Are banks becoming more open to the idea of replacing core systems?
A new worldwide survey of 1,500 bankers that was commissioned by a pair of vendors of core processing products and services and performed in part by the Boston consulting firm Celent Communications LLC suggests the answer is yes. But interest in doing so is less common in North America than in Europe and the Asia-Pacific region, the survey found.
Indeed, a researcher who helped gather the data cautioned that the United States’ largest banks remain quite reluctant to tamper with their core deposit accounting systems.
“Redefining Core Banking,” a report based on the survey, concludes that 30% of banks in Europe, more than 35% in the Asia-Pacific region, and more than 20% in North America are thinking about replacing core banking systems within five years.
The report was scheduled for official release today at the Sibos 2005 financial conference in Copenhagen.
The study was sponsored by the consulting firm Accenture Ltd., headquartered in New York, and SAP AG of Walldorf, Germany, a developer of large-scale corporate databases and other applications.
Christian Goeckenjan, a vice president in SAP’s financial services unit, attributed “a significant regional difference” in the findings to the varying economic circumstances and information technology needs of banks around the world.
In the mature markets of Europe, for instance, banks must look abroad for growth, Mr. Goeckenjan said last week. But “the moment they try to merge across borders, they immediately come up against the limits of their IT,” he said.
In many parts of Asia, by contrast, economies are still developing and technology infrastructures are immature, he said.
Jean-Marc Ollagnier, the global managing partner of Accenture’s financial services solutions group, said that U.S. banks remain reluctant to replace their deposit accounting systems. Bankers here have more interest in “partial replatforming” of specific pieces of their infrastructures, such as loan processing or payments systems, he said.
“They are touching the wall in a couple of places, and it’s time to make some bold moves,” Mr. Ollagnier said.
But even if 20% of U.S. banks were willing to consider core replacement projects over the next five years, “I think that is a very big number already,” he said. “This subject is back on the agenda of the executives right now.”
The Accenture-SAP study comes as other global technology giants are stepping up their bids for the bank core processing market.
Last month a SAP rival, Oracle Corp. of Redwood Shores, Calif., announced plans to buy most of the Indian core processing developer i-flex solutions ltd., which has been No. 1 in global sales of bank core processing systems for the past three years.
In June, International Business Machines Corp. of Armonk, N.Y., began promoting its Core- Systems Transformation consulting service. It uses service-oriented data architectures and standards such as Extensible Markup Language to enable banks to move gradually toward core replacement.
A researcher who conducted part of the Accenture-SAP survey had a caveat about the interpretation.
“I don’t expect we will see 20% of the top banks in the United States changing their core systems in the next five years,” said Octavio Marenzi, the managing director at Celent, which conducted the interviews with bank executives in North America and the Asia-Pacific region. (A French research firm, Novametrie, surveyed bank executives in Europe.)
Mr. Marenzi noted that the United States is home to about 8,000 banks and that system conversion is less complex for smaller banks.
Larger banks are more likely to tackle projects involving lending or payment systems than the demand deposit accounting systems at the heart of bank operations, he said.
“It’s just that so many other systems are dependent on the DDA system,” Mr. Marenzi said. It may feed information to 150 payment, processing, and reporting applications, many of which have been tied together over the years in ways that have not been formally documented, he said.
“You have to be able to feed that information out to 150 applications without missing a beat,” Mr. Marenzi said.
His opinion is consistent with the findings of another research firm, TowerGroup of Needham, Mass., a unit of MasterCard International. TowerGroup reported in April that only three of the nation’s 100 largest institutions have replaced their core systems for any reason other than an acquisition in the past five years.
