Shaking up financial IT

IT and finances have had a close relationship for almost as long as computers have existed. But that relationship has always been a difficult one. Organisations can't afford to be too bleeding-edge in their use of technology when cash flow or salaries are at stake. But neither can they afford to ignore progress.

Just as the personal computer yanked control away from the mainframe and gave SMEs and individuals power to manipulate their own finances, so now another set of fundamental changes looms - and seemingly all at once.

Cloud computing, software as a service (SaaS), Web-based access and advanced hosted services can, at least in theory, put even the smallest organisation on the same level as the largest bank. Vendors of financial software are trying their best to adapt as quickly as possible. According to Jeremy Waterman, MD of Softline Accpac, opportunities for both Web- and non-Web-based solutions continue to abound in SA for the SME market.

"I believe we're in a good position to embrace our emerging markets, in which the SME sector continues to show strong signs of growth," says Waterman. "The increasing reliance on systems by businesses of all sizes is driving fundamental change in the way accounting software is being provided to the SME sector.

“No traditional software application is immune to Web-based competition, so it stands to reason that Web application technologies and business practices are things that local vendors and customers are starting to adopt. Vendors have seen a gradual move in the industry over the past few years. Customers are starting to consider the adoption of SaaS models wherein Web-based applications are explored as an alternative to traditional desktop applications. For the small business owner, perhaps one of the most challenging aspects is simply deciding which application is most appropriate for their business, as well as sourcing reputable options."

That decision can be a hard one, given the current perception that the financial industry is becoming a lot more fragmented. As a result, smaller solution providers are scrambling to fill the gaps and, according to Greg Vercellotti, executive director of Dariel Solutions, they're often willing to invest in technologies that are disruptive so they can take on the big guys and innovate.

"To get the functionality they require, they're prepared to spend aggressively relative to their size, especially on the Internet side," he says. "We've seen small companies put their faith much more in the Internet in the last year or so. Connectivity improvements are such that going the Web route is much more viable."

Paul Mare, director of i5, says he's also seen aggressive innovation from smaller players.

"Even though there's an economic crunch, there's still spend on workflow and creative front ends. I currently have a customer who is doing credit scoring linked to their workflow, which you just wouldn't have seen five years ago. It was a low cost to market and allowed them to take on the big guys, who tend to be slowed down by their own weight fairly often."

Ryan Jamieson, consultant at IS Partners, says a lot of the technologies underneath the current trends have matured.

“What's happened is that customers are able to get a lot of functionality, richness and interactivity very quickly. I've done some work in Nigeria where you're starting from a zero base so they're able to innovate and develop cost-effective platforms. Cloud and Web-based platforms allow companies to project a much larger image of who they are. You don't necessarily have to spend a huge amount of money up-front."

No traditional software application is immune to Web-based competition.

Jeremy Waterman, MD, Softline Accpac

Quite often, newer technologies allow companies just to clean up and improve what they have. Scott Beattie, business development manager at K2, says a lot of the smaller players have custom-built solutions that they've been running for a long time, but today, it's much easier to give them more than just a fresh coat of paint.

"They're now looking at moving them away from the thick client and making them a lot more agile and friendlier to new regulations," says Beattie. "There's also a big drive around performance management and bringing in more process efficiency. Custom solutions that have been running for many years generally don't have process efficiency functionality built in."

Cloud computing is the next way solution providers will be able to offer customised financial solutions very quickly. If an SME needs a specialist application, then what better way than to rent or construct one in someone else's data centre and use a pay-as-you-go model? It's very enticing, says Kendall Watt, senior consultant at Mimecast, a specialist cloud provider.

"For the smaller players that don't have the capex to invest in big hairy systems, but still want to deliver a solution very quickly, it's tempting. Cloud has the potential to be disruptive but the intrusive behaviour is disappearing. The mindset is changing: it's no longer a question of removing local infrastructure and putting it into the cloud, but picking and choosing local resources to interact with the cloud. It's only in the last 18 to 24 months that consumers have trusted the cloud with their data."

