June 2017
The Massachusetts Financial Services Sector
7th Annual Impact Report
SPECIAL FOCUS: Fintech Opportunities
Boston Financial Services
Leadership Council
The Impact Report was produced on behalf of the Boston Financial Services Leadership
Council (BFSLC) by Mass Insight Global Partnerships (MIGP) with support from PwC.
About the Boston Financial Services Leadership Council (BFSLC)
The BFSLC, supported by an initiative of Mass Insight Global Partnerships, brings together CEOs and senior
executives from the Boston financial services sector with academic partners to organize collaborations and advocate
for the sector in Massachusetts. With millions of customers and accountholders, 181,000 local financial services
jobs, and over 100,000 professional services jobs supporting the sector, the impact of the Boston financial services
sector is an important success story. The BFSLC launched Financial Technology Boston a year ago to develop a
FinTech agenda to promote the region as a global FinTech leader.
Mass Insight Global Partnerships (MIGP)
Mass Insight Global Partnerships creates a competitive advantage for its partners and the region through publicprivate leadership groups that bring together universities, industry and government – what we call the Innovation
Triangle – to 1) shape policy initiatives and 2) establish pre-competitive partnerships to expand market opportunities,
focused especially on technologies where the region has deep resources.
In addition to the BFSLC, Mass Insight Global Partnerships launched in 2011 and continues to support the nonprofit
Advanced Cyber Security Center (ACSC). The ACSC is a 25 member regional “collaborative defense and
research partnership” of industry, universities, nonprofits and government led by the MITRE Corporation and the
Boston Federal Reserve Bank to address the most critical and sophisticated cyber security challenges.
MIGP continues to provide the longest running quarterly public opinion survey in Massachusetts to support
MIGP’s and its members’ initiatives in collaboration with Opinion Dynamics Corporation.
PwC
PwC’s purpose is to build trust in society and solve important problems. PwC is a network of firms in 157 countries
with more than 223,000 people who are committed to delivering quality in assurance, advisory and tax services.
2
Introduction by Mass Insight
Connecting the Dots on our Regional Assets:
The Boston FinTech Opportunity and the Importance of Collaboration
In the fall of 2010, Mass Insight issued our first Financial Services “Impact Report” with support from PwC.
Seven years later, we are pleased to confirm the continuing impact of the leading Massachusetts for-profit sector, a partner to our
major sectors including life sciences, technology, higher education and healthcare and a global player, with a disproportionate impact
on the state’s economy.
Massachusetts distinctively has a “complete portfolio” in financial services. Growing firms through venture capital, private equity
and banking – and preserving institutional and personal funds through our global leadership in asset management, retirement savings
and insurance.
Three numbers tell the story of the sector’s impact in the Commonwealth: 6, 14 and nearly 20.



6% of the state’s workforce, providing 181,000 direct jobs in 2016, up 7,000 from 2015 – with the leading share of middleincome, middle class positions in our firms
14% of the state’s GSP, up from 10%; over $40 billion of the state’s total output
Nearly 20% of the state’s business tax revenue ($2.1 billion annually)
The future belongs to those firms and regions that embrace and lead the digital transformation sweeping across the economy. In
financial services, that means financial technology or FinTech.
This Impact Report's FinTech focus identifies six areas where Boston’s traditional B-to-B expertise should give us a leadership role if
we connect the dots on our assets.
A year ago, our CEO-led Boston Financial Services Leadership Council launched a new initiative, FinancialTechnologyBoston.com, to
1) assess and promote the region’s FinTech resources and 2) recommend new initiatives to capture the next wave of innovation and
assure Boston’s future success as a global financial services and FinTech hub.
Mass Insight with the support of McKinsey and Co. and a FinTech Work Group conducted extensive interviews in the FinTech
community to produce a Boston FinTech Road Map.
The Road Map identified the region’s primary challenge moving forward to attract and retain Fintech talent, innovation and
entrepreneurs. Although Boston has produced significant new FinTech startups, California and New York dominated the first wave of
FinTech start up and VC activity.
The FinTech eco-system is made up of four key elements – financial institutions, startups, venture capital and academia – with
government as an important supporting partner in areas like talent development, workforce and education.
The FinTech Road Map made the case for a new collaborative platform led by our major firms that connects these assets.
Collaborations will engage universities in early stage, pre-start up idea generation and support emerging start ups seeking leading
firms as customers in an accelerator. You will hear more about these initiatives in 2017.
Thank you to all our partners for investing in this report and ongoing initiatives. We look forward to continuing our work together.
William H. Guenther
Chairman, CEO and Founder
Mass Insight Global Partnerships
3
Contents
Executive Summary
5
FinTech Trends and Opportunities
7
Machine Learning and Advanced Analytics
9
Robo-advisors
12
Robotics
12
Cyber Security
13
Blockchain
14
Digital Identity
15
Current strength of MA Finance Sector
16
Mass Finance: A for-profit employment leader
17
Mass Finance: Increasing wages and leading gross state product contribution
18
Education: Cultivating and retaining top talent for Mass Finance
20
Appendix I
22
Appendix II
24
Endnotes
25
4
Executive Summary:
Current Impact of the MA Finance Sector
Creating Business Value
While accounting for 2.1% of the U.S. population in 2015,1 Massachusetts contributed 2.9% of the nation’s direct financial
services employment,2 1.4 times its population share. In 2015, Massachusetts accounted for 4.1% of the total wages of the
U.S. financial services industry.3
The financial services industry is a critical component in the ecosystem of Massachusetts, as it supplies innovative
companies with needed capital and is a global leader in asset management and insurance. With 181,000 direct jobs, the
sector also provides supporting industries, such as IT, with over 100,000 jobs and opportunities.
