For vendors pitching in the U.S. core systems replacement market, it's always the third of July.

Analysts and experts each year proclaim that large U.S. institutions' renewal and replacement needs are growing critical, so expect new mega-deal opportunities to explode. But year after year, the fireworks never come.

"I read those articles, and my eyes get all big and I think it's time to go make some money," half-jokes Tony Catalfano, division president for Fiserv's Depository Institutions Group. Inevitably, he says, the hope transforms to hype and for core systems vendors like Fiserv the money remains in smaller bank core deals or through consulting and ancillary banking products like payments and Web services that top-100 institutions retro-fit to their core deposit system.

According to recently published Aite Group surveys, only three of 526 core system replacements at U.S. institutions in 2007 were at top 100 banks. Even in 2008, the industry transformation of new foreign-based vendor products and potential regulatory streamlining efforts failed to thaw the core systems freeze.

"What vendors are realizing," says Bart Narter, Celent svp and banking research director, "is it's relatively unlikely they'll find a major U.S. or a Canadian bank that wants to do a whole-hog rip and replace."

For U.S. vendors, transformation is well under way to target foreign markets for core systems, as well as build a products suite that gets them in the door for a possible core switchout. Fidelity has built up a stable of more than 300 non-U.S. clients, according to Aite, and since late 2007 has focused on strengthening offerings and products-note the September 2007 acquisition of eFunds to build scale in electronic funds transfer, ATM and debit card processing, prepaid cards and risk management. Fiserv, which has made high-profile acquisitions of new assets like CheckFree, has built up more than 150 global banking clients on its ICBS product.

Down market, vendors like Open Solutions Inc. are even turning to international sales and market development in the Far East and Eastern Europe.

Meanwhile, major international core providers like Temenos, TCS, Infosys, Misys and i-flex solutions (now Oracle Financial Services Software Ltd. made a U.S. market presence a key part of growth plans beginning last year. Metavante Technologies partnered with Temenos to market the latter's TCB product up-market to large U.S. banks.

Perhaps the most significant deal was with People's United Financial of Bridgeport, CT and Oracle. People's was the first domestic banking client for Oracle Financial Solutions' FLEXCUBE system-which is installed at more than 325 institutions globally-and was a rare core systems replacement for a bank of its size ($21 billion in assets).

But that deal today appears kaput. No details have emerged about the extent of the relationship, if any, between People's and Oracle, but Celent's Narter called the FLEXCUBE deal a "failed implementation," adding that the thrift "stepped back and had a big rethink" on the deal following its January acquisition of the $6 billion-asset Chittenden Bank of Burlington, VT. The bank also went through the death of former CEO John Klein, who led the bank at the time of the original announcement.

People's United would not comment on its relationship with Oracle. When Oracle Financial Services Software Ltd. svp and head of global sales Kishore Kapoor was asked about the implementation, an Oracle public relations representative refused to allow Kapoor to answer.

Kapoor could talk about Oracle's need to develop partners to strengthen FLEXCUBE's offerings to U.S. banking clients [both large and small], such as in payment network interfaces. With banking products "there is not a significant differentiation between what is offered to U.S. customers and other global markets. Banking is a commodity," Kapoor says. "I think the product is 'U.S-ized.' Is that enough? No."

"Banks here are looking for a proven track record in the U.S. [market]," says Aite senior analyst Christine Barry. "Without giving them an opportunity, it's hard for them to establish a presence here or a proven track record in the market."

According to Aite, even if the foreign vendors do prove their chops, the market for U.S. core replacements will remain thin compared to Europe and other regions. The research group estimates that approximately 30 percent of total global core system replacement revenues will come from the U.S. side of the equation over the next two years-"assuming the largest U.S. banks begin to show a greater willingness to replace their core systems over the next few years."

That itself assumes that vendors can prove the case to banks that legacy mainframes, which remain rock-solid and fully supported for the most part, are worth ditching. Until that happens, says Fiserv's Catalfano, "I don't see how someone will be able to survive and solve those business problems long-term without a breadth of product suites." (c) 2008 Bank Technology News and SourceMedia, Inc. All Rights Reserved.

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