-area. For example, we are seeing vendors
like Endeca here in the United States establish themselves as premier web-based
directory and catalog specialists. Or in Europe, companies like the
Accenture-backed Altamira move to become leaders in integrated, web-based,
real-time core banking applications. Similarly, there are moves afoot to
establish industry-specific web-enabled and web/XML-accessed reference sources
– such as the security CUSIP reference sources needed for STP. All of these are
examples of effective sub-specialization.
Of course, we are not recommending that a single SI firm
choose all these major growth areas as their focus areas. Nor are we saying
that these major areas we have identified are the only areas that will
experience substantial growth – undoubtedly there will be as-yet-unforeseen
business or political forces that will spur new growth opportunities. What we
do recommend is that any large Europe-based SI firm interested in sustaining a
profitable, longer-term competitive position in financial services look
carefully at these five areas we have identified.
Straight
Through Processing/T+1
Continued
e-Business and Web Development
Author:
European Market Evolution: New Products and Old
Annotation:
This
is a summation of some of the changes in the European Economy that will drive
some Financial Services product changes.
Clip: It's not just the pace of change within their
businesses that must give the chief executives of Europe’s leading financial
firms headaches. It is also the difficult issues of weighing the relative
importance of factors in the evolving European market- indeed whether or not
such a market place is finally coming into existence.
Source: http://www.bba.org.uk/html/2055.html
Cached
File: 
CIO Budget Survey - European managers are more optimistic about the coming year
Annotation: This article reveals where both US and
European CIO’s plan to spend in 2002.
Clip: The
effects of 11 September, which caused chief information officers to be much
more pessimistic about spending, will continue to reverberate in 2002,
according to the survey. Security ranked as the top priority for 2002, and
disaster recovery ranked third. Other top spending priorities for 2002 include
ERP (enterprise resource management), Web development, Windows 2000 and
storage. A Morgan Stanley survey in December showed similar results. Other trends
expected to continue in 2002 is the contrast between US and European IT
budgets; Europeans were much more optimistic, expecting 4 percent growth,
whereas US IT managers expect just 2 percent growth. …While chief information officers continue to be conservative about
2002, forecasts for 2003 were optimistic. European chief information officers
expect their budget to grow 12.1 percent in 2003 and their US counterparts
expect growth of 6.8 percent
Source:
http://news.zdnet.co.uk/story/0,,t274-s2101863,00.html
Cached File:
Enterprise Wars: J2EE vs. .NET
Annotation: A good article on the coming battle between
J2EE and .NET
Clip: The J2EE framework has
attracted IT leaders because of its Internet-ready, multi-platform, thin-client
architecture. Microsoft has recently produced .NET, a rival to J2EE. What are
the differences between the two platforms? What is likely to happen in the
future? This must-read article will give you an objective insight into the
enterprise wars that are likely to rage this year.
Source: http://www.eaijournal.com/PDF/EnterpriseWarsLykins.pdf
Cached
File: 
Connect the Dots - Building a New Infrastructure to Deliver Financial Services
Annotation:
In
this article from the Mutual Fund café web site, the author speculates on
unfolding and future developments in financial services, including the interplay
between financial services providers (manufacturers in his jargon),
aggregators, and web portals.
Clip: As a new customer-focused technology infrastructure
evolves, traditional financial services economics will shift further toward new
service offerings of distributors and away from manufacturers. Demands for
personalization and customer knowledge will invariably move financial rewards
to those who have access to customer information and are able to extract value
from the relationship.
For manufacturers [financial services providers], the competitive mandate will be to use their research and money management skills to develop unique, personalized products for their customers. In so doing, they can carve out sustainable market positions for themselves and their products. As this rapid evolution in the financial services industry develops, the most successful firms will have adaptable technologies and highly scalable delivery models that meet the customized interests of both consumers and the intermediaries that serve them.
