It’s a mundane act—ordering a pizza, say, on a night in. Possibly the most friction you’ll experience during the next hour is debating with your kids which toppings to choose. You open an app on your phone, you choose your pizzas, and add the drinks. Your credit card is billed. Somewhere nearby, a restaurant begins to prepare your order. Bike-riding delivery people swarm around the pizzeria’s door; one of them is dispatched with your food and makes their way through the intervening streets to your apartment. You buzz them into your building and collect your food. Perhaps you Instagram the pizza, which may be integrated with the app. It’s a seemingly unremarkable chain of events, seamlessly enabled by cloud and APIs, which you now expect when it comes to ordering pizza. And yet providing this kind of customer experience is still a dream for financial institutions.

Big Tech has shown financial firms and the tech providers that cater to their needs that these capabilities exist; the hurdles are the cost of replacing legacy databases and infrastructure with cloud-enabled microservices architecture. However, vendors have realized that they cannot balk at the costs; to remain competitive they must modernize.

One of these vendors is FIS. Over the past seven years, the Jacksonville, Florida-headquartered vendor has been modernizing its entire tech estate—consolidating its datacenters, moving solutions to the cloud, and rearchitecting and componentizing its application stack—aiming at a client-centric, rather than a product-centric, approach to services across its entire set of business segments.

Nasser Khodri, group president of capital markets sell-side at FIS, says the business had been reliant on legacy tech and databases, many of which had to be completely rebuilt.

“It’s easy to say, ‘Let’s be client-centric and build a digital front end. But the platforms we were using were legacy platforms and, in many cases not open. Implementation times of these platforms could be long, and the transformation that clients wanted to achieve took much longer than they wanted,” he says.

The modernization initiative was conceived at the top of FIS, but the business has tried to cascade its principles down so that they become the basis of the culture at FIS and inform future development, Khodri says. Fundamental to this approach are four criteria: any product or platform that is developed must be modular so that clients can access only what they want to use it; it must be open, leveraging APIs to deliver data from legacy systems and provide integrations with partners; it must have easy access to quality data; and it must be cloud-enabled for modularity and scalability.  

“When we think modernization within FIS—and this has been the mantra across the organization—we need to tick all those boxes, otherwise we aren’t really modernizing. This must all lead to the end state of owning the relationship with the end customer and being client-centric, easily accessible, easily deployable, and reliable,” Khodri says.

Massive acquisitions

FIS provides technology for merchants, retail banks, and capital markets firms globally. The $68.4 billion company has grown partly organically, and partly by some hefty acquisitions. One of these, the purchase of SunGard in November 2015 for $9.1 billion, gave it capabilities in capital markets and asset and wealth management. Prior to that acquisition, FIS was already a big player in merchant services and banking, but SunGard gave it more capabilities to sell to existing clients, and exposed it to a broader market, such as asset managers.

Then in July 2019, FIS paid a whopping $43 billion—the company says this is the largest acquisition ever in the financial technology space—for payments processor Worldpay. While integrating Worldpay, FIS reorganized along its current four business verticals: merchant; banking; capital markets solutions; and corporate and “other.”

In 2015, around the same time as the SunGard purchase, FIS began the modernization project. First it started consolidating its datacenters in North America and moving its server compute to its private cloud. By the end of 2020, it had closed 13 datacenters and was running 72% of its compute in the cloud. FIS aims to have closed seven more datacenters and have 80% compute in the cloud by the end of 2021. FIS executives have said this will bring the number of its datacenters to single digits and save the company some $250 million annually.

FIS has also transformed its database layer, Khodri says, in some cases centralizing differentiated databases, in other cases completely rebuilding them.

“If the database layer was still open, easily accessible, and so on, even if it was fragmented, we decided to centralize the database and then build around it. In the cases where it was too old, we did a complete rewrite,” he says.

Completely replacing databases is not cheap, Khodri says, but FIS has decided that this is essential to being able to supply the modular, componentized services it aspires to. Khodri says the firm invests 7% to 8% of top-line revenue in its modernization efforts, which is not to be confused with its total development spend (executives say FIS spends $1 billion per year on R&D).

“If you’re doing a bad job around the database, if the data is not clean and accessible, everything you’re doing around modernization is completely useless—you aren’t going to reap the benefits. You won’t be able to leverage artificial intelligence, blockchain and so on, or bring any form of efficiency by automating manually intensive processes,” Khodri says. 

From his perspective, one of the most important decisions made in FIS’s modernization was to centralize its IT team, including client support. This frees up business leaders in the company like Khodri to focus on their roles, he says. It’s also how the vendor hopes to nurture the modernization as a culture. When the IT team makes decisions about, for example, databases within the capital markets segment of FIS, those decisions also apply to the banking or merchant segment.

“So this is a top-down exercise, whether it’s for capital markets, for banking or merchant—we are all thinking about modernization in the same way, and then we cascade it down within the engineering and the product team to make sure that that becomes the culture, that it’s our identity within FIS. And whenever we build new applications now, we have to go through this playbook—this is how a modern solution should look,” Khodri says.

Modernization by modularity

The next step in FIS’s modernization has been to componentize its application stack. Within the capital markets vertical specifically, this included investments in post-trade derivatives and syndicated lending solutions that began in 2017.

The database underpinning the FIS Cleared Derivatives suite, a unified set of services for post-trade derivatives processing, was one of those that FIS completely replaced. The legacy platform had been hindering FIS in creating new services for this segment, Khodri says.

Since 2017, this department has built new products, incrementally modernizing module by module rather than taking a big bang approach. Andrew Whyte, group president of post-trade services at FIS, says it drew up a very detailed roadmap for this incremental approach.

