The challenge for the new president of Fiserv’s Investment Services division is to stay aligned with customers’ needs as volatility rocks global markets.

Cheryl Nash has hit the ground running since she became president of Fiserv’s Investment Services division this past November. For 2012, she will be the driving force behind major product rollouts from her division. She and her team will be taking on competitors and tight budgets but the most challenging variable is market volatility.

“I haven’t seen markets change so much as they have in the last 12 months,” says Nash, who is based in Fiserv’s offices in Jersey City, New Jersey; Fiserv’s main headquarters are in Brookfield, Wisconsin. “Even the market volatility that we’ve seen in the last three months is crazy when you think about the industry that we’re in and how people have to create budgets and manage them.”

Under such erratic circumstances, predicting IT budget needs is getting difficult for clients, Nash says. Of course, the same unpredictability will be felt by fin-tech vendors.

Yet keeping up with ever-changing, unpredictable markets is what Nash has specialized in as her involvement in securities services spans nearly three decades. She was one of the original founders of Security APL, which was bought by CheckFree Corp.; Fiserv later acquired CheckFree in December 2007. Fiserv develops technology solutions for payments, transaction processing, risk and compliance, customer and channel management, business optimization and business intelligence.

“I’ve been working with clients, helping them automate their processes and build new programs, for over 25 years,” Nash says. “I’ve got a lot of good relationships in the industry. I also understand from a client perspective what they’re looking for. Some of the changes that were going to be making to our business in 2012 are directly aligned to things that clients have told me.”

Beyond the product news to come in March, Fiserv will be defining sets of best practices for customers in a variety of sectors. In addition, customers are encouraged to take active roles on advisory boards that sit down twice a year with Fiserv executives to talk about product strategies and market trends. “It’s really about how we organize ourselves around our clients by market segments and by products,” Nash says.

“I’ve been working with clients, helping them automate their processes and build new programs, for over 25 years. I’ve got a lot of good relationships in the industry. I also understand from a client perspective what they’re looking for.”

—Cheryl Nash, president of the Fiserv Investment Services division

 

Fiserv has several advantages as its gears up for 2012, says Morningstar analyst Brett Horn in a recent assessment of the vendor. Fiserv “benefits from its sticky customer relationships and leading market position,” Horn says. In addition, the management focus on cost-cutting has driven “some incremental margin improvement” while its acquisition of CheckFree has improved its competitive position, according to Horn. “Although near-term growth could be weak given the stress on its bank customers, there are signs of improvement and we think Fiserv is well-positioned for the long haul,” Horn says.

Thus the stage is set for Nash and Fiserv to forge ahead with “a big product roadmap for 2012 and we are well underway on delivering on some key development areas,” she says.

New Asset Classes, New Services

For 2012, one of the major issues for post-trade processing will be the new asset classes that Fiserv’s TradeFlow system is slated to cover.

“What we’re seeing is a lot of new asset classes that the industry is trying to automate,” Nash says. TradeFlow will expand to cover Non Deliverable Forwards (NDFs), clearing for OTC derivatives, contracts for difference (CFD), exchange traded derivatives (ETDs) and TBAs (to be announced).

“We’re really spending a lot of time with our clients,” Nash says. Fiserv is helping them specify the kinds of coverage they need in order to build out their automated straight through processing (STP) systems. “We are also looking at doing more around some matching components.”

Fiserv will be providing matching services for exchange-traded derivatives (ETDs) and adding SWIFT’s global ETC offering for managing transactions.

A key driver for Fiserv is its asset servicer clients with customers in need of more middle office, STP and trade processing support in order to manage increasingly complex asset classes. “It’s much more than what we’ve seen in the past,” Nash says. “Our clients were asking us to increase our asset coverage because they are taking on more business than they normally would have.”

Securities firms are putting a greater emphasis on asset allocation because investors, especially institutional clients, can use “a vast array of security types in their portfolios to reduce their risk. … Our clients even on the managed accounts side are asking us to look beyond just equities, fixed income and domestic-type securities and really move into more of a vast asset class, more complex derivatives, TBAs and more complexity. … People are looking to diversify their risk.”

At the same time, securities firms are seeing the wisdom of cost-cutting via automating formerly manual processes.

“We’ve got some clients willing to spend a lot of money to automate their middle office capabilities, especially around straight through processing,” Nash says. “The less manual intervention they have around sending, executing and confirming trades is better for them. That’s really a push from our clients and that’s where we are seeing the majority of them wanting to spend budget dollars.”

Outsourcing, India and OTC

The big drivers to broaden asset allocation, cut costs via automation and grow revenues are spurring new interest in outsourcing.

“Some of these asset servicers that we’re talking to are bringing on more clients and the clients they’re bringing on are outsourcing more,” Nash says.

Much of the new demand is on the trade processing side and hedge funds are prime candidates for farming out key platforms. “I think they’re more likely to outsource when things get complex. I think they also don’t have the internal industry knowledge of some of the new functional coverage they need,” Nash says. Many hedge funds are looking to leverage the expertise of third-party outsourcers and sidestep the process of hiring and training staff.

Overall, more firms are increasing their outsourcing “and it’s not just the back office,” Nash says. “They’re also outsourcing some of the key components to outside consultant firms that are based in India. We’re seeing an increase in our clients asking us to take over some of the work that these outside consulting firms are doing because we have the best knowledge of our products. That’s something that started over the last three months or so.”

Fiserv has a global services group in India that has been hiring and training its own staff to help clients work directly with Fiserv in a managed services arrangement. “The clients get the efficiencies of outsourcing to India but they also get the experience and expertise of people that work for Fiserv,” she says.