Three numbers tell the story of the impact the financial services industry has on the Commonwealth – 6, 14, and nearly 20.



6% of the state’s workforce, providing more than 181,000 direct jobs in 2016 (up 7,000 from the prior year)
14% of the state’s GSP at over $40 billion (up from 10% in the prior year)
Close to 20% of the state’s business tax revenue ($2.1 billion annually) over the last five years
6
Most recent data also indicates continuing wage growth
for the sector at over 5% annually for the most recent
two years, continuing to lead the state in average
compensation. With the strength of our talent, our long
history as fiduciaries managing assets, and our track
record as innovators and academic leaders, financial
services in the Commonwealth is well positioned for
continued growth, especially with the opportunities in
financial technology.
14
18
FinTech
Opportunity for Innovation
5
Executive Summary (cont.):
Mass FinTech in the Sector
Opportunity for Innovation: Data and Security Dominate
Despite being a hotbed of academia, financial services firms and world-class talent, Massachusetts has generally lagged
behind other startup hubs like New York and California when it comes to FinTech innovation. FinTech is seen as a growing
disruptor and is transforming each step of the value chain across the financial services industry.
Looking ahead, Massachusetts has an opportunity to grow its FinTech industry to compete with the largest FinTech hubs by
bringing together its talent, academia, startup community and high-profile Financial Institutions. By partnering with FinTech
companies or by individually integrating FinTech practices into their operations, financial services firms will benefit. Firms can
reduce research and development costs, increase operational efficiencies, better market and sell services and enhance
customer service.
The FinTech trends below are seen to have the highest potential for Massachusetts-based financial services firms to capture
the “second wave” of the FinTech evolution and become pivotal players in the global arena.
Machine Learning &
Advanced Analytics
Using intelligence exhibited by
machines to perform tasks that
usually require human
intelligence, this technology
analyzes large data sets to
identify patterns and respond to
them. Predictive analytics rely
on human behavior research.
Cybersecurity
Due to the heightened risk of
cybersecurity threats, financial
service providers need to
protect their systems from
phishing, business email
compromise, ransomware, and
distributed denial of service
(DDoS) attacks.
Robo-advisors
Providing automated investment
management advice and
improved customer service with
minimal human intervention,
robo-advisors have allowed
investment advisors to target
the mass affluent as a new
customer base.
Blockchain
Made up of blocks (transactions)
that are added chronologically,
Blockchain is a decentralized
record or ledger. Transactions
are independently verified by
“miners” and a permanent
record is created that cannot be
altered, enhancing the
transparency and security of
data.
Robotics
Applying logic-driven software
applications instead of humans
to perform high-volume, low
value-added tasks, Robotic
Process Automation (RPA) can
manipulate data and interact
with other systems, improving
quality, speed and agility.
Digital identity
Using controls to monitor the
identity of individual users of a
network, digital identity
management is able to allow or
limit access to systems and data
to simplify organizational
operations and enhance
customer experience.
6
Fintech Trends and Opportunities
7
FinTech Trends & Opportunities
FinTech is a growing disruptor
Converging financial services and innovation
Transforming each step of the value chain
High potential for opportunity
Massachusetts has the potential to capture the “second wave” of the
FinTech evolution, by focusing on the FinTech trends seen to have the
highest potential and establishing a vibrant FinTech ecosystem.
Machine
Learning &
Advanced
Analytics
Roboadvisors
Cybersecurit
y
Robotics
Blockchain
Digital
identity
8
Machine Learning & Advanced Analytics
Figure 1
The financial services industry is witnessing significant
growth in the use of machine learning and advanced
analytics as a result of improvements in Artificial Intelligence
(AI), where machines get “smarter” by analyzing and
learning from large data sets. These machines can quickly
discover trends and respond to them, helping organizations
to enhance and streamline their products, services and
operations in ways that were not previously possible.
What are the most relevant technologies for your
business that you plan to invest in within the next 12
months?
With advances in big data, open-source software, cloud
computing, and processing speeds, more firms will use
cognitive computing and machine learning to perform
advanced analysis of patterns or trends. For example, firms
may use AI to help spot non-standard behavior patterns
when examining financial transactions or to prevent and
detect compliance issues.
“Artificial intelligence can help people make
faster, better, and cheaper decisions. But you
have to be willing to collaborate with the
machine, and not just treat it as either a
servant or an overlord.”
Anand Rao, PwC Innovation Lead, Analytics4
Source: PwC Global FinTech Report 2017
Mature Financial Institutions see big data analysis as one of
the FinTech areas most relevant to their business (Figure 1),
given that they already have access to large data sets. Many
large institutions are revamping their legacy systems with
a strong focus on data analytics to inform their decisionmaking (Figure 2).5 These efforts so far have generated
improved product pricing, more efficient underwriting,
better targeted customer marketing, and reduced
operational costs.
A related emerging trend is the use of advanced analytical
risk models, which companies are using to predict risk
based on pre-determined business rules and using large
data sets.
Firms can use these risk models to make more informed
decisions in a range of transactions, from investing in credit
markets to providing insurance to potential customers. This
technology has even opened up new niche markets that
were previously deemed too risky or unprofitable.
