Core-system swapouts are of increasing interest to banks, which need to support new products like health savings accounts and technologies like remote deposit-image capture, but find that layering these new functions on top of siloed legacy systems is awkward and inefficient. Sources say one of the top-five U.S. banks will undergo a complete core system swapout this year-clearing the way for other big banks to follow suit. Even more, rumors persist about the likely consolidation of technology companies in the core banking business, which could compel other banks to survey the landscape more carefully before undertaking any core-system replacement projects themselves.
In spite of the pain associated with core-system replacements, banks recognize there's no time to waste if they are to remain competitive. Technology providers, too, realize that enhancing system capabilities must happen if they are to acquire and retain customers.
Aite Group estimates that 1,100 banks and credit unions in the U.S.-the sum of all replacements in 2006, 2007 and 2008 combined-will replace their core banking systems by 2008. In 2006, U.S. banks were estimated to have spent more than $1.4 billion on the projects.
It's that sense of opportunity and urgency that brought Metavante and Temenos together. Under the agreement, Metavante will distribute the Temenos core banking platform, TCB, in the U.S., with Temenos retaining royalties on license and maintenance fees, outsourcing fees and professional-services revenues.
Metavante, one of the three largest U.S. bank technology and payments-processing firms with 2006 revenue of $1.5 billion, will have exclusive U.S. access to a co-developed global software platform for the U.S. market that's based on TCB.
The deal's a big score for both firms, since it will allow Metavante to upgrade its core- banking offerings, giving its huge roster of bank clients access to a core-banking platform that sources say is more modern that what it's selling now. Temenos has earned a ticket to a brand-new market-and leverage over competitors.
"Temenos has zero footprint in the U.S. and it has a more modern core-banking platform," says Bart Narter, a senior analyst on the banking team at Celent.
Temenos CEO Andreas Andreades says penetrating the U.S. market was part of what attracted his firm to Metavante. "There's a lot of core-banking vendors trying to break into the U.S. market," Narter says. "Some have hit a brick wall, and some have made a few sales, but not a lot. The deal gives Temenos instant credibility in the U.S."
And it's likely the best fit for Temenos, given that most of Metavante's competitors-Jack Henry, Open Solutions, Fiserv and Fidelity Information Systems-offer core-banking technology too similar to TCB to make an alliance with Temenos a good fit. "[Temenos] got the last musical chair," Narter says. "The other core providers aren't necessarily looking for a foreign partner."
By teaming with Temenos, Narter says Metavante can hit the market fast with a new core-banking product. "They could have built their own system, but licensing makes the most sense, because there's a lot of good software out there," he says. Under the agreement, Metavante will be TCB's distributor in the U.S., with Temenos retaining royalties on license, maintenance, outsourcing and professional-services fees. The technology will be targeted at the largest institutions; Temenos says the U.S. market is some 150 Tier 1 and 2 financial institutions.
At a March briefing, Metavante president and CEO Frank Martire said the business landscape for this size institution is becoming increasingly complex and demanding in terms of their core-banking systems needs. When products like health savings accounts or a foray into a new market overseas is considered, the stress on older systems can be overwhelming. "You need to have 24/7 operations," he said. "And many of today's systems are 20, 30 or 40 years old," Martire says.
At the briefing, a team of Metavante and Temenos executives argued that the age of these core systems are creating problems for banks, including multiple instances of a customer's name listed, yet an incomplete total customer view. That's added to other problems, such as slower time to market with product rollouts, old-school batch processing, multiple currency complications, an inability to re-engineer and streamline business processes, and a very time-consuming and expensive compliance effort.
To get around these problems, the two firms will team up for a new system that will be party-centric with a changeable product catalogue, which should facilitate speed to market. Designed around TCB, the new U.S. Global Banking Platform will be rolled out in an incremental, component-based manner, and will leverage service-oriented architecture to integrate Metavante and other surrounding products.
While the two firms were pretty specific about the target client base for its product, Martire would not disclose early adoption numbers. But both firms are confident about how well the alliance will play out. Metavante, which has a client base that includes 91 of the largest 100 U.S. financial institutions, expects to generate a minimum of $102 million in contractual revenues over the next five years.
Metavante has entered into a number of business-expanding alliances recently, including a deal with Schwab Institutional to provide trust and brokerage technology and with Monitise to create a mobile payments system for North America.
In the case of the Schwab Institutional alliance, Metavante trust bank clients will have the option of selecting Schwab as their custodian, granting them access to custody and trading platforms. "A lot of our independent investment-advisor clients are being acquired by or are acquiring trust companies," says Cathy Clauson, vp of product development for Schwab Institutional. "With that, you start getting into trust accounting systems. This alliance will allow the advisors to keep their assets with Schwab."
