Predictions 2014: Financial Services

TechMarketView’s theme for 2014, “Race for Change” is absolutely spot on for the Financial Services sector. Over the past five years, Financial Services companies have been pre-occupied with slashing costs and reacting to regulatory changes. Now they are waking up to a new reality; that the competitive landscape has changed significantly and that they have to transform the way they operate and how they interact with their customers. Their customers’ expectations have changed; they want to use their smartphones for banking, they use Twitter to complain and they want the best service and the best deal, regardless of supplier. At the same time, a new breed of competitor has emerged; edgy, technology savvy and focused, taking market share and showing the older-established companies a clean pair of heels in terms of innovation, agility and customer acquisition. As a consequence, the larger companies, who are also the UK’s biggest spenders on IT now realise that they are already behind in this important Race for Change.

This need for change, and the size of the task, underpins our forecast that IT spending in this sector will grow faster than anywhere else in the UK market. FinancialServicesViews subscribers can see our detailed sector view in our Market Trends and Forecasts report. With this background and our positive view of growth, our predictions for 2014 are as follows;

Larger Financial Services companies will continue to be handicapped by their legacy position and systems: particularly as the tsunami of regulatory changes continues.  Large proportions of available budget will be directed towards ensuring compliance – and not to the increasingly pressing problem of remaining competitive. Here, incumbent vendors, with track record and a good knowledge of existing systems, will remain in a strong position.

Financial Services companies will increasingly concentrate on their core businesses: leaving more of their IT to scale-advantaged vendors. This will lead to new outsource contracts and deals like the recent IBM/Dexia agreement, where IBM has taken on the activities of this Franco-Belgian bank’s IT department.

Greater use of industry-wide utilities by Financial Services companies to reduce costs, particularly when they are run by capable, well-capitalised and independent providers. This presents substantial opportunity for vendors with innovative business models, deep pockets and broad capabilities.

Mobile systems generating growth. Mobile channels will generate most of the growth in payments and banking, providing a route for new competitors to establish market positions. Incumbent companies will have to invest in effective and customer-friendly mobile propositions to retain market share. Demands on vendors will be onerous, as mobile systems will have to integrate seamlessly with other channels, provide a holistic customer experience and be secure (a particular concern as cyber-criminals turn their attention to this increasingly lucrative opportunity). Social Media and Analytics will also move more into the mainstream across the sector.

Cloud Services will underpin both cost reduction and growth strategies across the sector. Private cloud infrastructures will predominate but will increasingly be combined with public cloud for non-mission critical applications. Cloud infrastructure will be used to supplement core systems as they cope with additional volumes, Big Data applications and the extra demands placed on systems as a result of multiple channels to market. Customers will require a clear long-term infrastructure strategy, showing how cloud can inter-work with existing systems.

Sector consolidation will also be a theme for 2014. Customers will reduce their lists of vendors to reduce costs. Larger suppliers will be active purchasers of smaller companies to acquire niche skills and meet the diverse needs of key customers, especially where the Financial Services companies themselves have reduced their own IT and innovation teams. Also watch out for consolidation in the sector, as well-capitalised players buy smaller firms in a drive to buy share and coverage.

As Financial Services customers increasingly rely on their vendors for advice, innovation and cost reduction, successful vendors will need to offer business consulting skills, deep domain expertise and best-in-class delivery. Therefore, to succeed in the Race for Change in the Financial Services sector, many vendors will have to transform themselves. 2014 promises to be a very interesting year!

Posted by Peter Roe at '19:57'