Source: http://www.mfcafe.com/pantry/is_0601.html
Cached File: 
The top 10 global insurance trends 2002
Annotation:
This
article from Deloitte Consulting is a good summary of the major factors driving
insurance in global markets in the years ahead. Most of these trends will also
drive significant spending in systems integration.
Clip: While wealth management is fairly advanced in the U.S., the funding of pensions will increasingly shift from public to private pension providers for the rest of the world. Becoming more proficient at managing enterprise risk and deploying capital will also be at the forefront for insurers, along with adapting to a twenty-first century M&A model. These are among the Top 10 Trends for 2002 in the insurance industry, predicts Deloitte Consulting and Deloitte & Touche
.
Source: http://www.dc.com/obx/pages.php?Name=pr_top10_ins
Cached File: 
European Insurance Survey, 2001
Annotation:
AT
Kearney believes that efficiencies in the European Insurance Market might lead
to over 5 Billion Euros in savings if the industry makes an effort to integrate
cross-border systems and products.
Clip: The study, which looked at the progress being made in
integrating national operations and leveraging economies of scale at Europe’s
nine largest insurance groups, found insurance companies understand the
benefits of pan-European integration but have made little progress in achieving
it. Contrary to the widely held belief that roadblocks to integration are
primarily related to legal and legacy systems, the insurance giants ranked
language, cultural barriers and social constraints as the main factors keeping
them from maximizing their efficiency.
Source: http://www.atkearney.com/pdf/eng/European_Insurance_summary_S.pdf
Cached File: 
SIA Moves T+1 to 2005
Annotation:
The
Securities Industry Association has moved its T+1 deadline to 2005, allowing
time for additional functionality. This has large effect of Global STP plans,
and the SIA has outlined some of the additions that they would like to make to
the plan in the extra year.
Clip: One month and a day after the events of Sept. 11 sent
Wall Street's firms scrambling to recover the most basic operations in their
back-up sites, the Securities Industry Association announced that it was
pushing out its deadline for conversion to a one-day settlement cycle from June
2004 to June 2005. A source present when the decision was made, says his firm
-- a global sell-side institution, "participated in the deliberations
fully" and describes a scene in which firms debated both sides of the postponement
decision and quickly reached a high level of support for moving the deadline.
Source: http://www.wallstreetandtech.com/story/stp/WST20011210S0013
Cached
File: 
Straight -Through Processing Survey Reveals Industry Poised, But Not Ready.
Annotation:
This
article about a study by Andersen is somewhat dated, but foresaw the delays in
STP implementation in the US, and foresees some other technological problems
ahead.
Clip: While it is too soon to say that the industry is
fully committed to achieving STP, our industry experience shows us that most
companies are somewhere along a four-stage continuum. The first stage is
awareness; the second, assessment; third is analysis and planning; and fourth
is full implementation. However, the road to STP is not always straight, and
many industry players are finding barriers to overcome.
Source: http://www.wallstreetandtech.com/story/stp/WST20010117S0002
Cached
File:
Profile and Interview: Till Guldimann
Annotation:
This
is an interview with a long-time Industry technology veteran. Much of the end
of the interview talks about the technology future of Financial Services as it
relates to STP.
Clip: Interesting times then? “Are you kidding!” says Guldimann. “I think IT and finance are at the epicentre of change in business, so this is the place to be. Technology drives change faster than ever before, so this is definitely one of the most interesting times and I’m glad I’m at this intersection today working for an IT company helping finance rather than working the financial industry itself.” ‘I wouldn’t be worried that the rest of the world will not catch up – it will.’
Source: http://www.stpforum.com/journal/Q3-2001-1.asp
Cached
File:
IBM Straight Through Processing White Paper
Annotation:
This
paper represents IBM’s feelings on the future of securities industry technology
based on the move to GSTP.
Clip: Every industry undergoes an occasional major change
in the methods it employs to satisfy customer and market demands. The financial
services industry is presently in the throes of such a change known as straight
through processing. When STP first became a popular topic, it was viewed as a
back office securities processing issue. As the vision matured it added
dimension. Today’s vision of STP involves
crossborder issues that embrace traditional front, middle, and back
office processes and services.
