The financial services industry is at a turning point, beginning to feel the velocity of change that will drive strategic and IT decisions for the next several years. Looking forward to 2011, the industry will be consumed by regulatory mandates and finding innovative ways to increase revenues. And one thing is certain - change will occur at breakneck speed and the industry will focus on responding. But before we conclude 2010 and plunge into 2011, let's reflect on 2009 and the performance of those suppliers of technology that power the industry and fuel its success.
In this the seventh year of the FinTech 100, the global economy continues to sputter, and yet we again saw the top 100 financial technology firms grow their revenues, albeit at a paltry pace. In 2009, FinTech 100 companies pulled in $53.0 billion in revenue from financial services clients, compared to revenues of $52.8 billion in 2008. This increase of less than a half percent pales in comparison to an almost 10% increase from 2007 to 2008. As it was in 2008, the minimum revenue required to make the list this year was just a bit over $50 million.
Fiserv holds tight to the top position on the FinTech 100 list. We will, however, likely see a new top seed next year in FIS with its late 2009 acquisition of Metavante (ranked 10th in 2008). It seems as though each year these two firms are vying to outdo each other, and success in that regard hinges upon the scale of their latest acquisition.
Jack Henry and Associates had the only other 2009 acquisition on the list with its purchase of Goldleaf Financial Solutions (ranked 84th in 2008). Indeed the core providers are focusing on expanding their offerings to both provide a wider range of products and services to their customers and to hedge against the fledgling threat of new core banking systems as consolidation continues. According to the FDIC, the U.S. has lost more than 11% of its banks from 2005 to 2010. Most of the 1,000 or so banks lost were community banks that failed in economically devastated areas or consolidation of charters. Also, considering the lack of de novo activity, the competition becomes more fierce for core banking players among a shrinking population of potential clients.
Another result of the battering the financial services industry has taken is the increased diversification of technology vendors into other industries. For example, Hyland Software (ranked 87th in 2008) does not appear on this year's FinTech 100 since they grew their revenues from the health care industry and subsequently revenue from financial services fell below one-third level needed to qualify for inclusion. However, CGI actually increased its revenues from financial services and moved from the 18th spot on the Enterprise 25 list in 2009 to 16th position on the FinTech 100 this year.
In 2010 we welcome six new entrants to the FinTech 100. Congratulations to Nomura Research Institute (ranked 9th), Moody's Analytics (ranked 46th), Six Card Solutions Ltd. (ranked 53rd), Actimize (ranked 83rd), and Virtusa Corporation (ranked 88th). These new additions are a result of increased global awareness of the FinTech 100 rankings attracting new entries, as well as to annual entrants finally achieving the financial services revenue required to secure a place on the list.
In addition to the new entrants, three companies should be noted for their significant climb in ranking from 2009 to 2010. Hundsun Technologies jumped 18 spots from 89th in 2009 to 71st in 2010; Fidessa was up 17 places from 48th in 2009 to 31st in 2010; and SmartStream moved up 11th from a ranking of 81st in 2009 to 70th in 2010. All three show impressive business growth in challenging times.
Consistent to with last year, we do not see many vendors on the list who are specifically known for delivering new and innovative products to the marketplace. Let's take mobile banking for example. Mobile is a constant headline across financial services media and conversation. However, no pure-play mobile vendor appears on the FinTech 100 list since none has scaled the $50 million-plus revenue hurdle to qualify. And as vendors and financial institutions alike hunker down to address new regulations, innovation and renovation projects will take a back seat-unless, of course, there is a compliance angle.
Looking forward, if I had to choose one phrase to describe the financial services industry, it would be "under pressure." Financial institutions are under pressure from the regulators with the likes of Basel III, the Dodd-Frank Act, as well mandates still unknown but sure to come. They are under pressure from customers to win back their trust and confidence. And they are under pressure from shareholders to increase revenues and reduce costs. Vendors are in turn under pressure to deliver solutions to help clients manage the regulatory burden. And vendor revenue is under pressure as financial institutions renegotiate contracts and the pool of financial institutions shrinks. This pressurized industry condition are certain to cause significant change - the velocity of change that will drive our strategic and IT decisions.
Karen Massey is senior analyst, consumer banking, at IDC Financial Insights.
