Dramatic need to shift to contactless payments

Prior to the pandemic, demand for digitization services and deals in the European financial, public and retail verticals grew at a generous rate. Europe-focused vendors covered by TBR, including Accenture (NYSE: ACN), Atos (Nasdaq: ATOS), Capgemini, Deloitte and T-Systems, consistently expanded services and contracts surrounding related capabilities, such as cloud, blockchain and automation, feeding these healthy verticals. However, vendors and clients faced numerous challenges as the pandemic hit, such as the need to shift to remote work environments and the need for digital, e-commerce and contactless solutions. In 1H20 most vendors focused on client retention and headcount management, rather than entertaining expansionary strategies. Europe, which felt the impacts of the pandemic in its early months, was among the first to experience a need for digital alternatives, evidenced by accelerated demand for digital infrastructure, banking and payment solutions, benefiting IT service vendors and the struggling European economy.

As consumers faced pressures to go cashless, demand for contactless payment alternatives increased dramatically. While the financial and public sectors had been prioritized in 2020, as they typically make up a large percentage of IT service vendors’ revenues, the retail vertical contracted drastically as lockdowns and supply chain challenges impacted inventory levels. So, while tailoring contracts and generating solutions to attract clients in the financial and public sectors was imperative in the thick of the lockdowns, addressing challenges in retail will complement vendors’ efforts in other verticals as well. From an influx of credit card and debit card usage to increased demand for Apple Pay and other tap-to-pay capabilities, retail clients of IT service vendors were transitioning their client-facing solutions to meet the demand to go digital.

For example, in 4Q20 Atos announced it will use the Atos Codex Internet of Things solution to develop and run nutrition company Goli’s cashless and contactless vending machines, which will be deployed in numerous environments such as shopping malls and airports. The solution also leverages cloud technology to connect cashless payment alternatives and digital wallets to the network. Additionally, Atos holds shares in Worldline, a payment and transaction services company that offers a strong digital payments and contactless solutions portfolio, along with a collaborative partner network. In December Worldline partnered with P3 Financial Group to bolster the real-time digital commerce and e-payments ecosystem in much of Europe.

Other vendors have taken similar action; T-Systems Hungary drove real-time payments on a single platform for ACI Worldwide (Nasdaq: SCIW) in September, strengthening regional initiatives to meet expectations for safer and more secure vertical operations, and Capgemini partnered with SharpEnd and The Drum to develop CornerShop, a retail innovation store that is helping brands, retailers and shoppers utilize technologies to transform their shopping and customer engagements in preparation for the post-pandemic world. Further detail and analysis on the store are available in TBR’s 4Q20 Capgemini report.

Previous investments in emerging tech like blockchain paved the way

Going back about 10 years, digitization drew consumer attention in the mid-2000s, when in-house cloud computing caught fire and distributed ledger technologies emerged. Leveraging blockchain, cryptocurrency entered the market as a private payment alternative that offered greater security and cut out banks altogether. Bitcoin, arguably the poster child of cryptocurrency, quickly became an investment tool for many users, though its position as a go-to currency in the black market and, more importantly, its price volatility made its use an unpopular choice for the average consumer.

Changing regulations related to IT technologies, such as blockchain and digital assets, have challenged Europe-centric vendors despite the opportunity to capitalize as consumer preference shifts to digital. IT services vendors covered by TBR will likely face new contract and deployment challenges in the region, alongside pre-existing obstacles related to the COVID-19 pandemic. TBR believes a greater focus on digital and contactless payments, e-commerce, and digital banking and currencies from vendors will be an important aspect of economic regrowth in Europe and lead to adjustments in financial, public and retail verticals to better complement one another.

Be the frictionless provider of FinCrime services

Ron Giammarco, leader of EY Global FinCrime Managed Services, described EY’s foundational principles for the financial crime practice in both technology and business model terms, noting that the firm has been committed to making every new offering cloud-native, but still deployable on premises. EY’s FinCrime practice, which was established 20 years ago, generates $1 billion in annual revenue, and there are over 30 clients on the firm’s FinCrime technology platform. To further its business, EY is determined to own the technology ecosystem, including all the intellectual property within the practice and every aspect of the relationship with clients.

