Infrastructure

10:40 AM
Jerry Silva
Jerry Silva
Commentary
50%
50%

The 2014 FinTech Rankings: A Sneak Preview

For over a decade, IDC Financial Insights has collected information about the world's top technology vendors that provide hardware, software, and services to banking, insurance, and capital markets firms globally.

With 65% of the total IT budgets at financial institutions going to third-party providers, the analysis in the annual FinTech Rankings has become an important measure of the health and direction of technology in the industry and the emergence of innovative solutions from new players, as well as playing a critical role as a tool for financial institutions during budgeting and vendor selection efforts. 

The 2014 FinTech Rankings will be released next week, but a preliminary analysis of the data points to some interesting trends that indicate what's happening in the industry today. For example, more than two thirds of the top 100 IT providers on the FinTech Rankings experienced stable or growing revenues over the previous year. Almost a third of the companies experienced revenue growth in excess of 10% year-over-year, with some companies reporting up to 30% revenue growth last year. With overall financial services IT spending growing at about 7% from 2012 to 2013, this is a clear indication that IT spending is healthy and continues to consolidate in the top vendors globally, a trend we've seen since the first rankings in 2003.

In banking, two areas of technology are leading the growth curve: consulting and system integration firms that drive more than a third of their revenue from financial services, and integrated bank systems providers that provide core banking systems as well as peripheral solutions. Of the 20 fastest growing companies represented in the top 100 in the FinTech Rankings, 12 were either consulting and system integration companies or integrated bank systems firms, and those 12 companies represented 25% of all 2013 IT revenues the FinTech Rankings Top 100. 

This underscores a phenomenon we've been seeing for some time: More and more of the IT spend in financial services is going to the one-stop-shopping providers that can support technology transformation with a complete offering of software and services. IDC believes that financial institutions will continue to consolidate their IT spend on these kinds of companies as the third-platform technologies, particularly big data and cloud, tax the internal resources necessary to implement the solutions needed to transform the business. 

As institutions continue to benefit by the increased levels of integration and service by the larger companies, IDC Financial Insights believes that the days of mono-line IT solution vendors are dwindling for all but the smaller, innovation-led firms. For this reason, we expect to see more M&A activity in financial services IT as major vendors acquire technologies to complete their offering portfolios and as institutions continue to simplify their vendor ecosystems.

The top 20 companies listed in the Enterprise 25 category of the FinTech Rankings (companies whose revenue from financial services was less than one third of total revenues) saw an aggregate revenue growth of just under 3.5%, a more modest growth rate than the specialty and financial services-focused companies in the FinTech Rankings Top 100. (Changes to the selection criteria for the Enterprise category would skew the aggregate growth for the other five vendors on the list.) However, this aggregate rate belies the variability in revenue growth in major technology firms like Hewlett Packard, Accenture, Cisco, Oracle, and others. Future reports will look at the details around the success of these large technology providers in the context of financial services spending.

Finally, new entrants to the FinTech Rankings Top 100 list came from all sides of the financial services technology landscape. A number of digital banking and payments companies are making their first appearance on the FinTech Rankings -- a clear indication of the importance of the "bank anywhere" trend that is drawing investments from banks globally. Based on this year's rankings, it is clear that payments is another part of the industry where growth is poised to explode over the next few years.

Over the next few weeks, IDC Financial Insights, in partnership with Bank Systems & Technology, will publish a series of reports providing detailed insight into the 2014 FinTech Rankings and how this information can inform strategic spending in financial services institutions globally.

For more information, please visit IDC Financial Insights 2014 FinTech Rankings.

Jerry Silva is research director for IDC Financial Insights, responsible for the global retail banking practice. His research focuses on technology trends and customer expectations and behaviors in retail banking worldwide. He draws upon over 25 years' experience in the ... View Full Bio

