VARBusiness 500 Sneak Preview: The Most Lucrative Vertical

In our 2007 VARBusiness 500 survey, 16.1 percent of respondents said the financial services vertical (including accounting and banking) was their largest market. Of those considering the financial sector responsible for the largest percentage of their 2006 business, 42 percent were among the top 200 VARs in North America. A substantial 64.1 percent said 25 to 49 percent of their revenue was generated from the finance vertical, up from 38.5 percent that said the same last year.

One big reason for the growth are impending -- and recently implemented -- changes to retirement regulations, notes Imran Sayeed, vice president of financial services at Keane.

"The Pension Protection Act of 2006 that President Bush signed into law is the biggest change in retirement planning in 30 years," says Sayeed, noting that any company offering retirement benefits as well as financial planning firms are impacted.

Some of those changes affect IRAs: For example, taxpayers now have the option to have their tax refunds directly deposited into IRA accounts. Other changes mandate that employees are automatically enrolled in their companies' 401K plans.

"Now, employees will automatically be in; they'll have to opt out of a company's plan," Sayeed explains. "That's a huge increase in the number of people in these plans. Companies will have to handle a much greater volume, on top of more disclosure rules, more reporting and regulatory rules."

The sheer numbers of new accounts that will need to be maintained is projected to rise exponentially. In addition, human resources departments and the institutions that maintain these accounts will now be allowed to provide advice to employees, Sayeed adds.

All of that adds up to much more work for already overtaxed systems and employees, in many cases. So Keane is seeing an uptick in customers that want assessments of their current processes: How do the new rules apply to them? What do they mean? If they are likely to experience significant growth, are their systems scalable?

"Each rule needs to be scrutinized to see how it applies to them," Sayeed says. "We then come up with a roadmap of what changes need to be made and a timeline of what needs to be done."

Another area of growth in the financial/banking sector is in what's known as "householding." The term refers to the concept of offering different product lines to an existing customer. Rather than going through the expense of prospecting new customers, this is a cost effective way of increasing business through extending offerings to existing clientele. But part of the challenge with this strategy, is that banks often use different systems for each type of account a customer might have, which adds tremendous overhead costs, says Jeff Benson, vice president and national practice director, Financial Services Practice, American Systems (VB500 #132).

"Let's say Jeff has a small business with 10 employees," Benson says. "He has a business banking account, a personal credit card, business credit card, and a mortgage, reaching across three or four a parts of the bank. He has all these accounts, but still he is difficult to 'household.' " That's because each of the different parts of the bank: business accounts, personal accounts, retirement accounts and so on, operate as silos. "Banks are challenged to ID these consumers as one customer," he continues. "Customers are asked four or five times during a phone call for their account numbers. So we are seeing a lot of investment in business intelligence tools, and in software oriented architecture, not only to develop business faster, but to find out what Jeff's relationship is to the bank." Odds are that VARs in the financial space will find that the next few years will bring regulatory changes aplenty, particularly with an election year ahead. Those changes are likely to bring customers calling, as they ramp their systems for increasing workloads. And that's something they can bank on.