The Treasury Department's proposed overhaul of the financial services industry likely will lead to more standardization within banking technology and could open the door to foreign providers that have found it hard to crack the complicated U.S. market, according to observers.
The proposed changes would bring several areas of the financial services industry under the aegis of federal agencies, and it likely would lead to a more streamlined set of regulatory policies that would let vendors simplify their offerings, several executives and analysts said.
Jeanne Capachin, the research director of corporate banking at Financial Insights, a research unit of the Boston technology publisher International Data Group Inc., said that having a unified set of rules would drive standardization in the back office, because vendors would not need to develop parallel applications for different kinds of institutions.
"They will have one set of regulations to keep track of," Ms. Capachin said. "No longer will they have to have a savings bank version and a commercial bank version, depending on the charter of the customer."
In that sense, a streamlined rulebook would bring the regulatory system in line with the realities of the market, she said. "The difference between a thrift and a bank has really diminished over time. The differences don't amount to much anymore."
Warren W. Lewis, Microsoft Corp.'s marketing director for the U.S. banking industry, said a simpler regulatory system would benefit both vendors and banks.
"We see the opportunity for standardized reporting, which is a plus," said Mr. Lewis, a former community bank executive.
When state-chartered banks have to prepare separate reports for state and federal regulators, the process takes more time and raises the risk of errors, he said.
Such a shift also could make development cycles faster and updates easier, Mr. Lewis said. "With fewer iterations, fewer versions, we can make changes more rapidly. Rather than having three versions or four versions, let's hope we could have one version of our product."
However, one downside of the changes would be their costs, he said. "This could initially cause the diversion of investment dollars into making the changes in these systems, which could pull spending away from the more innovative and customer-oriented changes that banks have focused on: building their brand and improving their customer experience. That would be a negative."
Mark Sievewright, the corporate senior vice president of market development for Fiserv Inc.'s depository institutions group, said his company plans to monitor the debate closely, though "we don't really know yet what the road ahead looks like."
Fiserv provides a wide range of products and services to community and regional financial companies, a market that would be affected by the proposed merger of the national bank and federal thrift charters. If that were to happen, Mr. Sievewright said, thrifts probably would need an extended period to move to a different type of charter, and his customers probably would need some hand-holding from the technology vendors.
"We need to help them make sure they can pass their exams with the Fed or the FDIC or whoever is regulating them," he said.
Of course, financial technology companies have tried to take advantage of regulatory changes in the past, with mixed results.
Fiserv entered the securities clearing business in May 1998 by acquiring BHC Financial Inc., with an eye toward offering brokerage services to community banks, in anticipation of the 1999 repeal of the Glass-Steagall Act. But that business never took hold with Fiserv's customers, and the vendor sold BHC to Fidelity Investments in 2006. Fiserv completed its exit from investment services in February by selling its portfolio custody business to TD Ameritrade Holding Corp.
Bart Narter, a senior analyst at Celent LLC, a Boston financial research arm of Marsh & McLennan Cos., said the complex regulatory environment in this country is part of the reason U.S. financial companies tend to work with a handful of trusted domestic vendors.
"Banks aren't willing to bet the bank that new foreign entrants can navigate the complexities of the U.S. regulatory framework," he said.
Only a few foreign core-account vendors have established a toehold in this country, Mr. Narter said, notably i-flex solutions ltd. of Mumbai, which probably owes part of its success to the fact that it is majority-owned by Oracle Corp.
But other foreign vendors, including SAP AG and TCS Financial Solutions, the financial technology arm of Tata Group of Mumbai, are "knocking on the door of the U.S. market," he said. A more unified regulatory environment "will really be a boon to foreign vendors."
Falk Rieker, SAP Americas' vice president for banking solutions, said the proposed changes could prompt banks to standardize some back-office functions and almost certainly would increase demand for advanced risk management tools.
SAP has been making headway in the U.S. market, especially in offering analytical systems to monitor the risks in volatile financial markets, he said. "Finance and risk are hot topics."
Guillermo Kopp, the executive director and global research fellow at TowerGroup, a Needham, Mass., independent research firm owned by MasterCard Inc., said enterprisewide risk management will become increasingly important to financial companies as commercial banking operations and capital markets become increasingly intertwined.
"This is a field that may well see double-digit growth for the next three years," Mr. Kopp said.
The global nature of the credit crisis illustrates the need for financial companies to take a more comprehensive approach to the risks they face, he said. "In the long run, banks will need to have better risk management to better understand the interdependencies of these markets between banking and securities."