These advances bring both opportunities and threats to
existing financial institutions (Figure 3). FinTech startups
specializing in AI and big data are also entering the market,
disrupting both back-office and front-office functions of
traditional financial services firms and raising more than $2
billion in venture capital funding this year alone.6
Figure 2
Source: PwC Top financial services issues of 2017: Thriving in uncertain times
9
Figure 3
Source: PwC Top financial services issues of 2017: Thriving in uncertain times
One such startup is Cambridge-based Kensho, which uses
large computing power and state-of-the-art analytical tools
to combine natural language search queries, graphical user
interfaces and secure cloud computing. Within seconds of
the market data being released, Kensho is able to produce
fully automated analytical reports that would take human
analysts days to assemble. This is expected to reshape the
role of the analyst at financial institutions served by
Kensho.
The investment management landscape is also affected by
these advances. Elsen Inc. is a Platform-as-a-Service (PaaS)
company that helps asset managers to manage
unstructured and complex data issues. With its highperformance computing system, Elsen’s nPlatform quickly
analyzes vast quantities of data from premium sources to
run complex models quickly and at low cost. These models
help traditional financial institutions perform simulations
and back-test their products using historical information in
minutes, making it significantly easier and faster to identify
insights. The platform also uses machine learning and AI
techniques to detect trends that would otherwise remain
hidden to the users. 7
"With the volume of data - and, increasingly,
unstructured data - growing daily, we saw a
true market need and opportunity for better
aggregation in order to deliver greater and
more meaningful insights to financial
institutions, most of whom are still highly
dependent on predominantly legacy tech
stacks. With the caliber of talent available to
us in Massachusetts and the surrounding
region, we are strongly positioned to continue
to scale in bringing our solutions to our global
customers' use cases. It's very exciting for
Elsen to be part of improving the speed,
quality and value of decision-making in
financial systems all across the globe."
Zac Sheffer, Co-Founder and CEO, Elsen
Based in Boston, Quantopian uses crowd-sourced
investment algorithm contests and machine learning to
select the best trading strategies for their hedge fund.
Coders get access to data, a research environment and
development platform where they can test their algorithms,
as well as intellectual property rights. The top performing
algorithms then receive investment capital up to $3 million
and, if profitable, the author (or “quant”) receives 10% of
the net profits. To date, Quantopian has a community of
over 100,000 quants and 450,000 investment algorithms.8
FinTech developments in data analytics and machine
learning are being leveraged by both large financial
institutions and startups to solve problems affecting both
the financial industry and large parts of society. For
example, in the past 30 years, college tuition has more than
doubled, greatly outpacing inflation. To explore this issue,
Fidelity Labs created a team of student loan experts,
designers, developers and entrepreneurs. Using design
thinking and iterative product development, the team is
building resources for students, parents, and employers.
After several months in beta, Fidelity Labs launched the
Student Debt Tool this past spring – designed to help
borrowers understand their student loans and their
repayment options.
We've heard from young adults who are living
with their parents, and those who are 50 years
old who haven't yet saved for retirement. We
want to help people plan for their future and
that means helping them with the present.”
Sean Belka, Senior Vice President and Head of Fidelity
Labs
The Fidelity Labs Incubator is also exploring ways to get
ahead of student debt before college decisions are made,
and to help employers develop resources for their
employees who face this type of debt burden.
10
FutureFuel.io is a start up that is also trying to solve the
student debt burden by simplifying the implementation of
debt repayments for both employers and employees.
Signing up to FutureFuel.io’s enterprise SaaS platform
makes it easy for employers to repay their employees’
student loans. The set-up process is straight-forward and
secure, all payment activity can be viewed in real-time, and
businesses can track the ROI on their investment, seeing
how much their worker’s retention saves them in recruiting
and other costs. In return, by offering debt repayment in
addition to other benefits, these firms stand out from the
crowd and thereby attract and retain a diverse talent pool. 9
The power of FutureFuel.io is in its
intersectionality: solving problems by
improving outcomes for both employers and
employees. More than 44 million Americans
are struggling under the burden of student
debt. At the same, the private sector is
struggling to attract and retain a diverse
talent pool. FutureFuel.io is creating a winwin for both parties to accelerate the rate of
student debt repayment and inspire loyalty to
forward-thinking employers.
Laurel Taylor, Founder & CEO, FutureFuel.io
Despite such successes, one of the main obstacles for new
FinTech startups to succeed is the lack of access to big data
and the associated cost. This prevents them from testing
products real-time using real data. To overcome this
obstacle, Fidelity, Amazon and Thompson Reuters launched
FinTech Sandbox, a Boston-based not-for-profit ecosystem
that enables financial innovation and collaboration globally.
The Boston-based FinTech Sandbox supports Massachusetts
startups like Elsen, Quantopian and FutureFuel.io by
providing free or discounted access to data feeds and
application program interfaces from financial industry
partners for development purposes. These include a range
of data feeds from real-time market, custody and clearing
data to machine readable news and social media
information from a wide range of large financial institutions
and data providers. Sandbox provides free cloud hosting
from industry-leading infrastructure partners, as well as
connecting startups to potential partners and their 2,200+
community.10
Organizations like the FinTech Sandbox are also accelerators
for fostering expansion of application program interface
(API) ecosystems. An API is a set of instructions used to build
an application interface, enabling systems to integrate with
one another. Open API, where institutions share their code
with external parties, speeds up the development of
applications, leverages external tech talent and allows
cooperation across the industry. For instance, banks have
started to use these APIs to facilitate transactions with
other banking institutions, allowing their systems to “talk”
to one another.
Through engagement with the Sandbox, large financial
institutions have started to open up their APIs to new
startups and technology companies. This allows these
organizations to work closely together to make
improvements to their systems, operations and client
service interactions. API ecosystems can thereby accelerate
the innovative process.
