TowerGroup Identifies Key Financial Services “MEGA-TRENDS”

Opening Address of TowerGroup Annual Conference Explores Forces Bringing the “Enterprise Vision” to Fruition

TowerGroup Annual Conference, Boston, MA (June 2, 2005) – The global financial services industry is reinvigorating a transformation in how it applies technology to support business on an enterprise level. In the opening address to over 600 financial services executives attending the 2005 TowerGroup Financial Services Business & Technology Conference, president and CEO Karen Cone mapped this transformation starting in the mid-1990s – and identified financial services “mega-trends” expected to dominate the industry through 2010.

“The initial vision behind the business/IT governance models and the customer relationship management and data warehousing infrastructures first built in the mid-90s focused on technology serving financial institutions at a truly enterprise level,” said Cone. “In the 10 years since, we’ve experienced the peaks and valleys of economic upturn, downturn and recovery, regulatory emphasis, new technologies and processes, and an increasingly global market. But in spite of shifts in business focus and other interruptions, the transformation sparked a decade ago has continued. We believe that forces are now converging to bring long-discussed trends to fruition, where financial institutions are able to fully leverage the enterprise vision.”

The mega-trends to watch through 2010 are:

  • Mega-Brand Power: Consolidations will continue, with mega-brand survivors assembling, cross-selling and delivering to customers globally a value chain of products and services sourced through the most efficient internal or external channels. Several global banking institutions have already taken important steps in this direction by consolidating technology platforms and initiating targeted entry into new markets through acquisition or branding plays. By 2010, TowerGroup expects the global banking scene to be dominated by less than a dozen of these mega-players that have the power to rapidly and dynamically deploy resources to shifting high-growth markets.

  • “Niche” Players Also Win: Beyond the mega-brands, a wide range of niche-focused players of varying sizes will thrive by specializing and providing superior customer value to captive or highly-targeted markets. Many will be large players who select multiple specialties. For example, by 2010 TowerGroup expects leading securities and investments firms to have migrated to a business model that favors specialization in targeted segments, such as active traders, high net worth individuals and institutional clients.

  • Regulation Rules: Regulatory compliance remains mandatory, becomes accepted as an inherent cost of doing business, and will be leveraged by successful financial institutions as an important means to gain and maintain customer trust. In addition, winning financial institutions will build more efficient enterprise-wide infrastructures to address regulatory requirements and leverage these enhanced capabilities as a competitive weapon to create differentiating offerings with improved price and performance.

  • From Data to Predictive Information: Winners in the financial services industry will take advantage of precise predictive analytics and automated decision support tools to manage business more effectively and deliver higher customer value. For example, by 2010 TowerGroup expects leaders in the US Property & Casualty insurance business will reduce combined ratios by 5 to 10 percent through initiatives such as risk-based pricing – which will increase profitability and reduce their dependence on investment cycles.

  • Technology Becomes an Enterprise Differentiator: IT spending across all financial services vertical sectors globally will reach US$361 billion in 2005, and will grow to close to US$450 billion by 2010. The context around this compound annual growth rate of over 4.2 percent reveals declining maintenance expenditures for legacy IT and, as a result, additional spending directed to new, differentiating IT investments. By 2010, those institutions that have created interoperable infrastructures, internally as well as externally with third parties, will be the clear leaders in their industry.

“In addition to traditional IT spending, by 2010 another US$100 billion will be invested by financial services institutions in external spending on business process transformation,” said Cone. “In the coming years, differentiation and competitive advantage from technology will be gained not from the tools themselves, but rather how an institution leverages them on an enterprise level. The emphasis will be on spending money smarter – which means less investment in IT maintenance and ‘siloed’ business processes, and greater investment in the intelligent enterprise.”

The 2005 TowerGroup Financial Services Business & Technology Conference & Exhibition, themed “Road Maps for Growth,” was held last week in Boston. Those interested in purchasing a copy of any TowerGroup report or subscribing to a TowerGroup research service may call +1.781.292.5200 or email [email protected].

About TowerGroup: TowerGroup is the leading advisory research and consulting firm focused on the global financial services industry. A respected source for trusted information and advice, TowerGroup brings many of the world’s leading financial institutions, technology companies, and professional services firms a deeper understanding of the business and technology issues impacting their organizations. Headquartered near Boston in Needham, Massachusetts, and with offices in North America, Europe, and the Asia-Pacific region, TowerGroup serves a global client base. Visit for more information.