The biggest financial technology players - Fiserv, TSYS, Metavante, NCR and Diebold - are certainly feeling the industry's pain, at least when it comes to their stock prices. But the news for IT vendors is not universally bad. Many of those that play to the weaknesses exposed by the current crisis, or offer significant savings through outsourcing, are reporting business as usual, and some are reporting record quarters.
Who's coming out on top? Financially strong vendors in the areas of risk management, customer relationship management, outsourced security, integration specialists and infrastructure tools. "The vendors that are going to do well are those that are viewed as quality vendors...most important is going to be a strong capital position," says Jeanne Capachin, research vp for global banking at Financial Insights. "Also important will be having a suite of solutions that make them more recession proof."
Whether you consider risk management technologies to be recession proof, or the cause of the recession, the fact is that vendors in this space are racking up record quarters and reporting strong pipelines. Archer Technologies, which dominates the financial services market in enterprise governance, risk and compliance products, says the third quarter was the company's strongest to date. "And our fourth quarter numbers are going to top that," says Jon Darbyshire, president and CEO of Archer.
How strong is the pent-up demand? At a recent series of user group meetings, privately held Archer surveyed 400 customers and found that only six percent had fully implemented an enterprise risk program, but 82 percent cited risk mitigation and regulatory compliance as top priorities for the organization.
Where vendors are feeling some friction is customers' due diligence processes, with increased attention paid to cash flow and financial statements. "They're not wanting to do business with companies they feel could have an issue," Darbyshire says, noting at the same time that clients are taking longer to pay their bills.
The massive consolidation that's already underway, and the likelihood that large and medium-sized deals will continue as institutions take advantage of the Federal bailout, bodes well for integration specialists such as Axway and Sterling Commerce. Middleware vendor Axway, with 1,500 financial services customers, says its pipeline remains strong because institutions need to integrate after a deal. "On the corporate wholesale side, consolidation has been one of the primary things that has affected us," says Dave Bennett, CTO at Axway.
Infosys, which provides IT consulting and outsourcing services, says its $600 million financial services outsourcing business - what Madan Mohan, avp of the banking and capital markets division calls their "run-the-bank" work - is holding steady through the downturn. But the "change-the-bank" work, which typically incorporates application development and other kinds of discretionary spending is slowing. Still, the company is projecting 13-to-15 percent growth for the full year.
Security is "always, perennially, a good place to be," Capachin says. Brad Miller, CEO of Perimeter eSecurity, says companies like his that offer security-as-a-service are a CFO's dream because they don't require a capital expenditure, and are therefore faring well in a time when CIOs are under pressure to cut budgets. "Our type of business loves financially motivated clients; the more financially motivated they are the happier we are."