In Giammarco’s view, EY should provide “frictionless” experiences for clients using its different platforms and solutions, with EY smoothing out any underlying technology or partnering issues. To offer those platforms, Giammarco noted, the firm has decided to acquire and partner as much as possible, building assets internally only when needed. In TBR’s view, these foundational principles reflect a shift in EY’s approach to technology and the firm’s overall ecosystem.

Embracing the business model shift and the substantial financial investment needed to be a technology company — at least to the degree EY is now — requires reorienting around the current competitive and partnership landscape, not the more siloed and opaque environment of several years ago, when digital transformation emerged as a challenge to the traditional consulting business model. Among the significant changes, Microsoft (Nasdaq: MSFT) and SAS now list EY’s offerings within their own services catalogs, and EY expects those partners to not only provide technology support but also engage in sales efforts and the onboarding of new clients.

EY’s differentiation: Expertise, discipline and global standards

Within this changed competitive and partnering environment, EY has been challenged to differentiate from peers, an effort TBR has tracked across Strategy and Transactions, Blockchain and other EY practices. For Nic Bastable, leader of EY Global Financial Crime Managed Services Delivery, the firm’s uniqueness has coalesced around three main characteristics. First, EY has developed deep domain expertise, which continues to evolve. Bastable explained that every FinCrime interaction, even through a managed services arrangement, has eventually led to an analyst helping a bank make a financial crime risk decision, which has involved more than just following simple procedures.

EY has invested in its professionals, building career tracks for FinCrime analysts and providing ongoing training, which led the firm to have, in Bastable’s opinion, differentiated expertise. Second, within the complex environment of helping banks make decisions about risk, EY has exhibited tight operational controls — essential at the global scale of EY’s services and to meet clients’ needs. Third, over years of providing FinCrime services, EY has created a global standard operating model, distilling best practices from dozens of engagements, by thousands of professionals, across more than a million events. Underlying all this, according to Bastable, EY brought automation and efficiency to the firm’s operations and delivery, further differentiating the value of EY’s services.

In TBR’s view, while each of the core elements of EY’s FinCrime practice does not separate the firm from specialists or niche services providers, the combination, particularly with global reach and substantial scale, gives the firm a compelling story. Overall, EY’s FinCrime practice does not depend on setting itself apart from peers, especially as professional services firms rarely differentiate from one another; instead, EY succeeds through solidifying trust by offering domain depth and delivering.

Cloud has been the cure for many pandemic-related business ailments

The COVID-19 pandemic and its wide-ranging effects forced businesses to adjust in 2020 and now into 2021, but these changes will persist much longer than the pandemic. Most businesses made a wide range of changes to their IT strategies over the past year, but there are a number of commonalities. The first commonality is that technology is at the heart of how organizations have adjusted to COVID-19’s effects, to service their own employees and the changing needs of their customers. Cloud-delivered technology, in particular, has been core to providing the speed and scalability needed to support these adjustments in the most agile manner possible. The other commonality in COVID-19 responses is that organizations found a way to support increased technology spending, even in a time of much economic uncertainty. Cloud investments were prioritized during the course of 2020, which is reflected in the overall stability and continued growth of the market throughout the year.

Figure 1

AWS, Microsoft Azure and Google Cloud Platform are even more critical to the IT industry

While the market continued to grow and leading firms maintained their momentum, they were not unscathed by the effects of COVID-19. Vendors experienced a dip in revenue growth rates during 2Q20, at the height of uncertainty and pessimism. The dip was driven by businesses pulling back spending in anticipation of a pronounced economic slowdown. Even though COVID-19 infection rates grew worse through the end of 2020, economic expectations recovered and the uncertainty around how COVID-19 would impact business results diminished, putting cloud revenue growth from the leading vendors back on previous trajectories. Though the business strategy and dynamics were much changed, the continued growth of the leading firms was back on track.

