Bank Technology News
1/2008
Byline Article from David Linch, Managing Director
Seemingly impervious to tumultuous market conditions, the
financial services sector continues spending on information
technology. Investment in new and replacement technology by retail
banking, insurance, securities and investment firms is expected to
grow at a rate of 8.9% between 2007-2010, according to TowerGroup
(Source: Computer Weekly, April 3, 2007). Spending is unlikely to
ebb, as financial institutions face an IT dilemma: innovate around
burdensome legacy programs (often defined by disconnected data and
flawed process architecture), consolidating acquisitions or take a
strategic path toward transformation/competitive advancement.
Such favorable industry dynamics (along with low barriers to
entry) encouraged many tech companies to enter the fray over the
past five years. In doing so, small start-ups thrived on niche
technologies highly prized by financial institutions and
aggregators. Rapid growth led to complacency, as small techs based
success on free cash flow, great management teams and satisfied
investors. Little emphasis was placed on investing in
infrastructure necessary to sustain the company as it reached a
growth plateau. Without such infrastructure, the heady growth
trajectories will begin to tail off, service problems may crop up
and revenues will likely falter. At this stage, it is too late to
get attractive capital financing or fairly-valued buyout offers. To
avoid this predicament, management teams need to determine growth
demands far in advance, focusing not only on how to market a niche
technology, but more importantly, how to obtain sufficient capital
to leverage the financial services technology and related business
infrastructure before it is needed.
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