Investing in the Financial Services Vertical

The financial sector’s projected IT and telecom spending is staggering, topping $1 trillion over the next six years. The anticipated increases come as banks, trading firms, wealth management companies and other players recover from the financial crisis, adjust to a new era of government oversight and can once again anticipate the impact of that scrutiny on their operations. The market is starting to get away from being frozen by regulation … and so there is likely going to be a big push to get more strategically focused around where organizations think that they have the best ability to compete and win,” said Bob Contri, vice chairman of auditing firm Deloitte LLP‘s banking and securities sector, in the company’s “2013 Banking Industry Outlook.” As a result, Deloitte and other industry observers predict significant jumps in the financial vertical’s outlay on communications and IT services.

The Insight Research Corp., for example, said in a February 2013 report that the global financial services industry will spend more than $1 trillion on telecommunications services and equipment during the six-year period 2012-2017. The compound annual growth rate over that period is more than 8 percent, starting with $135 billion in 2012 and growing to $217 billion in 2017,  the research firm found. “This sector consumes practically everything that telecom companies can offer, including hardware, applications, connectivity, managed services, hosting services, disaster recovery, security management, backup and storage management, storage area networks not to mention their huge appetite for wireless and wireline connectivity,” said Robert Rosenberg, president of Insight Research.

At the same time, Celent said in January 2013 that IT spending among banks in the United States and Canada will grow by 4 percent this year, to $56.9 billion, and by another 4.4 percent next year to $59.4 billion.

So where are financial firms spending this money? Channel partners and vendors targeting this vertical say there are three hot-button areas: cybersecurity, big data storage and disaster recovery. Let’s look at these opportunities one by one.

Cybersecurity. The need for cybersecurity protections among financial firms is growing. In its November 2012 report, Deloitte describes the problem this way: “On the back end, banks continue to operate fragile, undocumented legacy systems that are increasingly prone to operational failure. On the front end, bank websites have experienced a rash of service interruptions due to a variety of attacks, whether motivated by political agendas or the more typical theft of customer data.” The solution, Deloitte noted, is to secure the platforms’ operational stability.

Kevin Epstein, vice president of product marketing for email security provider Proofpoint, agreed. “Successful partners will examine the firms overall security needs anti-spear-phishing, or archiving and compliance, for example and make overall security suggestions for products that work to protect seamlessly across all devices, in-network and out-of-network, firm-owned or BYOD.”

Tom Zorn, vice president of global software channel for Unisys, added that globe-trotting C-level executives necessitate a solid data protection strategy. “Its important that partners provide tools to protect data and information across any network that treasury and wealth managers choose LAN, WAN, wireless, 3G, 4G and satellite networks, public or private.”

To that point, Epstein said that any devices, not just smartphones or tablets, attached to the corporate network create an opportunity for malware to get in and privileged information to get out. Most of that entry and loss happens via email. The right SaaS platform controls both inbound and outbound without any software on end-users’ devices. This means firms don’t have to be overly strict about BYOD, for example, because the devices are protected via the SaaS product. Still, BYOD is a sticking point for the financial sector. “Finance is about control and compliance while ironically, BYOD is the antithesis of both,” Epstein said.

But with BYOD in full swing, there’s no going back. So, be aware of what this means for financial firms. One of the big challenges is that hackers have invaded the mobile world and two out of every three mobile devices remains unprotected, according to financial services analyst firm Javelin Strategy & Research. The company said in January that distributed DoS attacks will go mobile this year. As a result, financial institutions “will be best served through a partnership with security vendors with the goal of increased adoption of mobile security software,” said Al Pascual, industry analyst of security, risk and fraud at Javelin.

Epstein agreed, and advised partners to avoid a “lock down and isolate the device” approach. That’s doomed to fail, he said, because it goes against the productivity desires of the people who started the BYOD movement. The best way to help financial firms with BYOD is to “focus on control and compliance methods that are user-transparent, such as centrally hosted or cloud-hosted server-side data loss prevention screens, targeted attack protection, and logging/insight systems,” Epstein said.

Big Data Storage. In April 2013, research firm IDC said sales of storage for big data deployments will hit almost $6 billion in 2016, up from $379.9 million in 2011. And in the financial world in particular, the big data industry looks promising indeed, Deloitte dubs it “the most popular new trend in financial services technology.” It’s not hard to see why: Regulators are demanding greater transparency, financial firms want to grow and, at the same time, customers seek more relevant, targeted experiences, Deloitte said. “The common element in all of these is data,” the consulting firm noted. But, financial institutions are juggling so much data from video surveillance streams and customer records to Web and mobile traffic that they need help keeping it all in one place before they can even consider data analysis.

