finserv trend guide

T R A NSFORM FOR TOMORROW 1

TRANSFORM FOR TOMORROW: NAVIGATING NEW FORCES

IN FINANCIAL SERVICES

A guide to aligning business and technology goals to drive organizational growth.

SHAPING THE FUTURE OF GLOBAL FINANCE TOGETHERWe are in the midst of a new era as market forces and technology demands converge on the financial services industry. Perficient understands the task at hand and is committed to helping our clients overcome the challenges of today and tomorrow with solutions focused on the key drivers of global finance: regulation, competition, cost efficiency, client-centricity and technology innovation.

We take great pride in working alongside our financial services clients as a trusted technology partner and thought leader, and strive to recognize what’s next in the industry to better equip our clients for the road ahead. Our goal with generating this guide is to help you see today’s business challenges as an opportunity to gain a competitive advantage through delivering what’s next in financial services for your customers. Armed with this information, you can be more strategic with business and technology decisions.

I trust you’ll find value in this content and look forward to the opportunity to work with, or continue to support, your organization as we shape the future of global financial services together.

Rob ShinbrotGeneral Manager, Financial Services, Perficient

COST & RISK MANAGEMENT

REVENUE GROWTH

NEW OPERATING MODELS

OPERATIONAL EFFICIENCY

TRANSFORM FOR TOMORROW

TABLE OF CONTENTSSTRATEGIES TO TRANSFORM FOR TOMORROW


STAY INFORMEDKeep current with the technology trends, issues and experts by following our financial services blog.

blogs.perficient.com/financialservices

WHITE PAPERSIndustry white papers covering methodologies, best practices, tips and trends in enterprise IT.

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PERSPECTIVESInformal Q&As with our subject matter experts on the tech topics and issues “top-of-mind” for our clients.

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FINANCIAL MARKETS BOOST IT SPENDING REGULATION IS HIGH ON

THE EXECUTIVE AGENDA

NEW OPERATING MODELS A TOP PRIORITY

SIX THINGS EVERY FINANCIAL FIRM NEEDS TO KNOW

UNDERSTANDING IF CLOUD IS RIGHT FOR

YOUR BUSINESS

SOLVING DODD-FRANK CHALLENGES WITH IBM

SOLUTIONS

TABLE OF CONTENTSSTRATEGIES TO TRANSFORM FOR TOMORROW

DIGITAL TRANSFORMATION

ENTERPRISE INFORMATION STRATEGIES TAKE CENTER STAGE

FINANCIAL MARKETS BOOST IT SPENDING

After several years of volatility, IT spending in the financial markets appears to be picking up. Overall, worldwide financial services spending is growing, with a 4.8% compound annual global growth rate (CAGR) in 2014, according to IDC Financial Insights.1

Risk and compliance continue to dictate which IT initiatives get the green light in financial services. However, there is movement towards spending in other key areas over the next few years: centralizing business and banking functions, managing operational risk, transforming trading platforms, automation and scalability. Asset management IT spending is also on the rise as asset managers look to cope with the diversification of services and an increase in the number of funds they offer, as well as new competitive pressures. Financial institutions are investing more heavily in improving front office functions and continue to modernize back office infrastructure and core banking systems.

Overall, technology is driving industry innovation, and we’ll continue to see an increased focus from financial firms developing new capabilities for operational excellence and more seamless and digital customer experiences.

Integrating technology is a critical component of a comprehensive compliance program for financial institutions. -@Perficient_FS

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REGULATION IS HIGH ON THE EXECUTIVE AGENDA

A significant percentage of non-discretionary spending in financial services is dedicated to the seemingly never-ending process of meeting regulatory requirements. As a result, firms have limited budgets and resources to focus on future technology investments and innovation. Ultimately, regulatory pressure is impinging on their ability to do business and is potentially disrupting performance.

How can the financial industry adapt to rapid regulatory change? Readiness boils down to three factors: people, processes and technology. Regulatory excellence requires a cross-functional approach of delivering cultural change, added compliance expertise, effective change management, and investments in data management and analytics technologies.

The potential risks of reputational damage and loss of clients alone are causes for concern. As a result, most firms are devoting more resources to regulatory change and prioritizing IT spending. In fact, the cost to banks of implementing just the Dodd-Frank reforms over the past three years has been estimated at up to $5 billion.5 However, as of April 1, 2014, 45 percent of the Dodd-Frank deadlines have been missed. Although firms have a better handle on compliance, the cost of adapting to ongoing regulatory change is a top challenge and why firms are seeking to drive down costs and improve efficiency through the application of technology.

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DIGITAL TRANSFORMATION IMPROVES THE CUSTOMER EXPERIENCE

Innovators have long thought of financial services as an industry ripe for digital disruption, but competition and customer expectations around digital services are reaching a feverish pitch. Software-based startups and online advisory services, like Wealthfront and Betterment, are on the rise and capturing the attention of private investors and established traditional asset management, private banking and wealth management firms and their clients. Likewise, mobile and social capabilities are radically changing the way firms design, consume and distribute financial services.