With its mixture of state of the art research facilities, data
science talent pool, and high-profile financial services firms,
Massachusetts has an opportunity to create a thriving
FinTech ecosystem in the advanced analytics and machine
learning areas.
Massachusetts has provided a robust
ecosystem for us to engage not just with top
players in financial services and technology
but also with some of the country's best
employers who are on the leading edge of
benefits and investment in people. It's an
exciting time; we believe the state is at an
inflection point. Other startups are springing
up, existing players are clamoring to innovate,
and the government is eager to support those
of us who are leveraging technology to create
value and solve some of the world's biggest
problems.
Laurel Taylor, Founder & CEO, FutureFuel.io
11
Robo-advisors
By providing automated investment management advice
and improved customer service with minimal human
intervention, robo-advisor startups are also transforming
the industry. Despite being in a prime position to adopt this
digital advice, wealth management firms have generally
been slow to react. Indeed, only 34% have started to engage
with these new entrants, even though 60% fear losing
business to FinTech companies.11
Not only is there pressure from new robo-advisor entrants
into the market, but revenue competition and the possibility
of the new DOL fiduciary rule being phased in are putting
pressure on commissions and margins for investment
advisors. Also, the transfer of wealth to the next generation,
who expect cheaper and more user-friendly products,
means that these firms need to change their focus.
Several large players are now responding to these pressures
by investing in robo-advice or partnering with startups
offering this service. For instance, firms are using online
questionnaires to better understand a client’s risk tolerance
and time to retirement, and produce an investment strategy
tailored specifically for that client. In fact, the use of
automated advice has opened up new opportunities to
target the mass affluent as a new customer base, due to the
possibility of increased margins.
Robo-advice startups like Wealthfront in California and
Betterment in New York are successfully changing the
wealth management landscape in North America, by
providing automated and tailored investment advice on an
easy-to-use platform. In contrast, Massachusetts startups
offering these services have generally struggled to compete
against the traditional asset managers given that these
managers have economies-of-scale, benefiting from existing
high assets under management and large customer bases.
This means that Massachusetts-based innovation in this
area is largely limited to wealth management firms
developing robo-advisors in-house.
The slow uptake of robo-advice in the wealth management
industry and low number of robo-advice startups is in fact
an opportunity for Massachusetts to expedite robo-advice
development and become a center-of-excellence in this
area.
Robotics
Another trend being used to streamline operations is
Robotic Process Automation (RPA), one which has
tremendous relevance in the FinTech arena. Adopting RPA
means that high-volume, rules-based tasks can be
performed quickly by logic-driven software applications
that “learn” without human input.
This differs from automation in that RPA can handle both
structured and unstructured data, autonomously
manipulating the data, taking action, and interacting with
other systems.12 Not only does RPA bring quality and
control improvements, but also ease of deployment and
enterprise speed and agility. This is because RPA is localized
to a business unit or function when it is implemented, and
can thus react quickly to changes or opportunities as they
arise. This makes it a more powerful solution than reducing
costs via centralization and standardization of processes.13
Large financial services firms have traditionally relied on
sizable back-office teams or outsourcing to manually
process and reconcile transactions, generally using dated
technology. Despite the opportunities associated with RPA
to streamline processes and cut costs, traditional firms have
been slow to embrace the technology, initially using RPA
only for core processes. Nonetheless, we are now starting
to see the technology expanding to areas such as digitizing
loan processing, regulatory information (such as CCAR
stress tests), client reporting, account opening processes
(such as know your client and anti-money laundering), and
data remediation initiatives.14 Leading firms are using RPA
in center-of-excellence structures to coordinate vendor
contracts, create policies and procedures, and in control
functions to address operational risks.15
"Across so many facets of the financial services
arena, the rise of digital labor in the form of
RPA presents a tremendous opportunity. We
are seeing industry players place early bets
throughout their value chains, especially in
"quick hit" areas among existing back office
routine processes, including reconciliations
and data remediation. While organizations
continue to work through the operational,
governance, risk and compliance elements of
these advances, we are confident RPA is here
to stay. Boston and the surrounding region is
poised to be a net winner from this trend,
given the investment by local players in these
technologies, and the launch of many
promising RPA startups in the area."
Jenna Switchenko, Director, PwC
12
Cybersecurity
With the increase in technology-based business solutions,
there is a heightened risk of cybersecurity threats. In fact,
69% of financial services CEOs reported that they are either
somewhat or extremely concerned about cyber-threats.16
The global ‘WannaCry’ ransomware attack, which
completely locked down infected computers and demanded
$300 to regain control, proved that this concern was not
without foundation.
In its Global State of Information Security Survey 2017,
PwC identified phishing as the number one cybersecurity
threat, with 43% of financial services respondents reporting
such attacks. Other attacks include business email
compromise, ransomware, and distributed denial of service
(DDoS) attacks.17 The largest challenge to financial
institutions is assessing third-party vendor protocols and
standards, with 41% planning to boost spending on
monitoring and testing of third-party partner security
(Figure 4). Other key challenges include increasingly
complex technologies, rising threats from foreign nationstates and the need for clear regulatory guidance.18
The regulatory focus is not surprising due to the additional
cyber standards from the NAIC, the CFTC, the NYDFS, in
addition to the FED, OCC and FDIC proposing rulemaking on
cyber risk management standards.19 The new executive
order signed on May 11, 2017, further emphasizes the need
for firms to increase the transparency of cyber risk
management procedures.20 To add to this, the current and
proposed standards are not all aligned, making it hard for
firms to know how to comply with these standards.
