Deutsche Bank AG is converting to a single core system across 30 countries to support its Global Transaction Banking operations, highlighting the rising importance of commercial business.
Deutsche Bank's plan taps corporate banking's potential to supplant lost fee revenue on the consumer side. Its focus on commercial customers stands in contrast to the typical argument for core overhaul, which is to overcome inefficiencies in the retail space.
"The corporate side, when it came to IT investments, often took a backseat to retail," said Christine Barry, a research director with Aite Group LLC in Boston. But today, "banks are starting to recognize the importance of this product area," particularly because the ability to generate fee-based revenue on the retail side is constricted, Barry said.
"There's a lot more focus on the corporate side of banking," she said.
Many global banks also run multiple vendor systems for different geographic markets and product lines, making it difficult for them to be agile in responding to customer demands or to roll out new products quickly.
Deutsche Bank said Tuesday that it is converting to a core banking system from Tata Consultancy Services Ltd. Tata, of Mumbai, has already converted the Frankfurt, Germany, banking company's Abu Dhabi operations to its TCS BaNCS system and is working on converting its Saudi Arabia operations next, according to N. Ganapathy Subramaniam, the president of Tata's Financial Solutions unit.
"We wanted to replace several solutions with one modern and cost-efficient platform," a Deutsche Bank spokesman said. A bank executive was not available for an interview, the spokesman said.
Tata plans to roll out the BaNCS system in other regions, including the U.S., over the next three and a half years, though the timetable could change depending on Deutsche Bank's plans, Subramaniam said.
Tata is working with Deutsche Bank on a "model bank" approach in which the vendor is helping create a standard program to deploy in each country. This method makes the installation of the new system more streamlined, Subramaniam said.
Because the bank is moving to one system for its Global Transaction Banking operations, the cost of ownership for Deutsche Bank will be reduced and will enable the company to better measure risk and respond to compliance issues, he added.
"They become much more efficient and it's much more easy to maintain their software," said Robert Hunt, senior research director at TowerGroup in Needham, Mass. "Then they have a better ability for risk and liquidity management for themselves and their customers."
Tata's BaNCS system is based on a programming approach called extensibility that allows a user to deploy the system in multiple regions, accounting for the different regulatory requirements of each without having to alter the main core system for each deployment, Hunt said.
"In the international world … there's been significant movement over the last several years toward standardized and modern core banking software," Hunt said.
Core upgrades have been talked about in the U.S. for the last several years but few large banks have actually made the move because of the economic downturn and risks associated with doing a major overhaul.
But now "many banks, especially the large ones, have very little choice but to replace their cores," Barry said. "They're preventing banks from being able to address some of the changing customer needs."
Vendors have taken steps to improve their systems, with a focus on better compliance and liquidity management features for their bank clients, Barry said.
"Those banks that succeeded during the crisis or were able to best weather the storm were the ones that could best answer the needs of customers," Barry said. "If a corporate customer had questions about their cash position or exposure, they expected their banks to give them answers quickly. A lot of banks weren't able to meet those needs," and that was partly because of their reliance on old technology.
The approach that Deutsche Bank is taking by upgrading to one core system to support operations in more than 30 countries highlights that corporate customers "are expecting their banks" to give a similar experience regardless of location, Barry said.
The Deutsche Bank spokesman said the project does not involve migrating its retail banking operations, which are mainly in Germany with some presence in Spain, Italy and the Netherlands.
Tata's contract with Deutsche Bank, which is for 10 years and includes licensing, maintenance, implementation and post-implementation support, does give the bank access to its retail systems, Subramaniam said.
The BaNCS system includes account services, interest and charges, liquidity management, reporting, transfers and payments and other functions.
The Deutsche Bank spokesman declined to say which other vendors bid for the contract. Neither company would disclose the price of the deal.
U.S. banks may be more likely to invest in new systems as foreign banks move to upgrade, Barry said.
She noted that Union Bank in San Francisco, a subsidiary of the UnionBanCal Corp. unit of Mitsubishi UFJ Financial Group, is upgrading to Infosys' Finacle core system.
Analysts say that Banco Bilbao Vizcaya Argentaria SA is also upgrading its systems in the U.S. BBVA did not return an inquiry about its plans by deadline.
Domestically, Citigroup Inc. signed a deal with Fidelity National Information Services Inc. in the fourth quarter of 2009 to upgrade to its Systematics core banking system. Citi, which is thought to be the first major U.S. bank to do a core migration, had been using the system abroad and is deploying it in the U.S.
"They're starting to raise the bar for expectations here even in the U.S., or they will as they move forward with those replacements," Barry said. "I think [a lack of] customer satisfaction is the biggest potential risk that some of the banks that don't move face."