“Although near-term growth could be weak given the stress on its bank customers, there are signs of improvement and we think Fiserv is well-positioned for the long haul.”

—Brett Horn, Morningstar analyst

 

The Fiserv experts also get the chance to “sit side by side with the clients” to get greater insight into how clients’ middle office capabilities work, Nash says. Fiserv applies what it has learned from its client interactions to its product roadmaps and to bolster its capabilities to provide bespoke solutions.

That insight may come in handy as clients require more support for their publicly traded and cleared OTC instruments. The OTC coverage that is already part of TradeFlow will now be focused on clearing services. “We’re putting a lot of emphasis on that,” Nash says. “That’s becoming a bigger piece of what they’re looking for, so we have to have that coverage within our product. We don’t have a separate business case on that … but we know that it’s a very high priority for our clients.”

Another high priority is product integration particularly for Fiserv’s financial advisor clients. They are looking forward to more integrated platforms as a way to boost investor confidence in them, Nash says. Mergers and acquisitions among securities firms have also fueled demand for integrated solutions and firms are looking for solutions that can scale up quickly.

“The advisor’s job is much harder than it used to be,” Nash says. “They’ve got investors that have lost a good portion of their retirement income and I think that from our perspective we need to make sure that our technology solutions can support how the advisors need to have different conversations with their investors.”

To aid those conversations, Fiserv is integrating its advice platform with its trading and portfolio management system. “What we’re seeing from our clients is that they want more integrated solutions,” Nash says. “They don’t want to have their teams working on multiple vendor solutions that don’t talk to each other.”

The product integration represents “one of the biggest changes” on the horizon for Fiserv. “The things that were built in the past need to be really looked at, the user experience is much more important than it ever was and integrated solutions are much more important than they were a year ago,” she says. “There’s been a lot of change around cost efficiencies and getting more scale.”

Signs of Hope

The need for cost efficiencies and scale may translate into bigger budgets for financial technology. Analysts at market research firms have pointed to signs of improvement in financial technology spending for 2012, which could bode well for Fiserv.

This past May, a Bloomberg-sponsored survey of IT executives at major financial services firms found that more than three quarters of them, 76%, fully intend to increase IT spending throughout 2012. Less than one-fifth, or 17 percent, said they will cut spending and 7 percent of respondents predicted that their spending would not change.

The IT executives indicated that they are leaning toward purchasing managed solutions with 55 percent of respondents saying that they are shifting more of their overall capital expense to this area. One third said they would not be moving in this direction while 12 percent said they are uncertain about managed solutions. The survey was conducted at the Bloomberg LINK Enterprise Technology Summit seminar, attended by more than 100 chief information officers (CIOs) and IT decision-makers.

Also late last year, IDC Financial Insights released a forecast that worldwide IT spending for risk and compliance functions will be more than $74 billion by 2015. The market research firm also predicted that the growth in IT spending on risk management “will outpace the growth of overall IT spending in financial services, and will top 15% of total IT spending in financial services in 2012.”

The spending estimates from the “Worldwide Risk Technology Spending – 2011 Analysis and Forecasts” report cover the banking, capital markets, and insurance sectors and include seven risk submarkets: enterprise risk management and infrastructure, liquidity and asset liability management, market risk and trading, compliance and control, credit risk, financial crimes, and information security.

Nash says regulatory reform is undoubtedly driving much of the anticipated increases in spending on managed services, risk management and compliance. But she cautions that clients are telling her that the new, Dodd-Frank Act (DFA) regulatory framework is still unclear. Even so, firm are taking seriously the need to evolve their compliance and risk strategies as a result of DFA and European Market Infrastructure Regulation (EMIR) reforms. They are creating internal teams to grapple with these issues and are looking for new solutions.

“We’re also focused on what that means from our perspective—it’s a big change for us too,” Nash says.

For instance, one of the key compliance concerns for 2012 is the cost-basis requirement of the Internal Revenue Service (IRS), which requires brokers and mutual fund companies to keep an eye on the cost basis, holding period, and sale proceeds of securities acquired by their clients. The relevant information on the covered shares has to be reported to the IRS. The rule also requires shareholders to report sales of covered and non-covered securities to the IRS.

The cost-basis reforms apply to multiple asset classes and are causing trading and accounting platform providers to store different cost-basis attributes for different types of securities, Nash says. “I don’t see any of this slowing down,” Nash says. “From a vendor’s perspective, it gets tricky because it’s hard to charge for some of those new requirements. But we have to keep up with that.”

As Nash rallies her division for the 2012 foray, her advice to those facing similar situations consists of listening to clients and for managers to surrounding themselves with the best people. “I think that’s a key thing that has allowed me to be successful,” she says. “And be very diligent in client commitments especially around building products.”

She would also add that technology and service providers have to be willing to change plans quickly if the clients give the thumbs down.

“We build business cases where we think a business could potentially be going,” Nash says. Fiserv’s relationships with customers allow it to “sit down and share that with them. … In some cases, we were completely off base. But we didn’t build anything so we didn’t have any issues there. So we had to go back to the drawing board for some things that we wanted to do from a business perspective.”

Technology providers have to be nimble enough to start over in an ever-faster paced market.

“You have to be able to do that in today’s market,” Nash says. “I am very optimistic about 2012 … I think we’ve got some key products that are going to help our clients be more efficient. And their budgets are going to be pretty constrained except … for areas where they can automate to become more efficient.”

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