Figure 4
“Cyber expectations are growing. Firms need
to balance rapid innovation with the need to
provide both seamless customer service and
privacy protection.”
Joseph Nocera, Financial Services Cybersecurity
Leader, PwC21
Due to the specialist nature of cybersecurity, there are
cybersecurity startups appearing in Massachusetts,
partnering with larger firms to help them to navigate cyberrelated risks. For instance, Burlington-based Veracode
(recently bought by CA Technologies) helps firms to improve
the security of their web, mobile and third-party enterprise
applications. Veracode offer a variety of products and
services, including static analysis, penetration testing, thirdparty vendor security, remediation coaching and security
program management, all of which enable businesses to
identify, understand and respond to threats quickly.22
In response to the ever-increasing threat, Mass Insight and
its global partners launched in 2011 the Advanced Cyber
Security Center (ACSC). The ACSC brings together partners
from industry, university, and government, including
experts from diverse fields, to develop unique approaches
to cybersecurity. Led by The MITRE Corporation and the
Federal Reserve Bank of Boston, this collaborative
environment helps organizations to share security threat
information confidentially, either real-time on the ACSC
Cyber Sharing Portal or face-to-face at regular events such
as ACSC Cyber Tuesdays. The ACSC also partners with
universities to improve education in this area to develop a
talent pool of cyber professionals. Information sharing and
R&D are used to support policy development.
With the regulatory focus and ever-changing technologies,
planning upfront about cybersecurity is important. Many
traditional financial services firms are choosing to partner
with FinTech startups to protect their systems and data.
Massachusetts, with its mix of traditional financial services
firms, new cybersecurity startups, and tech talent from its
universities is well-suited to create a FinTech ecosystem
that specializes in cybersecurity.
13
Blockchain
Blockchain is one of the most disruptive and exciting
FinTech trends, with industry continuously finding new
areas where the technology can be applied. In 2016 we saw
funding in blockchain companies increase by 79% year-onyear to $450 million.23
Blockchain is a decentralized ledger that is made up of
blocks (transactions), which are chronologically added to
the blockchain (Figure 5). Transactions are independently
verified by “miners” before being added, meaning that
there are no data issues identified after-the-fact in previous
ledgers. Since the P2P network of computers supporting the
blockchain is decentralized, the transactions recorded are
permanent and cannot be altered. These attributes have
the potential to save back-office costs by eliminating
mistakes, increasing the efficiency of the ledger and
enhancing the transparency and security of data.
The best-known application of blockchain is as a
cryptocurrency (e.g. Bitcoin), however there are promising
applications in the financial services industry, not just for
accounting and payment processing. For instance,
distributed ledger technology can be used to improve
placement, claims settlement and compliance checks,
which is predicted to save between $5 billion and $10
billion in reinsurance.24 Firms can also use blockchain
technology to increase information security and predict,
detect and analyze fraud.25
In Massachusetts, we have already seen academia,
traditional financial institutions and startups come together
to research and experiment with distributed ledger
technology.
State Street Corporation, as one of the world’s largest asset
service providers, is experimenting with automating their
processes using blockchain. The organization is connecting
with startups via FinTech Sandbox to understand how to
integrate blockchain into their software and has also joined
the banking consortium startup R3, an industry initiative
that is leading research and development into blockchain.26
These investments have identified areas where State Street
may implement blockchain technology in 2017, for instance
as part of their securities lending procedures. When
borrowing securities from State Street as part of their
securities lending agreement, the collateral posted by the
counterparty could be recorded on a distributed ledger. This
would make it easier for State Street to subsequently
identify the collateral and return it to the borrower at the
end of the lending arrangement, reducing manual
intervention and the risk of error.27
“We’re excited by the opportunity blockchain
presents and are working to make it a tangible
reality for our businesses, partners and
clients.”
Hu Liang, Senior Managing Director and Head of
Emerging Technologies Center, State Street28
Figure 5
Source: PwC Top financial services issues of 2017: Thriving in uncertain times
14
Digital Identity
The average cost to comply with know your customer
(KYC) and customer due diligence rules ranges from $60
million to $500 million per financial institution, yet the
operational functions behind these requirements are
generally identical at each firm.29 By leveraging distributed
ledger technology and sharing digital identity data,
traditional compliance functions may face drastic changes in
how they accept and manage their clients. Identity
management involves controls used to monitor the
identity of individual users of a network to either allow or
limit access to systems and data. Until now in the
insurance, asset management and banking industries,
onboarding new clients has required complex and lengthy
procedures around anti-money laundering (AML) and KYC,
as well as user access controls such as usernames and
passwords or hardware tokens.
FinTech breakthroughs in digital identity management are
simplifying organizations’ operations and enhancing their
customers’ experience. For example, by using a blockchainbased database of personal data shared amongst financial
institutions, customers only need to complete the relevant
paperwork and AML/KYC check once, significantly
speeding up the onboarding process. In addition, the use of
blockchain brings the benefits of a distributed ledger, such
as data protection and real-time processing (Figure 6) and
means that the individual can control and manage their own
personal data, rather than the organization.30 Organizations
can also incorporate digital signatures, further improving
the customer experience.
