Steve Mills, senior vice president and group executive of IBM’s 50,000 employee Software Group, describes the mood in financial services as much more optimistic than it was a year ago.
In an exclusive interview with Wall Street & Technology, Mills says the financial services industry’s collective attitude has changed from caution and risk avoidance to one of optimism and growth. “If you look at where we were a year ago, there is much more optimism in the marketplace today. Last year, I would say, everyone was focused on being cautious.”
Mills cited a new survey from Securities Industry and Financial Markets Association (SIFMA) and IBM of nearly 250 business and IT Wall Street professionals reveals that almost one-half expect 20-30 percent of their technology budget to be allocated for transformational initiatives in 2010 and 2011. While economic uncertainty still remains high, the new survey shows that concerns about the economy are waning from 2009. For the first time since the 2008 financial collapse, firms are revisiting the use of IT to promote organizational sustainability. Key priorities include innovating processes around trading, portfolio management and risk management. Surprisingly, client relationship management ranked last out of 17 categories with only 2 percent of participants selecting that option.
The Wall Street professionals polled in the survey shared the view that the most likely increases in IT investments for analytics are expected to be risk, compliance and trading. Also, as firms prepare to meet the government’s increased transparency demands, the research has found a greater focus on the development of systemic risk strategies. Of all regulatory activities, systemic risk was chosen by 55 percent of respondents to be the largest driver of IT investments. Building on that trend, risk analytics for compliance was ranked as the top analytics investment opportunity (37 percent) beating out categories such as analytics for client segmentation (21 percent) and external fraud (13 percent). Over 90 percent of survey respondents expect to increase their investment in analytics over the course of the next year.
Mills, who was also the opening keynote speaker at SIFMA’s Financial Services Technology Expo, said that although technology has the most important role in the transformation of business over the past few decades, technology’s importance will only increase over the next 10 years. “Technology is going to matter even more over the next decade than it ever has before, especially if firms want to use it as a competitive differentiator,” he told the audience.
In the interview with Wall Street & Technology, he expanded on the thought. “For instance, when you think about algorithmic trading systems, they can look at hundreds of elements” of financial, news and other data, he says. “There are only a fixed number of elements that a trader can look at, test and certify to represent a good strategy. A trader can only go so far.
“Imagine if you can look at hundreds or thousands of elements,” Mills adds. “You can trade and test and verify everything. Today, your average quant can only look at a few things. There are thousands of elements to look at. Technology is doing that and it will continue to do that, and it will expand going forward.”
Another place where technology will change technology operations in financial services is cloud computing, Mills says. Although, he contends, people in the industry need to “stop talking past each other” when it comes to cloud computing. “IBM has a sizable install base of technology that our customers are using to create in-house, or private, clouds,” Mills says. “The idea of a cloud is really about shared infrastructure that leads to lower cost, greater operational efficiency, true standardization, rapid implementation and deployment. If you are willing to stay in a given structures, predefined areas, the thing you want to do can be done quickly.”
However, financial firms have traditionally been driven by the idea that they must develop everything internally to create a competitive advantage, Mills says. “The idea that you have to do everything as a custom development project is driving up cost,” he says. “The appeal of the cloud is it is something that is shared can lower costs and get to market faster.”
Firms will likely never put trading systems or mission critical, latency sensitive applications on the cloud, he says, but other services are perfect for cloud. “If you define cloud applications broadly as online shared services, the industry has been doing online shared services for decades,” he contends “ADP, Bloomberg and Reuters are shared services and the industry has been using them for decades. Cloud is perfect for some BPO,” or business process outsourcing.