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Stuart Garfield
Friday, December 19, 2008
Inside Financial Services Technology
Financial services IT spending outlook bleak, but some stay bullish
By Catherine Williams, Special to Mass High Tech
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While financial services software and service executive Tim Lind likens the financial services meltdown to a car wreck, he’s confident about the outlook for 2009.
Lind, who serves as the managing director of strategic planning for Boston-based Omgeo LLC, said the company gets paid for the volume of transactions its systems process, not for the valuation of the market. The robust trading activity has kept the company profitable, he said.
“We’re in a pretty comfortable position,” said Lind.
Lind said Omgeo should post net growth in 2009 and isn’t planning to reduce its staff. Lind expects double-digit growth in Europe and Asia and single-digit growth in the United States for the company that has an estimated annual revenue of $350 million.
Analysts predict heavy declines in IT spending in the financial services industry for 2009 as firms lose their appetite for costly long-term infrastructure projects. Despite projections of spending drops between 4 percent and 15 percent, local financial services technology companies, like Omgeo, are optimistic. Analysts say there are some growth areas in outsourcing and integration services and for companies serving smaller commercial banks.
Virginia Garcia, senior research director at Needham-based TowerGroup, said the global financial crisis has had a “devastating impact” on IT spending in the financial services industry. Focused on cost-cutting, companies will shelve large-scale and long-term projects such as enterprise risk management systems or upgrades to customer management systems, said Garcia.
“The executives we talk to can’t even plan into next week, let alone next year,” said Garcia. “It is a calamity on the surface, but there are some bright spots.”
Financial services companies will seek technologies to bolster predictive analytics and risk management, said Garcia.
An uptick in mergers and acquisitions should spur demand for integration software and services. Also, there will be an increased demand for outsourcing as banks look for ways to cut costs, according to a November 2008 report by Financial Insights, a subsidiary of IDC in Framingham.
Credit unions will increase IT spending over the next five years, according to Financial Insights. Despite overall drops in IT spending, midsize banks and large credit unions — looking to capture market share from larger commercial banks — will increase spending in 2009.
Anna Sabasteanski, owner and president of Cambridge-based The Asset Management Network Inc., said her business hasn’t been affected at all by the financial industry crisis. The company has focused on serving credit unions and community banks instead of large retail banks, she said.
“We think we have a lot of opportunities here and in other countries,” said Sabasteanski, who added that she expects the sector to expand in 2009.
Founded in 2000, Asset Management Network provides electronic commerce and risk management advisory, systems integration, and development services to the financial industry. More than half of the company’s business is in the financial services industry. Asset Management Network employs two people in Massachusetts and maintains a 12-person development team in New Hampshire. The company also has offices in India, London and Warsaw, said Sabasteanski, who is also a trustee at the Massachusetts Technology Leadership Council.
Despite the optimism, the outlook can be grim. TowerGroup projects U.S. IT spending in the financial services industry to decline by 4.3 percent from 2008 to 2009, compared to a 4 percent to 6 percent growth rate from 2000 to 2007 (see chart, page 18). Garcia said new technology investments will take the biggest hit at a 13.4 percent decline from 2008 to 2009.
“There is no budget left over for innovation,” said Garcia.
Overall IT spending in the North American banking industry will decline in 2009 by 4 percent from 2008 spending, according to Financial Insights. Due to postponed projects, hardware and software spending will fall.
There are a slew of local technology companies serving the financial industry, including a unit of Progress Software Corp. known as Apama. Based in Bedford, Apama develops an algorithmic trading platform for sell-side and buy-side traders in the financial industry. Framingham-based Ripple Systems LLC specializes in transaction processing and business process automation software for the financial services industry.
Formed in 2001, Omgeo is a quasi-commercial firm jointly owned by The Depository Trust & Clearing Corp. and Thomson Reuters. Omgeo develops software for institutional asset manager and broker dealers like Boston-based firms Fidelity Investments and Putnam Investments. More than half Omgeo’s employees — 300 people — work in Boston.
Omgeo executive Lind said he expects a 10 percent to 15 percent drop in IT expenditures for 2009. “Never underestimate our industry’s capacity’s for panic,” said Lind.
He expects the industry to operate conservatively, continue head count reductions and reduce discretionary spending. He expects a rise in demand for credit risk management systems and upgrading systems to meet potential new regulations.
“These are generally good for Omgeo,” said Lind.
Catherine Williams is a freelance reporter in Boston.
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