Historically, where a solution like Cleared Derivatives might have had discrete middle- and back-office systems, with their own respective reference data and deployment, it’s now built on one framework with one set of reference data into which developers can deliver modules.

These include a clearing module, a back-office books and records manager, and modules that manage exchange reconciliations.

Whyte says the Cleared Derivatives business is all about connectivity to exchanges and clearinghouses, and these entities often evolve their tech, their practices and their margin methodologies. FIS must keep abreast of these changes to provide its services. So a key part of the modernization drive as it applies within this specific business is maintaining that connectivity.

“That’s where a lot of our IP is: our ability to keep up with those continuous market changes. There are upgrades at every one of those exchanges and clearinghouses every year, and a large part of what we do is keeping up with those, incorporating them in our flows,” Whyte says.

To this end, his team has modernized all FIS’ exchange gateways, the software that delivers messages in and out of the exchanges and clearinghouses; and its margin engine, which replicates the way that margin is calculated at clearinghouses.

One of these new services is a module for relationship managers that visualizes their margin requirements. “Where there is a margin call, they can see that online. They don’t need to be in their office. They can call their risk officer and tell them, ‘Hey, I’ve got an issue with this customer, I need to get in touch with them.’ That is a conversation happening in real time,” Khodri says.  

Cleared Derivatives has also deployed a trade clearing model, which matches and allocates trades as they come in from risk systems and exchanges. “We are now building out a new module to complete this, and this will manage complex allocation rules and algorithms that clearing brokers use to support their clients,” Whyte says.

In mid-2021, BNP Paribas extended its existing relationship with FIS and signed a 10-year agreement with Cleared Derivatives to provide the backbone of the bank’s listed derivatives post-trade IT environment.

Whyte says that for BNP and other customers, FIS has been able to reduce some post-trade processing from T+1 to real-time.

“Historically, things like fees and commissions and margins would have been calculated at the very end of the day in an overnight batch to then produce client statements the next morning, and then all the margin settlement calculated off the back of that statement production. The new system will calculate fees and commissions the moment the trade hits the system, as we can calculate margin in real time around the portfolio. So adjustment on margin intraday is much more manageable and possible,” he says.

API gateway

One of FIS’ modernization criteria is openness—creating a partnership ecosystem with APIs. The company built an API gateway called Code Connect that gives developers access to all FIS products. The standardized API strategy has allowed FIS to begin to partner with vendors such as C3 AI, with which it is building a series of products, including a hub that aggregates and analyzes anti-money laundering (AML) data.

It also enabled FIS to migrate some 20 customers from Bloomberg’s sell-side execution and order management system, which shuttered in April, to its own OMS, Valdi.

Valdi was built so that clients only have to use the modules that are relevant to them, Khodri says.

“In the past, we would have had to deploy the entire infrastructure first, then look at having them use what they need. Now it’s completely the other way around, and that’s because it’s cloud-enabled. It’s sitting in our cloud and you can access it through APIs, you can use our GUI, or your GUI,” Khodri says.

Selling SaaS 

In parallel with the modernization of its tech estate and cloud migration, and to allow customers to pay for only what they use, FIS has transitioned gradually to a software-as-a-service (SaaS), subscription-based model of licensing and delivery. In FIS’s 2021 first quarter earnings call, executives said about 70% of capital markets had been moved over to reoccurring revenue.  

Customers should not have to invest in any infrastructure, Khodri says, but can rather consume a service, and only pay for what they use. “That’s where the subscription element comes in, which is very attractive to most customers. They want to be able to switch on according to their needs.”

The shift away from upfront licensed revenue to SaaS models is a big one, he adds. “Gone are the days when you would have a conversation with a CIO saying, ‘OK, this is where I want to be in three to five years, I’m going to put forward the capital to get there. Let’s take two years to implement, and then we’ll get the business profitable in another two years.’ Client executives are now saying, ‘This is my business plan for the next six months, when can you get me the benefits?”

Virginie O’Shea, CEO of Firebrand Research, says having a subscription model means FIS doesn’t have to worry about having to upgrade each client. “If they’ve implemented in-house and customized, you just have to make sure that everybody has the same version and you just upgrade once,” she says.

O’Shea says FIS is not alone in its modernization drive. Similar initiatives are underway at other large vendors like IHS Markit, Broadridge and SS&C, if not on a business-wide level then certainly by business line.

“A lot of vendors have to do this eventually. You want economies of scale across the business—you want to be able to offer a whole package for clients. A lot of them acquire technology assets without necessarily thinking about integrating them all,” she says.

FIS did a lot of work to integrate SunGard, O’Shea adds, which in 2015 was an amalgamation of lots of different businesses that didn’t really understand one another. “When FIS bought them, they recognized there needed to be some degree of integration on the enterprise level. So the focus has been on connecting the dots between the different bits, getting rid of what doesn’t work and investing in what does,” she says.

FIS is doing a lot more cross-selling, she says. “They seem to have packaged a lot of things and integrated them with the idea of getting to a client-centric, rather than a product-centric, view. This is a huge shift for them and other vendors across the community,” O’Shea says.

These large vendors must adapt so they can one day provide services that run as seamlessly as pizza delivery apps.

“Think about the way you use apps on your phone. Imagine being able to do that with a banking platform and not having to deploy the entire solution. A customer of ours who doesn’t use the back-office suite could use just the app. This is the shift that is happening, where we want to enable customers to deploy apps according to their business needs, and that can be done very easily,” Khodri says.