In many ways, COVID-19 accelerated but did not actually alter the course of cloud technology’s impact on the IT market. As a delivery method, cloud was already eroding traditional IT and far outpacing the overall growth in spending. Most customers had some level of cloud investment prior to 2020, with many using cloud solutions for mission-critical elements of their enterprises. After a year of dealing with pandemic-driven disruption, cloud utilization has grown significantly. Cloud adoption happened faster than most organizations planned moving into 2020, as business changes forced customers to overcome cultural, budgetary and technological barriers in making adjustments to their operations. The good news for cloud vendors is that this change in behavior should last well beyond the direct impacts of COVID-19. The challenge is how to meet this enhanced level of demand, which requires investment now to get additional data center capacity and services online ahead of increased needs. The market may have reached this place eventually, but both customers and vendors are accelerating their cloud strategies to account for the more prominent role cloud will play in the overall IT market moving forward, even as COVID-19 fades, hopefully sooner rather than later.

With a core portfolio of platform services, Aiven meets the needs of developers, partners and the cloud-native enterprise  

Aiven was founded in 2016 by a team of open-source and cloud experts based in Helsinki who sought to develop a data management platform that capitalizes on the needs of more mature customers who are increasingly leveraging open-source software. As such, many of Aiven’s clients come already knowing what they want in terms of stream processing frameworks, databases, search engines, visualization and analytics. The core driver of value is Aiven’s ability to orchestrate data on a single management platform, which entails getting customers up and running with minimal deployment lag and enabling the integration with existing tool sets on any cloud. The dedication to a robust support model and transparent pricing with lower costs than many competitors are additional underlying factors that position Aiven to continue growing on pace with the expanding Database as a Service market (DBaaS); for reference, in just the last eight months the company has doubled in size to about 150 employees and is backed by a strong venture capital engine, including the company’s latest round of Series C funding worth $100 million, as well as solid new and recurring revenue streams.

Despite coopetive dynamics, Aiven benefits from allying with leading hyperscalers to support clients’ need for multicloud

As multicloud is a core component of its value proposition, Aiven provides customers availability by partnering with all three major cloud service providers (CSPs), including Amazon Web Services (AWS) (Nasdaq: AMZN), Microsoft (Nasdaq: MSFT) and Google Cloud (Nasdaq: GOOGL). In addition to Aiven’s services being made publicly available on the marketplaces of both Google Cloud and AWS, these relationships allow Aiven to provide enterprises with a way to build the services and applications that are enabled by databases on leading public cloud infrastructures, as well as offer a simple migration path for legacy customers. TBR notes that over 10% of Aiven’s customers are provisioning different services to multiple clouds and that many of Aiven’s adopters come knowing specifically which databases or monitoring tools they want to use and where they want to deploy them. While many customers often start with a preferred cloud partner, they ultimately seek to expand to other platforms for greater development autonomy and to avoid vendor lock-in. As a result, TBR believes Aiven’s role as an orchestrator for multiple database services across clouds positions the company uniquely in the market, as Aiven provides customers the degree of neutrality and third-party support required to navigate and manage various dispersed open-source projects.

However, as Aiven offers nine core services — including the widely deployed open-source platform tools Apache Kafka, PostgreSQL, MySQL, Cassandra, Redis, Elasticsearch, InfluxDB, M3 and Grafana — there is a large degree of coopetition as Aiven’s partners offer related services on their clouds and, in some cases, the clouds of other CSPs. The increasingly open, hybrid multicloud approaches of vendors like Google Cloud and even IBM (NYSE: IBM) will prove competitive, yet TBR believes Aiven still challenges its partners when it comes to enabling open-source innovation and helping enterprises deliver this innovation at scale. Meanwhile, as customers increasingly look for a partner to avoid vendor lock-in, Aiven is well positioned to challenge many vendors that trail the market in providing a degree of vendor-agnosticism.  

Open-source technology has become less of a value differentiator and more of a foundational attribute that customers in the cloud database market have come to expect. Vendors in the space must now embed other feature sets and functionality to stand out and navigate the common challenges faced when it comes to modern app development and operational management in the cloud. However, customer expectations go beyond avoiding vendor lock-in, one of the known benefits of open-source technology, to include reducing TCO while improving time to market, security and reliability. Aiven is a managed cloud database services vendor that delivers a unified data platform for both traditional and cloud-native customers looking to deploy data architectures seamlessly and across multiple clouds. By capitalizing on managed cloud services, Aiven has created a way for customers to build, deploy and manage various open-source database management and analytics tools in a self-service manner. With a variety of deployment methods available to customers in conjunction with the benefits of automated security, scalability and resilience, Aiven has demonstrated this value proposition by building a customer base that crosses multiple industries and highlights both customer-facing and back-office analytics use cases.