Digital identity technology has also been used by the
industry to better automate customer analysis and target
products based on individual risk profiles, reducing risk for
businesses. For instance, insurance firms have used this
technology to further enhance the credit underwriting
process by using non-traditional metrics to determine
applicant creditworthiness.31
One startup leveraging distributed ledger technology and
balancing the competing priorities of personal data security
and transparency is Cambridge Blockchain. Using a virtual
container called a Personal Data Service (or “PDS”), users
can pre-approve financial institutions to access their data
and ensure that their personal information used by
these institutions is accurate and up-to-date. The shared
blockchain ledger contains cryptographic proofs that prove
that the data is valid, including an audit trail of anything that
has changed. Not only does this promote a better client
experience and enable clients to control their data, it also
eliminates redundant compliance checks and helps
institutions using the data to meet the strict new privacy
rules. These regulations can include costly fines for
businesses, making digital identity startups like Cambridge
Blockchain a vital part of their compliance functions.
"Rapid developments in and ever-increasing
adoption of new technologies such as
blockchain give rise to as many stakeholder
questions as they do opportunities. And many
such questions surround privacy, security and
identity. Answering these questions is where
organizations like ours come in. With our
enterprise digital identity software, we use the
power of a blockchain to help financial
services firms put control of personal identity
data back in the hands of the end user, without
compromising on cost or security concerns.
Our solutions ensure compliance with the
strict current data privacy rules, and remove
many redundancies resident in legacy tech
stacks. We recently announced with LuxTrust,
the launch of a privacy-protecting identity
platform for the European market. Being
Boston-based means we can source from a
leading talent pool to expand our team as we
continue to find growth opportunities like this
one in serving such a global industry."
Alok Bhargava, COO, Cambridge Blockchain
Figure 6
15
Source: DeNovo Q3 FinTech ReView
Mass Finance Sector: Current Strength
16
Mass Finance: A for-profit employment
leader
Directly employing approximately 174,072 in 2015
(181,000 in 2016)
Support 119,960 indirect jobs
In 2015, the financial services industry contributed
294,032 jobs through direct and indirect employment
(Figure 8). The growth in the sector towards technology
and innovation only furthers this indirect employment
measure.
With the Financial Services industry embracing FinTech, the
profile of a Financial Services employee is changing. The
adoption of technology, operational efficiency and customer
service is at the forefront of the industry. Jobs of the future will
require advanced skills across a spectrum of disciplines
including technology, data, analytics, risk and finance.
Figure 8
Of the 174,072 direct jobs in the financial services industry in
2015, the Insurance sector contributed the largest share of
these jobs, at 72,293, followed by the banking sector with
69,985 jobs and the asset management sector with 31,794 jobs
(Figure 7).
Total Employment
Contribution: 294,032
Figure 7
Direct Employment, 2015
119,960
69,985
174,072
31,794
72,293
0
20,000
Banking
40,000
60,000
Asset Management
80,000
Insurance
Direct
Indirect
Source: PwC analysis of BLS and BEA data. IMPLAN model (2013 database).
Massachusetts Financial Services
Industry Direct Employment, 2010 2015
200,000
0.4%
1.6%
50,000
-0.5%
100,000
-1.0%
150,000
0.3%
Direct employment in the financial
services industry decreased due to the
recession, but was not hit as hard as
other industries. In 2014 and 2015,
direct employment began to recover
with positive growth year over year in
direct financial services employment
(Figure 9). In fact, the sustained level
of employment since 2010 shows the
robustness of the Massachusetts
financial services industry.
Figure 9
-1.9%
Sustained employment year
over year
2010
2011
2012
2013
2014
2015
0
Source: PwC analysis of BLS and BEA data.
17
Mass Finance: Increasing wages and leading
gross state product contribution
Industry strength in wages
As evidence in the data presented within, most of the Finance industry workforce has middle or high paying jobs. Finance
delivers more middle income jobs than other sectors. With the transformation of the Financial Services industry and
inclusion of FinTech, a need is created for new talent with advanced skills. This continued demand drives higher wages.
In 2015, the average salary for all occupations in Massachusetts was $70,186. The average salary for Massachusetts
employees in the Financial Services Industry is $166,524 (Figure 10). This represents 2.4 times the average state wage,
supporting the upper middle class population. In 2015, direct employment in the Massachusetts financial services industry
accounted for 9.1% of total wages.32
Figure 10
Figure 11
Average Wages in
Massachusetts, 2015
$200,000
$150,000
$100,000
$50,000
$0
Top 10 Industries in Massachusetts by Average Wages, 2015
$180,000
$160,000
$140,000
$120,000
$100,000
$80,000
$60,000
$40,000
$20,000
$0
Massachusetts
Financial Services Industry
All Industries
Source: PwC analysis of BLS and BEA data. Wages include wages and salaries and benefits.
Increased innovation, increased
wages
Average wages in the Massachusetts
financial services industry not only
surpass those of other industries, but
also continue to grow every year. Since
2009, wages have trended positively,
showing significant increases in 2014
and 2015 (Figure 12). The innovation
landscape of the Massachusetts
financial services industry gives rise to
increased need for advanced skills and
paves the path for the growth in wages
to continue.
Figure 12
$180,000
Massachusetts Financial Services Industry Wages, 2009 2015
6.9%
$160,000
4.9%
$140,000
4.6%
3.4%
5.4%
1.0%
$120,000
$100,000
$80,000
$60,000
$40,000
$20,000
$0
2009
2010
2011
Average Wage
2012
2013
Gain from Prior Year
2014
2015
Source: PwC analysis of BLS and BEA data. Wages include wages and salaries and benefits.
18
Mass Finance: Increasing wages and leading
gross state product contribution (cont.)
Industry wage contribution
Most of the citizens employed by the financial services industry have middle or high paying jobs. Noted in Figure 13 below,
through direct and indirect employment, the financial services industry in Massachusetts contributes $40 billion to the
Massachusetts wages. Direct employment accounts for almost 75% of the $40 billion and indirect jobs accounts for the
remaining $11 billion.