That’s where channel partners come in. For VARs, systems integrators and even more IT-centric agents, getting into the world of big data starts with storage. To that point, SunGard, a technology services company that sells through indirect partners, in June 2012 identified storage as one of the 10 big data trends transforming the financial services sector. “Advances in big data storage and processing frameworks will help financial services firms unlock the value of data in their operations departments in order to help reduce the cost of doing business and discover new arbitrage opportunities,” SunGard said.

Carl Boisvert, vice president of global storage channel sales for IBM Systems & Technology Group, said partners play a key role in this effort. When they are well positioned, he said, with the right products and expertise behind them, they can help financial firms deal with the data onslaught. “The digitization of most financial functions, be it online trading, online banking, even the mobile depositing of checks, means that financial institutions are increasingly running on data,” he said. “And with that data come some major needs.”

A crucial step is to help customers determine which storage infrastructure is flexible and agile enough to accommodate the organization’s data. Storage methods suitable for big data include long-available options such as tape drives; network-attached storage, or NAS, which, in the traditional format, features a fixed amount of cache, CPU and drive slots; and network-attached storage which, when provisioned through the cloud, is scalable. There’s also storage area networking, defined by the Storage Networking Industry Association (SNIA) as a network that transfers data between computer systems and storage devices, and among storage devices. This is key because it provides universal connectivity. In other words, all of the data end up in the same place, rather than distributed among multiple servers to be tracked down and pieced together. When it comes to big data, SANs work well because organizations such as financial firms are able to store virtually unlimited amounts of information that they can find when they need it, SNIA wrote in a 2012 brief.

Best practices for selling big data storage properly start with knowing the financial sector extremely well. Partners must have deep industry skills, said Boisvert. “These either need to be very deep in a specific functional or application area, like floor trading, risk analysis, rapid fraud detection, rapid client personalization or broad integration skills across an industry area, like core banking,” he said. Second, keeping your big data software skills current is important. It’s also key to have an in-depth understanding of emerging areas such as the software framework Hadoop, Boisvert said. Next, strong infrastructure skills are key. “Storage environments must be resilient, responsive, efficient and secure.” Finally, customers don’t want to hassle with development and integration. “The partner that comes with the most complete solution, with the proper business case, will win,” Boisvert said.

Disaster Recovery. As more disasters seem to crop up every day, from wildfires and tornadoes to bombings and run-of-the-mill power outages, financial clients must be certain their disaster recovery (DR) strategies can withstand those events. The thing is, they’re not doing such a good job of that. According to the 2012 Acronis Disaster Recovery Index, two-thirds of the financial services respondents said they doubt the ability of their IT teams to fully recover data and restore operations following a disaster. And 45 percent of those respondents said network downtime could cost them more than a quarter million dollars each year, because they wouldn’t be able to access crucial data.

Typically, the approach to DR has been for organizations to spend hundreds of thousands or millions of dollars on hardware, software, infrastructure and staff. But “as-a-service” models are changing that. In fact, disaster recovery-as-a-service (DRaaS) is proving more popular than capex-intensive buildouts, according to research firm MarketsandMarkets. The DRaaS market is outpacing the traditional DR sector, the firm found in March 2013, and will grow from $640.8 million this year to $5.77 billion by 2018. Financial services topped the verticals demanding the flexibility of a subscription-based cloud DR service, which includes storage, replication and restoration of applications and data.

Financial firms can’t risk downtime for processing transactions via their point-of-sale systems or websites, said Jaclyn Mispagel, cloud and managed service product manager for Windstream. They also can’t risk having their voice services go out. DRaaS protects both areas. So how do partners help clients determine what level of DRaaS is right? The first step is to figure out the recovery point objective (RPO), or the maximum amount of time the company can tolerate losing data. Then pinpoint the amount of time a company actually can be down; this is the recovery time objective (RTO). From there, analyze which applications, such as transaction processing, will most impact revenue and reputation if they are unavailable. Then find out if less critical applications such as HR time sheets can be stored on tape backup, which takes longer to restore. Keep in mind that the less time an application can be down, the more expensive the DRaaS platform will cost. Mispagel said partners then can “discuss the benefits of using a DRaaS solution to lower the RTO and RPO for … mission-critical applications vs. a lower-cost DR option for less critical applications.”