Investment banks are turning to external software houses for new technology systems. Can software houses offer IT developers a more exciting career than banks?
If you work in financial services IT and you've never heard of the likes of Murex, Fidessa and Calypso Technology, now may be time to familiarize yourself. All are important providers of trading and risk management systems to investment banks, and their status looks set to rise.
A July report by Forrester Research, the technology focused research company, found 40% of European banks' IT budgets for new projects are already dedicated to external staffing, compared to 27% for existing projects. "European banks are less likely to
use internal staff and in-house developed software, but instead rely more heavily on
consultants and external software," said report author, Jost Hopperman.
Business wins by software houses confirm the trend. HSBC now uses Fidessa as a global platform for handling all its cash. Bear Stearns announced the migration of its front-to-back office derivatives operation to Calypso's trade processing software platform in May. German bank HVB moved its foreign exchange processing to Calypso in April.
As contracts roll in, software houses are hiring. In April, Latent Zero, a software developer for the asset management industry, moved to a new office in Boston to accommodate its expanded headcount. A spokesperson at the company said staff numbers in London have risen 20% in the past year. Calypso managing director Charles Marleston says the company now employs 185 people globally, up from 120 last year.
So is now a good time to quit the bank and head for a software house? Yes - and no.
Go for it
On the plus side, Marleston says you should head to a software company if you want to work on cutting edge developments. "If you get job satisfaction from development itself, you're better off in a software house," he says, "As the banking industry relies increasingly on third parties, in-house developers at banks are responsible not for the development of core systems but just for the integration and ongoing support of the technical environment."
There are lifestyle advantages to heading for the software sector. Software companies may not be dotcoms with inflatable boardroom tables, but Miles Miller, director of the capital markets team at UK recruitment firm Spring, says they are often more relaxed than banks. "You are more likely to be able to focus on the role in hand, i.e. building software, rather than dealing with corporate issues and company politics."
Alistair Singleton, a recruiter at UK-based 7 Fifty Two Solutions, says people who move out of banks to the software sector are typically looking for variety: "At a software house, you'll be in a niche area, but you'll get to work on different projects for different clients."
The money can also be good. Regular pay at software houses won't usually measure up to the big bonuses offered by investment banks, but if you work for an unlisted company that goes public or is sold, you could end up making plenty of money from your stock. Last year, for example, Fitch Group, parent company of Fitch Ratings bought Algorithmics, a Toronto-based provider of risk management software for $175m.
On the flip side, software companies' detractors warn that salaries are poor, hours are long, and the chances of being bought out are minimal.
John Rountree, principal at New York technology recruiter Lexington Software, says software companies work staff hard and rarely pay accordingly. "You're much better off in an investment bank," he says, "The reason firms like Goldman Sachs are so successful is they will actually pay you if you work hard. A small software company may not pay you at all."
Brent Harrison, a London-based technology recruiter at Aston Carter, says investment banks in the UK typically pay base salaries 30% above those in software houses, plus bigger bonuses. "You don't get paid as well in a software house by any stretch of the imagination," he says, "A lot of these people are underpaid."
No escape from off-shoring
Moving to a finance- focused software company is also no guarantee your job won't one day be shifted to India. Although Calypso doesn't use Indian developers, Marleston says there are plenty of rivals that do.
If job security is your primary preoccupation, Marleston advises identifying roles that are unsuitable for off-shoring, whether in banks or software developers: "Look at roles where close contact with users is important to the success of the project. With trading systems, for example, you need close contact with clients, these will always be local jobs."
And if you do move to a software company, but regret it? As long as the software house is well known, it need not be forever. Phil Lee, an IT recruiter at Jonathan Wren in the City of London, says time with a leading software developer can improve your appeal to investment banks. "You'll end up understanding the company's product inside out. A bank that's looking to customise that particular product will be more likely to employ you."