Leading contribution to Gross State Product
Three numbers tell the story of the financial services industry in Massachusetts – 6, 14, and nearly 20.
The financial services industry accounted for 6% of total employment in Massachusetts and 14.4% of the Massachusetts
economy’s GSP.33
The numbers tell the story of continued growth, as total output was 10% in 2014. When direct and indirect employment are
combined, the financial services industry’s value added to the Massachusetts economy was $52 billion in 2015 (Figure 14).
This output provides a large tax base for state and local government income, wage and property taxes. Financial Institutions
and Insurance Companies have provided an average of 18% ($2.1 billion annually) of the state taxes collected on
Massachusetts businesses over the last five years.34
Figure 13
Figure 14
Total Wage Contribution:
$40B
Total Value Added
Contribution: $52B
$12B
$11B
$40B
$29B
Direct
Indirect
Source: PwC analysis of BLS and BEA data. IMPLAN model
(2013 database). Wages (as defined, see “Report
Methodology”) include wages and salaries and benefits.
Direct
Indirect
Source: PwC analysis of BLS and BEA data. IMPLAN model (2013
database).
19
Education: Cultivating and retaining top
talent for Mass Finance
The Finance sector in Massachusetts has long had
connections to academia and has employed and cultivated
the top talent in finance the universities in the region.
Graduate degrees held as a % of state population (2013)
Massachusetts workforce is a critical piece of the
“ecosystem”, as the state’s residents are among the most
educated in the country.
35.00%
Massachusetts is home to some of the country’s top
business schools including35:
25.00%
•
•
•
•
•
•
•
•
•
•
Harvard University
Massachusetts Institute of Technology
Babson College
Bentley University
Boston College
Boston University
Brandeis University
Northeastern University
University of Massachusetts
Simmons College
Massachusetts ranks 4th in the United
States when it comes to international
student enrollment, educating over
59,000 foreign students in 2016. The
state is home to 2 of the top 10 most
popular universities for foreign students –
Northeastern University (#6) and Boston
University (#9). 36
The region’s world class colleges and
universities coupled with the recent
trends in technology and innovation
represent significant opportunities in the
areas of FinTech, Big Data and
Cybersecurity. The Council and nonprofits such as the Boston-based FinTech
Sandbox aim to create more connections
between graduates coming out of these
academic institutions, investors, and
other key players.
30.00%
20.00%
15.00%
10.00%
5.00%
0.00%
DC MA MD CT VA NY VT CO NJ NH
Bachelors degrees held as a % of state population (2013)
24%
24%
23%
23%
22%
22%
21%
21%
20%
20%
19%
DC
CO
MA
NJ
MN
VT
NH
CT
Source: Bloomberg News
20
Appendix
21
Appendix I
Report Methodology
For the purposes of this report, the financial services industry is defined as public and private sector firms and institutions
falling under North American Industry Classification System (NAICS) code 52, “Finance and Insurance.” The report further
analyzes the industry in the following three subsectors, as defined as follows:
Key Definitions
Asset Management
Firms primarily involved in portfolio management, investment
advice, and trust and fiduciary activities.
Insurance
Insurance carriers and insurance agencies and brokerages.
Banking
Monetary authorities and firms primarily involved in depository credit
banking (i.e. commercial banking, savings institutions, and credit unions), nondepository services (i.e. credit card issuing,
sales financing, and consumer lending), mortgage and loan brokering,
investment banking and securities dealing, and securities exchanges.37
Note that to the extent that a firm offers funds which hold real estate securities, these would be captured in the asset
management category. Real estate firms which actively manage a portfolio of real estate assets as well as real estate
investment trusts (REITs) are not within the scope of this report. Also note that the classification of firms who perform
activities across multiple subsectors are classified based on the primary activity performed at the office addresses of the
firms. This approach allows the activities of a single firm to be captured across multiple subsectors. In describing the
economic impact of the financial services industry through its employment and purchases of goods and services, this
report considers two separate channels – the direct impact and the indirect impact – that in aggregate provide a measure
of the total economic impact of the financial services industry to the region. The direct and indirect impacts are captured
for jobs, labor income, value added, and output to further measure the impact the industry has to the region. These
measures are defined as follows:
Key Definitions
Jobs
The total number of people employed in a given industry.38
Labor Income
Cash wages and salaries and benefits.39 Throughout this report,
labor income will be referred to as wages for ease of reference.
Value Added
Employee compensation, proprietors’ income, income to capital
owners from property, and taxes on production and imports. The
value added of a particular industry excludes the value of
intermediate inputs, for example the value added of the investment banking
industry would exclude the value of purchased computers and software used
for trading. The U.S. gross domestic product (GDP) is the sum of value added
across all industries, and thus the value added of an industry can be thought
of as the industry’s contribution to GDP.
Output
The total value of sales, including the value of intermediate goods. For
example, the output of the investment banking industry would include the
value of purchased computers and software that are reflected in the cost of
doing business for investment firms.
22
Direct Impact
Jobs, labor income, value added, and output within the financial
services industry.40 To the extent an employee is determined to be employed
by a financial services firm, they are included within the category. For
example, an individual in an administrative role at an asset management firm
would be considered in the direct category.
Indirect Impact
Jobs, labor income, value added, and output occurring throughout the supply
chain of the financial services industry.41 For example, the indirect impact
would capture an advertising firm hired by a financial services company to
design an ad campaign.