Mobility permeates many aspects of customers’ financial lives, from mobile banking, money transfers and payments to personal finance tools. Real-time access to investment portfolios, market data, electronic trading and research reports are no exception. The demand for mobile services and digitization is growing as younger generations are less and less engaged with the physical distribution of financial services, causing traditional brick-and-mortar infrastructure to slowly fade away.

The biggest challenge has been that many firms are playing “catch up” to get to the level of digital sophistication that clients expect and receive from other more agile and tech-savvy competitors. To reach a new level of digital maturity, firms should focus their efforts on:

• Developing a strategic technology roadmap and prioritizing implementation plans• Solutions that address both the business process and user experience• Integrating systems of engagement, systems of record and automation to build

seamless, multi-channel experiences

THE BANKING INDUSTRY SAW A 10% INCREASE IN MOBILE SPENDING DURING 2013 6


Despite the recognized benefits of the cloud – lower costs, rapid deployment and scalability – until recently, the capital markets industry has been hesitant to adopt the technology because of concerns with security and control. As new market forces and declining revenues continue to impact firms, evaluating outsourced data storage solutions and cloud-based services for decision support functions will become more prevalent in investment banking and capital markets.

Business is often built on personal connections. Financial relationships built through connections made on social networks and ongoing interactions via digital touchpoints are growing trends in the industry. In the future, it’s even possible that brokers will offer social media-based trading platforms. Despite regulatory concerns, the use of enterprise social platforms allows financial institutions to monitor conversations, ensures compliance of social media communications, and helps firms realize the value this channel holds for their business.

The demand for digital is growing as clients become less engaged with the physical distribution of financial services. -@Perficient_FS

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NEW OPERATING MODELS A TOP PRIORITY

Traditional operating models have been shaken to their cores as financial services firms scramble to evolve strategies around two primary business drivers: enabling new revenue streams and cost reduction.

Companies are rethinking their engagement strategies, product portfolios and pricing models as consumer and corporate preferences continue to dictate the customer experience. Embracing more customer-focused models may require banks and financial institutions to redesign many of their existing processes and adopt mobile, responsive design, advanced analytics, APIs and cloud services to deliver more personalized, omni-channel services.

At the same time, heightened regulatory pressures have forced the industry to focus on cost reduction to improve capital efficiency. Automating manual processes, increasing staff productivity, replacing legacy systems, or leveraging outsourcing and shared services to maximize value and reduce costs have surfaced as business strategies to address regulatory challenges and improve the bottom line.

Looking ahead, firms must begin by looking at their current operating model and performing an industry assessment to weigh current capabilities against industry competitors to identify gaps. Organizations must work towards envisioning the target state operating model and developing an implementation roadmap to achieve the end state. This methodology helps firms find a balance between aspirations, their core competencies and industry demands for transformation to improve business performance.

Customer-focused operating models for delivering unified financial services will open the door to new revenue streams. -@Perficient_FS


ENTERPRISE INFORMATION STRATEGIES TAKE CENTER STAGE

Information is a hot commodity, and organizations are eager to better manage the onslaught of data, both structured and unstructured, to enhance sales and marketing strategies, as well as manage operational and reputational risk. The financial industry is no stranger to the data phenomenon. As market and regulatory pressures continue to mount, it’s become imperative for financial firms to better leverage their enterprise information assets to optimize business performance, reduce costs, mitigate risk and strengthen customer relationships.

Evolving an enterprise information management (EIM) strategy should be a top priority as financial institutions turn mountains of data into real-time decisions, leading to sustainable and cost-effective operating models and a competitive advantage.

Evolving information strategies supports new business models and leads to a competitive advantage in financial services. -@Perficient_FS

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6 THINGS EVERY FINANCIAL FIRM NEEDS TO KNOW TO IMPROVE DATA SECURITY

AUTHOR: KEVIN TIMMONS, DELIVERY LEAD, FINANCIAL SERVICES PRACTICEIt’s safe to assume that most organizations recognize that the cost of handling a data breach far outweighs the cost of proactively securing data as long as the threats are broadly identifiable in advance. However, a vast majority of financial institutions are still working towards a more

proactive approach to managing this common problem. As the diversity of types of data and their physical locations continues to expand, the threat of stolen data and DDoS attacks is increasing exponentially. As a result, firms have to be more diligent with their efforts, requiring collaboration between the business, application, and infrastructure stakeholders.

Below is a summary of six key things on every IT department and compliance officer’s mind when it comes to the corporate governance of their organization’s cyber security framework and infrastructure.