Trust is a problem for a lot of organisations, says Christine Paulig, industry solution principal for banking at SAP, who says her company has experienced multiple requests lately around cloud computing.

"The interest is visible in the financial services industry across the globe. Nevertheless, there is still a lot of scepticism around sufficient security for this new technology. Processes are being looked at very critically where the highest security is required. Most of our partners are in an analytical phase and in the next 18 months to two years will start rolling out service delivery to the financial services market."

Lots of innovation has come from the smaller players.

Heinrich Degener, senior executive, Accenture

Jan Roux, MD of Integr8 IT, says on a practical level, 90% of the building blocks are there.

"But large financial institutions are concerned that the reliability and scalability aren't there yet. I think a lot of them agree with the concept, but it will take time before they adopt it. Even though there have been failures of cloud, no one has lost faith in the technology itself. A cloud service failing is just another risk that must be built into your plan. Do you want a backup? Do you need an alternative if it goes down? Then put one in."

There are generational issues too. The older school of financial managers balk at sticking their accounting information somewhere out on the Internet; the new breed of younger ones won't - as long as the risk is appropriately mitigated. Those sort of pragmatic attitudes will become more widespread as the trust chasm is bridged, says Heinrich Degener, senior executive at Accenture.

"Some people will burn their fingers on cloud; perhaps they will jump on the hype wagon too early," he says. "But for the right applications it's appropriate technology.”

i5's Mare agrees and says his customer base is already learning lessons about how best to leverage cloud technologies.

"We have quite a few customers running on hosted services, but more outside the financial services market than in it," he notes. "It's very interesting to observe what they're going through. Some of our customers, which are outsourcing services to banks in Africa, are not allowed to move customer transactional data out of the country - they can do it for DR but not for transactions. That seems to be about protecting the local economies because they want to sell hardware and services to those markets."

Solution providers are also taking the plunge and offering themselves as successful examples to their customer bases.

There is still a lot of scepticism about security for cloud computing.

Christine Paulig, industry solution principal for banking, SAP

"Magix is an SME itself and doesn't actually own any infrastructure," says Philip Gerber, director. "All of our core operations are managed by someone else. You can't keep buying hardware and try to keep it maintained. That's important for us because we can then recommend something similar to our own customers."

Ultimately though, it will be business requirements that drive widespread cloud adoption, says Roux.

"It's easy to get caught up with the technology - cloud computing and so on - but if there's no business benefit to the consumer, then it won't be implemented. We still have a long way to go before the consumer benefits from cloud, for example. We as the IT industry are still struggling to pass on the business benefits of cloud to our customers."

How to best leverage cloud may be a bit up in the air, so to speak, but SaaS has already changed the game. Vercellotti says although cloud computing is a little way off, SaaS is very real today.

"Let me tell you that some of the big boys are going to sweat this one. They will have to get some modern thinking in-house to revolutionise their approaches. The problem is they have an investment that must still be amortised. The SMEs can outmanoeuvre them easily. There is a limited time though. We like to think that the big guys are slow, but sometimes that's not the case. Even though they move slightly slower, when they do move, they can put you out of business. Because of their scale and size they can wipe you out."

Degener agrees. "It's a classic case of the innovator's dilemma: the larger players need to protect their investments and the way they work while the new entrants can innovate with disruptive technologies. SaaS is here; soon it will be EaaS - everything as a service."

Perhaps it's not too much to say that the industry is poised on the edge of a revolution: smaller, nimbler players using cloud, SaaS and hosted services to run rings around the larger ones. Mare says it's the survival of the fittest.

"The weakest must die before they procreate. If the global financial crisis has taught us anything it's that the biggest can die, and can die quite suddenly. The raw innovation from SMEs might just be the counter-force against all the other brakes on the system. The financial crisis did change a few things for everybody, but the major [change] was that there isn't a project that goes through now without a formal ROI. We don't sell much that doesn't pay back in a very short period."