Leading Off

Citi Could Pay for Its Conservative Core Approach

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Citigroup sacrificed speed for perceived tech reliability by sticking with overnight batch processing on mainframes for core retail banking in North America in a recent migration of two proprietary systems to FIS Global's Systematics. But keeping domestic deposit customers on what amounts to decades-old, memo-post methods could prove riskier than the newer real-time processing alternative, and not just because mobile banking is taking off.

Ceding processing speed, even temporarily, as a means to more easily make its North American retail operation part of Citi's hoped-for common global platform, could buoy emerging contenders to make inroads, particularly if banks such as BBVA Compass, Santander and ICICI leverage the flexibility gained from adopting real-time core engines to acquire more American banks or fund branch expansion.

"The big Spanish banks, Santander, BBVA-which have for years been processing in real-time-they now own major U.S. banks: They cost themselves on average about 42 cents for every dollar of operating revenue," says Robert Hunt, an analyst at TowerGroup. "Compare that to big U.S. banks like Citi, which can have between 55 and 65 percent of operating revenues comprised of operating expenses in a good year. If you're in direct competition with institutions gaining several hundred million dollars in added revenue because of those lower expenses, you're at a competitive disadvantage holding to the status quo."

Because it lacks real-time processing in the U.S., Citi's overall effort at rationalizing its retail systems to ride a common global platform by 2013-Project Rainbow-is viewed by analysts domestically as a piecemeal attempt at getting what Citi really wants: complete views of each customer, regardless of products or contact, whether ATM, Internet, mobile or branch. As such, Citi's decision to remain in batch on mainframe languages stateside is a "bit surprising," says Christine Barry, an analyst at Aite Group, adding real-time core banking systems like Finacle from Bangalore-based Infosys, to which Union Bank of California is migrating, are as reliable now as mainframe engines.

Instead, the single global platform Citi envisions, according to statements by Citi's new retail head, Manuel Medina Mora, is based on a technological architecture originally designed at Banamex, Citi's Mexican subsidiary, where Mora was once CEO. Citi, Mora says, plans to invest up to $4 billion boosting retail over the next three years. Celent analyst Bart Narter says Mora's referring to an internally developed Banamex system.

Citi wouldn't comment on BTN's specific systems questions. But, according to several press releases and public case studies, the "360-degree customer views" that Banamex says it has are enabled by a combination of an operational data store from Opsol Omnihub, a suite of front-end services, powered by a mix of Unisys and Tandem mainframes and HP NonStop servers. Banamex's front-end services are connected and linked to the backend by Oracle's Tuxedo middleware and mainframe adapters; Oracle purchased BEA Systems, including Tuxedo, in 2008.

Narter says other changes must include converting AFS Vision to Systematics' Advanced Lending Solutions (ALS). And Citi's retail migration would also presumably entail Banamex (USA) replacing its core banking system from Metavante, which FIS purchased in 2009, with Systematics. Narter emphasizes Citi could have gone real-time on mainframes, by licensing FIS' Profile. Citi itself runs Flexcube, a real-time system, in over 67 nations, for mostly corporate banking, but also to handle retail in strategic international locales, according to Narter.

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