BUSINESS ARCHITECTURE AND SECURE DATAMost secure data threat-modeling efforts take an asset-centric view (i.e. which of your IT assets are the most critical). Taking this approach, 30-40% of assets are often deemed ‘critical.’ A better approach is to start with business architecture to determine criticality from a business perspective.

LOOKING AHEAD: CYBERSECURITY MEETS PHYSICAL SECURITYThere are currently limited controls on taking a picture of a computer screen, but expect this space to change in the future.

One sophisticated bank heist involved hackers eliminating the withdrawal limits on prepaid debit cards and common street criminals making more than 2,000 ATM withdrawals. New York City prosecutors noted that this is one of the biggest heists in city history.


STOP MOVING THE PIIPII stands for Personally Identifiable Information. We all have it, and the criminal element wants it. With this information, a hacker can create a credit card account for you, not just use your existing account. Financial services firms need to ensure that they properly authenticate their users without moving the clients’ information to places where it can become vulnerable.

THE BYOD DILEMMA Many firms are moving to a Bring Your Own Device (BYOD) solution where employees use their own phones, tablets and laptops on the company network. This approach requires a well-thought-out data security strategy for selecting and separating user and corporate data, selective encryption, user and device blocking and wiping, mobile content management (MCM) and access control. Global companies should pay even closer attention. In Germany and France, the individual owns the data on his or her device.

DATA LOSSApproximately 66% of data loss is due to human or system error from an insider. The cost of a data breach starts in the millions of dollars. Many organizations do not have the knowledge or experience to identify all of the gaps in their infrastructure. Prevent unauthorized information disclosure or exposure by encrypting files, using audit trails and dynamic permission controls with a security solution that can monitor data at rest, data in transit and data in use.

CONTACT CENTER FRAUDEver wonder why automated menus at a bank’s contact center take so long? It’s partly because they’re conducting a fraud investigation on you. And if they’re not, they should be. Fraudsters are known to be repeat callers to the same call center, and to stay ahead of them, financial institutions will need flexible architectures that can support a repetitive analysis while regularly refining the criteria to catch new trends and patterns.

UNDERSTANDING IF CLOUD IS RIGHT FOR YOUR BUSINESS

AUTHOR: JP MORGENTHAL, DIRECTOR CLOUD COMPUTING PRACTICEThe business challenges facing financial institutions are well-known. Declining profitability, being out of touch with customers, competition from niche players, and increasing regulations and oversight in the wake of industry scandals are all making headlines.

However, a growing number of firms are taking steps to increase profits, connect with customers, and control costs by moving applications into the cloud. The combination of pay-per-use environment, on-demand infrastructure and storage, and unprecedented agility and speed to launch new services is giving financial institutions the advantages they need to compete and win business.

IS CLOUD RIGHT FOR YOU?While many companies are asking the question of whether or not to move to the cloud, the more important question to consider is when and how to use cloud. A cloud assessment can help answer those important questions.

Lofty, non-specific cloud assessments attempt to look at a business as a single simple unit instead of a group of complex, interconnected businesses. But the value of cloud computing must be assessed on a mission-by-mission basis.

“Is the cloud the appropriate platform for my business goal, and if so, what type of cloud deployment model is the right one?” This is a question that requires analysis across multiple dimensions. First, it takes an understanding of which IT workloads are required to complete an organization’s mission, the dependencies between them, and an understanding of the benefits and risks associated with migrating that workload. However, cloud impacts more than just technical decisions; it also impacts personnel and processes, so an analysis must also evaluate how migrating specific workloads will impact the business.

A cloud assessment provides the answers you need to determine the appropriate resources required to deliver on your business goals. The outcome also can provide more than cloud-only recommendations by delivering insight into issues related to any IT workload:

• What is the current burden of a particular workload on your IT organization today, both financially and operationally?

• What are the risks associated with the current architecture, as well as various cloud


deployment models?• How quickly can your organization absorb cloud as a new platform, thereby

determining your minimum migration times?

BENEFITS OF CLOUD SOLUTIONS FOR FINANCIAL INSTITUTIONSHelping your business derive maximum value from the cloud may require analysis and recommendations across multiple parts of the business. Through broad-spectrum modernization efforts, you can align your technology solution decision with key business goals to accomplish the following:

• Identify new business opportunities• Better enable communications with partners and customers• Rapidly respond to changes in the financial services industry• Improve business processes and increase productivity• Benefit from reducing operational overhead• Reduce the impact of infrastructure outages

ADDRESSING DATA SECURITY AND REGULATORY CONCERNSData security and regulatory compliance are the top concerns that financial executives express when considering the cloud. In any industry, security is a legitimate concern, but with cloud solutions the issue is quickly diminishing as leading cloud vendors continue to demonstrate they can provide secure services that meet regulatory requirements.

