For The Channel, Money Talks

For those companies on the VARBusiness 500, there's a lot of money to be made in...well...money. We're talking about the financial-services sector, a booming vertical nowadays.

In our 2007 VARBusiness 500 survey, 16 percent of solution provider respondents said that their largest vertical market was accounting/banking/financial services, only 1.4 percentage points behind the federal government.

Of those that said the financial sector accounted for the biggest percentage of their business in 2006, 42 percent were among the top 200 VARs in North America. Sixty-four percent said 25 to 49 percent of their revenue was generated from the finance vertical, up from 39 percent that said the same last year.

The data suggests that the sector is popular in a field of large competitors, companies that typically weigh their options carefully and avoid bleeding-edge risk-taking. Many of these firms are, therefore, good fits culturally for this vertical. The data also suggests that the financial sector is growing.

One big reason for the growth are impending--and recently implemented--changes to retirement regulations, says Imran Sayeed, vice president of financial services at Keane (No. 60 on the 2007 VARBusiness 500).

"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 is affected by it. Some of those changes affect IRAs. For example, taxpayers now have the option to directly deposit their tax refunds into IRA accounts. Other changes mandate that employees be enrolled automatically in their companies' 401(k) plans.

"Now that employees will automatically be in, they'll have to opt out of a company's plan," Sayeed says. "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 number 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 offer financial advice to employees, Sayeed adds.

All of that adds up to much more work for already overtaxed systems and employees. 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're 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 road map of what changes need to be made and a time line 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 for new customers, this is a cost-effective way of increasing business by 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 has, which adds tremendous overhead costs, says Jeff Benson, vice president and national practice director at financial services practice American Systems (No. 132).

"Let's say Jeff has a small business with 10 employees," Benson explains. "He has a business banking account, personal credit card, business credit card and mortgage, reaching across three or four parts of the bank. He has all these accounts, but he's still 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," Benson adds. "Customers are asked four or five times during a phone call for their account numbers. So we're 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."

The odds are that solution providers in the financial space will find that the next few years will bring regulatory changes aplenty, particularly with an election year ahead. And those changes are likely to bring customers calling as they ramp up their systems for increasing workloads. That's something the channel can bank on. n