Source: http://www-1.ibm.com/industries/financialservices/pdf/STP_white_paper.pdf
Cached File: 
The Evolution Continues
Annotation:
This
182 page paper by EDS is somewhat dated (about one year old) but it is
incredibly comprehensive and details a huge number of smaller technology issues
involved in the move to Global STP.
Clip: Approximately $1.8 trillion worth of trades remain outstanding and unsettled globally every business day, contributing a significant credit and operational risk exposure to the trading participants. Compressing the settlement cycle can reduce the risks as well as create liquidity for other uses. If the global securities industry is to continue the high level of cost effective and risk-managed services that the trading participants and investors demand, it is critical to streamline the trading-to-settlement process by moving to global straight through process, and compressing the settlement to near real-time T+1. Shorter settlement cycles will reduce current daily settlement risk1 exposure for T+3 settling products by at least $250 billion in the United States alone-this value is expected to exceed $760 billion by 2004.
Source: http://www.eds.com/financial/fc_news_papers_straight.pdf
Banks Rally to Back B2B Payment System
Annotation:
This
alliance between The Royal Bank of Scotland and Barclay’s represents a recent
attempt to establish some sort of payment processing standards between
financial institutions.
Clip: Named Project Eleanor, the Web-based system will link
into existing bank infrastructures, giving trading partners an alter-native to
traditional paper-based payment methods for e-business transactions.
Source: http://news.zdnet.co.uk/story/0,,t269-s2102198,00.html
Cached
File: 
VNUNet Article
Annotation:
These
two articles from the same source expose an interesting problem: consumer
perception trails the technological reality of payment security by a factor of
years.
Clip: Mobile payments will not take off in the next five years because consumers don't want it, providers can't offer it and technology can't support it, according to a report from Forrester Research.
While retailers believe that mobile payments will account for 10 per cent of their transaction value in three years, Forrester believes this is actually at least a decade away.
.
Source: http://www.vnunet.com/News/1125023, http://www.vnunet.com/News/1128018
Cached File: 
Secure Your Customers Online Payments
Annotation:
This
piece from ZDNet highlights the concerns that customers have over the security
of electronic payments. Financial Institutions that wish to foster and benefit
from electronic money movement must address not only the technological difficulties,
but also the perceptions of consumers.
Clip: Concerns among Internet shoppers over credit card
security and the possibility of fraud are undoubtedly hindering the growth of
e-commerce.
Reports of credit card details
being stored on insecure servers, and then being obtained by hackers for use in
fraudulent transactions, have alarmed many consumers. According to research
firm Jupiter, almost 60 percent of consumers have not purchased goods from an
online retailer due to security fears.
In September, the Association for Payment Clearing Services released figures detailing that while UK consumers made $5.75 billion in credit or debit card transactions in 2000, only $88.5 million -- or 1.5 percent -- of these transactions were done online.
.
Source: http://techupdate.zdnet.com/techupdate/stories/main/0,14179,2815396,00.html
Cached
File:
Author:
E-Engineering in Financial Services: Why It’s So Hard to Get It Right
Annotation: This is a
detailed study by AT Kearney about the pitfalls of effective e-Business
implementation in the Financial Services Industry. Key pieces include a belief
that e-Business change will not be a “big bang”, but rather a gradual change.
Clip: During the last two to three years, most financial
institutions – buoyed by the plethora of deals and the seeming abundance of
opportunity – embarked on a frenzied process of change through e-business.
Players seeking the key to future growth and sustained competitive advantage
invested significant dollars and talent in e-initiatives. The market was hot,
valuations were extraordinarily high, and it seemed that almost anything a firm
did in e-business would be rewarded.
Source: http://www.eds.com/thought/eengr_hardtogetright_wp.pdf
Cached File: 