Open Solutions Inc. is pushing banks harder to outsource their software programs to the vendor's technology hosting center.
The Glastonbury, Conn., company said Monday that it is offering banks a suite of "on-demand services" for moving not only their core processing systems but individual programs used for loan origination, marketing, online banking and other functions, to its Global Operations Center. The center provides the technology infrastructure needed to run clients' software systems so banks do not have to run and maintain their programs internally.
"We basically put together a program that allows the institution to have all of the benefits of a license arrangement where they run our software at their place, but we're running it for them," Santo Cannone, the executive vice president of sales at Open Solutions, said in an interview on Monday.
Outsourcing is not a new concept for the financial services industry. Several major vendors, including Fiserv Inc., Fidelity National Information Services Inc. and Jack Henry & Associates Inc., offer to host their clients' core processing and other programs, like mobile and Internet banking services.
Vendors are taking a variety of approaches to delivering the technology to banks, from offering to host and maintain a solution for an individual client to plugging multiple customers into what some experts refer to as a multitenant environment, where multiple banks essentially run on the same software platform while keeping their individual data separated and secured from each other.
"We're actually seeing increased interest in moving away from on-premise solutions to more of a hosted, on-demand environment," said Christine Barry, a research director who covers wholesale banking for Aite Group LLC in Boston. "It's less expensive for the financial institutions. They can be up and running a lot faster and it … also takes some of the regulatory burden off of them because they're more dependent on their technology provider to ensure some of the regulatory compliance."
Banks typically have to make trade-offs when going from an on-premise approach, where they install and run software on their own systems, to an outsourced approach, Barry and other analysts said.
While the transition can enable banks to cut down on technology licensing and maintenance costs, they generally lose some level of customization that an internal program offers.
"What's going to be limited in a hosted solution is you're not going to completely … rewrite the code to reflect your processes," said Madhavi Mantha, a principal and head of banking research at Novarica, a division of the New York consulting firm Novantas LLC. "There will be a standardized account opening process built into the solution and then you'll have some degree of flexibility in configuring that and making changes but it's not going to be the same as taking that core solution [and] having it 100% reflect the bank's own account opening" process.
Cannone said clients that use its services basically take Open Solutions programs they are running internally and move them outside of the bank.
"The idea is you're not sacrificing any functionality or capability if you decide to go down this route," Cannone said.
Lizette Nigro, the vice president of product marketing at Open Solutions, said the company is focused on expanding its outsourcing capability beyond core systems. "Even when a bank was outsourcing its core application, most of the time what would happen is all of the ancillary products that the bank was running would be running internally," Nigro said.
By moving other programs with the core system, "they become users of the applications instead of maintainers of the applications," Nigro said.
As part of the initiative, Open Solutions formed a partnership with Heit Inc., a Fort Collins, Colo., information technology management company that focuses on the financial services industry. Open Solutions clients can opt to use Heit to monitor and maintain their desktop, printing and other computing functions.
For some banks the decision of which functions to outsource is driven by customization. Some value having unique online and mobile banking interfaces. Because of that, they may choose to install and operate such programs themselves instead of tapping into a hosted environment, Barry said.
However, she said vendors have been working to make it easier for their clients to put personal touches on specific programs. Many online banking vendors now make it possible for banks to customize what content appears on the main page when their customers log into their online banking sites, even for hosted programs, Barry said.
While outsourcing certain applications might be right for one bank, not all banks are prime candidates, said Jost Hoppermann, a vice president of banking applications and architecture at Forrester Research Inc.
"I would look at quality of service, at cost, at scalability, at the privacy issues … and so on and so forth and then decide what kind of sourcing solution is the right one for me," Hoppermann said.
Traditionally, for a larger, more horsepower-intensive application like core processing, which serves as the backbone of retail banking operations and updates customer information within mortgage lending, credit cards, demand deposit accounts and other products, smaller and midsize banks have been more willing to consider on-demand and other hosted services.
Larger banks are often more hesitant because they are running core systems that they largely developed internally and have invested a significant amount of money in maintaining for several years, Mantha said.
Barry, however, said that, at larger banks "we're seeing the willingness to at least consider an outsourced solution." Even some of the largest 20 banks have shown interest, she said.