Comment  | 
Print  | 
More Insights
Comments
Newest First  |  Oldest First  |  Threaded View
Greg MacSweeney
50%
50%
Greg MacSweeney,
User Rank: Author
9/24/2014 | 4:26:46 PM
Re: Balancing Act
While working with larger vendors may minimize risk, there is also risk with overlooking smaller vendors just because of their size. Larger vendors have more established products and better security, but they often are slow to move on newer technologies. Smaller vendors are better able to jump on new technology trends and quickly adapt. So, working with larger vendors may satisfy the risk and compliance folks. But, competitors may be jumping on newer technology (much faster) by utilizing smaller vendors...leaving the firms that only stick with larger vendors at a competitive disadvantage.
pgsilva
50%
50%
pgsilva,
User Rank: Apprentice
9/24/2014 | 1:52:41 PM
Balancing Act
It will always be a balancing act between demanding a shift of liability to 3rd party providers and needing to maintain relevancy in adopting new technology.  Bryan, we're already seeing that kind of consolidation at the high end of technology providers.  In my mind it absolutely minimizes risk by partnering with large vendors, although to Jonathan's point, nothing is guaranteed, even with the largest vendors.
Jonathan_Camhi
50%
50%
Jonathan_Camhi,
User Rank: Author
9/23/2014 | 11:00:45 AM
Re: Want it both ways?
I don't know that anyone is that secure any more in today's environement. Even the security companies like RSA have been hacked. If they can be hacked, I'd think anyone can. The only way to deal with it is to constantly monitor companies you're working with and make sure they're constantly moniroting for any suspicious activity in their networks. The Target hackers were in Target's network for months creating new user accounts and "hiding in plain sight." Banks can't allow that to happen in their own networks, or those of their vendors. The Target hackers got into Target's network througha  vendor portal to begin with.
Byurcan
50%
50%
Byurcan,
User Rank: Author
9/23/2014 | 10:56:52 AM
Re: Want it both ways?
Yes, I wonder if this will enable the bigger/better known vendors to gain even more market share, since banks know they are (for the most part) trustworthy and secure.
Jonathan_Camhi
50%
50%
Jonathan_Camhi,
User Rank: Author
9/23/2014 | 10:53:54 AM
Re: Want it both ways?
As it should. Banks are charged with keeping their customers money and data safe. And doing the proper due diligence on vendors and partners is an essential part of that now.
Byurcan
50%
50%
Byurcan,
User Rank: Author
9/23/2014 | 10:17:25 AM
Re: Want it both ways?
Yes, it's obvioualy extremely important for banks to do the proper due dilligence with any third-party they work with. Because if there is a breach and a third-party is to blame, the bank will also recieve a share of the blame as well.
Jonathan_Camhi
50%
50%
Jonathan_Camhi,
User Rank: Author
9/22/2014 | 4:41:37 PM
Re: Want it both ways?
There seems to be a bigger focus among regulators on banks' vendor relationships and the risks there. So simplifying the vendor ecosystem is likely being driven by that as well. The more vendors you have, I'd imagine the more difficult it is to meet regulatory demands in terms of managing them.
KBurger
50%
50%
KBurger,
User Rank: Author
9/22/2014 | 1:02:04 PM
Re: Want it both ways?
Good point. And the overall emphasis on transparency, metrics, deliverables, etc. is likely to result in more scrutiny overall (internal and external) of these relationships.
pgsilva
50%
50%
pgsilva,
User Rank: Apprentice
9/22/2014 | 12:07:02 PM
Re: Want it both ways?
They're certainly buying simplicity at the cost of more complex vendor management environment.  I think the increase in spending among fewer vendors has to continue, both as M&A activity at technology providers continues and as banks consolidate 3rd party relationships.  But the effort needed to manage those relationships will increase as banks tighten their risk management practices and as regulatory changes demand better operation risk control as well.
KBurger
50%
50%
KBurger,
User Rank: Author
9/22/2014 | 11:18:34 AM
Want it both ways?
Very interesting to see the evidence of growth in IT spending, Jerry. I certainly understand banks' drive to consolidate systems investments with fewer tech companies; however, I wonder if the growth in spending for consultants and integrators means that this is easier said than done. On the one hand, banks appear to be striving to streamline and simplify; on the other hand, it looks like they need to increase their spending with consultants to get that done. Are they trading off one form of complexity for another?
Register for Bank Systems & Technology Newsletters
White Papers
Current Issue
Bank Systems & Technology
BS&T's 2014 Elite 8 executives are leading their banks to success, whether it involves leveraging the cloud, modernizing core systems, or transforming into digital enterprises.
Slideshows
Video
Bank Systems & Technology Radio
Archived Audio Interviews
Join Bank Systems & Technology Associate Editor Bryan Yurcan, and guests Karen Massey and Jerry Silva from IDC Financial Insights, for a conversation about the firm's 11th annual FinTech rankings.