From Products to Digital on Demand and ProEdge

We reported this time last year that PwC Products completely shifted from being an old-school, white-shoe, tax- and audit-focused professional services firm from the previous age of the Big Eight to being a business solutions provider, with those “solutions” including SaaS, managed services and platforms. Now the firm has taken another large leap forward, adopting elements of business models most notably deployed by Netflix to bring its software and solutions into clients’ environments in a completely new way, while simultaneously reorienting the firm’s professionals around the skills and capabilities needed to serve their clients in a new world. We understand that assessment sounds over the top in a market already swamped by exaggerated claims around digital transformation.  

Sustained investment and committed leadership — it is that simple

PwC launched PwC Products in early 2020, as covered in our special report, in which we noted: “PwC is a business solution provider, and some of those solutions include products — tangible, defined assets that allow the firm to be, as the PwC leaders noted, ‘better, faster, and cheaper for clients.’ Some of those assets will remain within the firm, scalable but deployed only to increase speed or efficiency in certain engagements. Some assets will remain with the client, paid for in full, through licensing or by subscription. For all of the solutions, PwC’s approach will start with a business problem in mind, rather than employing a systems integrator mindset of plugging technology into a business.”

Building on PwC Products, perhaps on a timeline accelerated by the remote-working realities of the pandemic, PwC rolled out Digital on Demand and ProEdge in late 2020, bringing to clients two distinct offerings made possible by years of sustained investment in digital capabilities, including software and the firm’s own IP, as well as a leadership commitment to adjusting the firm’s business model to fully accommodate subscription-based pricing and software-centric engagement models. In TBR’s view, the first element — investing in technology — does not differentiate PwC from peers, except perhaps in the firm’s early start in some areas and sustained commitment to an organizing framework. The second element — leadership and adjusting the business model — marks a critical difference for PwC. Even though peers have made some similar changes, PwC has aggressively gone all-in and adopted multiple changes to its business models.

Digital on Demand: All the apps you want for one low monthly price (Netflix model 1)

In essence, Digital on Demand is PwC’s version of Apple’s (Nasdaq: AAPL) App Store, but with a client experience more akin to Netflix (Nasdaq: NFLX), where every option is available immediately without separate pricing or technical concerns. Similar to how everyone can watch their Netflix shows on their own device, PwC’s Digital on Demand solutions can be downloaded into the client environment, where they can be configured.

Led by PwC Labs Partner Michelle Wilkes, from the firm’s Consulting practice, and US Automation Leader Jeff Lower, from Tax, Digital on Demand belongs within the larger PwC Labs practice and carries through a relatively basic premise: Take the automation PwC incorporated internally, curate the solutions and refine the automations, and then make them available for PwC’s clients to deploy into their own environments. According to Wilkes, PwC built the foundational 6,500 automations across its own back office and for client engagement and saved 8.6 million hours of staff time across the firm.

Starting with finance functions, where PwC has legacy strengths and strong brand permission, the firm has partnered with Microsoft (Nasdaq: MSFT), UiPath, Alteryx (NYSE: AYX) and others to provide clients a menu of downloadable automations (access to cloud-based AI models via information extraction using natural language processing and machine learning), deemed by PwC’s Wilkes as “proven and relevant” because the automations had been designed by people who are deeply familiar with the finance functions and have experience in the finance environment. In short, Digital on Demand is readily deployable software built by finance process people for finance process people. Wilkes said the firm has 393 downloadable automations today, with plans to reach 500 by May 1.

On Feb. 18 and 19, 2021, TBR spoke with several PwC leaders: Michelle Wilkes, partner, PwC Labs; Jeff Lower, US Automation leader; Suneet Dua, chief product officer, PwC US; Darren Lee, partner, PwC Consulting; Mike Mendola, senior associate, PwC Labs; and Maria D’Alessandro, strategy director, PwC Products. This special report includes information and analysis drawn from these discussions and looks at how much the firm has changed and where the future of consulting lies for PwC and its peers.