Jobs and associated wages are captured for all employees of firms in the financial services industries, not just employment
and wages for financial services occupations. For more detailed information on methodology, see Appendix I.
23
Appendix II
Sources
Data on direct employment and wages in the financial services industry and the banking, asset management, and insurance
sectors is based on data from the Quarterly Census of Employment and Wages (QCEW), which is administered by the Bureau
of Labor Statistics (BLS) and data from the Bureau of Economic Analysis (BEA). For the purposes of this report, the financial
services industry was defined using the following NAICS codes:
NAICS
Code
Sector
52
Description
Financial Services
521
Banking
Monetary Authorities-Central Bank
522
Banking
Credit Intermediation and Related Activities
5231
Banking
Securities and Commodity Contracts Intermediation and Brokerage
5232
Banking
Securities and Commodity Exchanges
5239
Asset Management
Other Financial Investment Activities
524
Insurance
Insurance Carriers and Related Activities
525
Asset Management
Funds, Trusts, and Other Financial Vehicles
The QCEW is a near comprehensive census of employment and wages at the national, state, and county levels for workers
covered by state unemployment insurance laws and federal workers covered by the Unemployment Compensation for
Federal Employees program. It does not include the self-employed, unpaid family workers, or private household employees.
Jobs are counted regardless of full-time or part-time status. Individuals who hold more than one job may be counted more
than once. In order to protect the confidentiality of firms’ information, the Bureau of Labor Statistics does not disclose data
that would be easily identifiable to individual participating companies. We relied on employment data from the Bureau of
Economic Analysis to impute QCEW data that was not disclosed at the state level. The QCEW data on wages does not include
the cash value of benefits. Wage data from the BEA was used to supplement the QCEW wage data in order to estimate
benefits.
Employment and wage data from the QCEW and BEA were used in conjunction with the IMPLAN economic model (2013
database) to quantify direct and indirect employment, wage, value added, and output impacts of the industry in
Massachusetts. IMPLAN is a well-known modeling system developed by the Minnesota IMPLAN Group for estimating
economic impacts and is similar to the Regional Input-Output Modeling System developed by the U.S. Department of
Commerce. The model is primarily based on government data sources. It can address a wide range of impact topics in a given
region (county, state, or the country as a whole). IMPLAN is built around an “input-output” table that relates the purchases
that each industry has made from other industries to the value of the output of each industry. To meet the demand for goods
and services from an industry, purchases are made in other industries according to the patterns recorded in the input-output
table. These purchases in turn spark still more purchases by the industry’s suppliers, and so on. Meanwhile, employees and
business owners make personal purchases out of the additional income that is generated by this process, sending more new
demands rippling through the economy.
24
Endnotes
1 U.S. Census
Bureau, Population Division. Table 1. Annual Estimates of the Resident Population for the United States, Regions, States, and Puerto
Rico
2
PwC analysis of BLS and BEA data
3
PwC analysis of BLS and BEA data. Wages includes wages and salaries and benefits
4 PwC
Financial Services Institute, http://www.pwc.com/us/en/financial-services/research-institute/artificial-intelligence.html
5 PwC
Global FinTech Report 2017
6 PwC
Financial Services Institute, http://www.pwc.com/us/en/financial-services/research-institute/artificial-intelligence.html
7 https://www.quantopian.com/
8
https://elsen.co/platform
9 https://futurefuel.io
10 http://fintechsandbox.org/
11 PwC
Global FinTech Report 2016
12 PwC
DeNovo
13
PwC, Organize your future with robotic process automation
14 PwC, How
can RPA and other digital labor help financial institutions?
15 PwC
Top financial services issues of 2017: Thriving in uncertain times
16 PwC
19th Annual Global CEO Survey, 2017
17 PwC
Global State of Information Security Survey Report 2017
18 PwC, https://www.pwc.com/gx/en/issues/cyber-security/information-security-survey/financial-services-industry.html
19 PwC
FS Institute
20 PwC, http://www.pwc.com/us/en/cybersecurity/broader-perspectives/trumps-cybersecurity-executive-order.html
21 PwC
Top financial services issues of 2017: Thriving in uncertain times
22 https://www.veracode.com
23 PwC
Global FinTech Report 2017
24 PwC
Top financial services issues of 2017: Thriving in uncertain times
25 PwC
Global FinTech Report 2017
26 StateStreet.com, http://www.statestreet.com/ideas/
27 Fortune.com
28 State
articles/explainer-series-blockchain.html
http://fortune.com/ 2016/12/21/state-street-blockchain/
Street Newsroom
29 Strategy&,
DeNovo Q3 FinTech ReView
30 Ibid
31 PwC
Global FinTech Report 2017
32
PwC calculations using IMPLAN modeling system (2013 database)
33
Ibid
34 Massachusetts
Department of Revenue, FY2015 Annual Report
35
https://www.usnews.com/best-graduate-schools/top-business-schools/mba-rankings
36
https://www.iie.org/Research-and-Insights/Open-Doors/Data/International-Students/Leading-Institutions
37
Employees of monetary authorities make up less than 1% of jobs in the banking subsector in New England
38
Direct employment is defined as the number of payroll jobs. Indirect employment includes both paid and self-employment
39
Direct labor income includes wages and salaries and benefits. Indirect wages includes wages and salaries and benefits, as well as proprietors’
income
40
Direct employment is defined as the number of payroll jobs. Direct labor income includes wages and salaries and benefits
41
Indirect employment includes both paid and self-employment. Indirect wages include wages and salaries and benefits, as well as proprietors’
income
25