While some organizations have robust IT resources, customer data and applications are not necessarily safer behind a financial institution’s own firewalls. Many firms, particularly smaller ones, have IT departments that are stretched to the limit, whereas the entire business model of a cloud provider depends on the ability to deliver IT resources and expertise. It’s the old story of a business doing what it does best and leaving the rest to outside experts. In the case of financial services providers, what they do best is serve a customer’s financial needs.

Security can also be enhanced through different cloud configurations that are available to match an IT strategy and preferences. Public clouds provision IT services in a multi-tenant model where information from many companies is stored in the same data centers, or a single instance of a software application serves multiple customers. Single-tenant private clouds take advantage of virtualization and distributed computing resources all behind a firewall. And hybrid clouds combine elements of public and private clouds.

SOLUTION SPOTLIGHTOVERCOMING DODD-FRANK CHALLENGES WITH SALES PERFORMANCE MANAGEMENT SOLUTIONS FROM IBM

Q&A WITH CHRIS SKINNER, ICM SOLUTION ARCHITECT

Perficient’s financial services practice takes a business-driven, technology-agnostic approach to solving our clients’ challenges. Our thought leadership and industry experts cover the full lifecycle of client solutions addressing regulatory compliance. Our “Solution Spotlight” article showcases industry solutions from our growing strategic technology

partner network to help readers explore the changing fintech landscape and better align solutions with their business processes and goals.

Q: What current challenges are financial firms facing with implementing Dodd-Frank reforms?A: We’re more than four years into Dodd-Frank now. Financial services firms do have a better understanding of both the challenges and potential benefits. However, implementing Dodd-Frank programs has not been easy for a vast majority of financial institutions, and they’re a long way from completing this journey. Firms are focusing their efforts on addressing a number of external and internal challenges. Most notably, we’re seeing firms taking a more cross-functional approach to regulatory readiness, focusing on financial performance, managing the cost of compliance, hiring resources and investing in new technology.

Q: What specific regulatory problems are financial firms seeking technology solutions for?A: We continue to see heavy investments in technology for regulatory compliance programs to not only automate manual processes, reduce errors, maintain audit trails and analyze data, but to improve overall effectiveness and efficiency of compliance programs. As an example, it is no longer viable to track compensation payments in a spreadsheet. Information needs to be readily available to federal regulators through specific reporting mechanisms in order to demonstrate that the incentive compensation plans in place do not put the institution at risk.


WORK CITED

1-2 IDC Financial Insights Forecasts Worldwide Financial Service IT Spending to Top $430 Billion in 2014”, IDC, October, 23, 2013

3-4 Regulatory Pressure Cooker, Sungard Financial Systems, 2014

5 US Financial Regulatory Reform: Cost or Opportunity, Accenture, 2012

6 Forrester Research, Inc. “Trends 2014: North American Digital Banking.” Apr. 22, 2014

7 “OneMarketData Releases Cloud Adoption Survey”, WallStreet & Technology, November 8, 2013.

8 Sitecore, “Digital Maturity in the Financial Sector” Youtube Channel, April 11, 2014

9 Forrester Research, Inc. “Forrsights Software Survey.” Q4 2013

Financial institutions need to implement new compensation platforms, data architectures, infrastructure and processes to meet the regulators’ changing monitoring and reporting requirements. Implementing compensation platforms and tools can lead to a competitive advantage for firms by controlling costs, increasing productivity and improving overall business agility with their compensation administration processes.

Q: How are clients leveraging IBM technology to achieve regulatory readiness with their Dodd-Frank programs?A: Cognos Incentive Compensation Management (ICM) is part of IBM’s Sales Performance Management (SPM) suite of tools. It enables organizations to automate the process of administering, calculating, reporting and analyzing variable-based pay programs. ICM enhances incentive compensation management by increasing accuracy, reducing costs and improving visibility into sales performance and compensation plans.

A key attribute of the ICM tool is the flexibility it offers for designing compensation solutions for any industry. It can easily be tailored for a user to classify and determine payout and related payout corrections for any number of variable compensation scenarios that fall under regulatory requirements.

ICM centralizes all compensation behavior into a single system. This allows for visibility across all payees, organizational boundaries and time-periods. A financial institution can efficiently analyze how effective its plan design, monitoring and auditing processes are at producing the ideal balance of risk-related behavior.

ABOUT PERFICIENT Perficient partners with leading multinational banking and financial services companies to help shape the future of finance through the modernization of their products, services, business processes and technology infrastructures. We combine our comprehensive portfolio of solutions and services with industry expertise to successfully deliver business-driven technology solutions for our clients.

DELIVERING BUSINESS VALUE TO OUR CLIENTSWe create value by helping our clients implement solutions focused on the key drivers of global finance: regulation, competition, cost efficiency, client-centricity and technology innovation.

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Visit us at: www.perficient.com or email us at: [email protected]

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