Oracle Corp. says its creation of a business unit to serve financial companies positions the database vendor for an anticipated wave of conversions of banks' core accounting systems.
The Redwood City, Calif., company discussed its commitment to banking at a meeting Thursday in New York, which is the headquarters for the new unit, Financial Services Global Business. Two large U.S. banks are considering upgrading their core banking systems with Oracle software, Oracle said at the meeting.
Oracle historically has offered so-called horizontal products that can be used in common functions across different industries customer relationship management, for instance, or human resource management. Charles Phillips, it president, said it plans to become more vertical, concentrating on specific markets.
"We picked a number of industries that we're going to invest in. Financial services is the largest of those industries," Mr. Phillips said at the presentation before several hundred customers, analysts, and reporters.
He predicted that large banking companies, insurers, and capital markets firms will increasingly turn to vendor software, rather than building computer systems in-house, as banks traditionally have done.
"People used to build their own HR systems. Nobody does that anymore," Mr. Phillips said. "We're in the very early stages of that same shift in financial services."
Though Oracle has long extolled its commitment to financial services, focusing on any specific industry is something of a departure. In its annual report, Oracle does not break out its sales by industry segment, but its recent results give an indication. It reported that database and middleware brought in 73% of its $4.9 billion of new-software license revenue in its fiscal year that ended May 31, 2006, versus 27% for application software.
Oracle strongly signaled its interest in financial services in November 2005, when it bought Citigroup Inc.'s 43% ownership stake in the Indian core banking software developer i-flex solutions ltd., which was founded in the mid-1980s as a Citi subsidiary.
Oracle, which now owns 83% of i-flex, named two executives of the Mumbai company to top spots in Financial Services Global Business. Rajesh Hukku, i-flex's chairman and managing director, was named to the additional positions of senior vice president and general manager of the new unit, and R. Ravisankar, i-flex's chief executive of international operations and technology, was named a group vice president in the unit.
i-flex has been the world's top seller of new core banking systems for the last five years, according to IBS Publishing Ltd., a London financial publisher. Mr. Hukku said he believes at least one or two large U.S. banks are ready to overcome their reluctance to tamper with their most important system of record.
"The same was true three years ago in Europe," Mr. Hukku said, noting that in 2006 i-flex won contracts with Allied Irish Banks PLC of Dublin and Barclays PLC of London.
"This wave is coming in slowly," he said. "The U.S., in my opinion, is the last man standing."
The breadth of Oracle's offerings provides many points of entry for banking companies, Mr. Hukku said. In recent years Oracle has bought Siebel Systems Inc. of San Mateo, Calif., the No. 1 maker of customer relationship management software; and PeopleSoft Inc. of Pleasanton, Calif., whose employee-record systems are widely used in banks. In addition, i-flex's Revelleus system for risk management and regulatory compliance and its Mantas anti-money-laundering system are in wide use in the United States.
He said the ability to integrate various systems using Oracle's framework would be a strong selling point to banks in the United States, even if conversion is slow.
"We want them to come in one at a time, so we have sustained earnings for the next 10 years," Mr. Hukku said. "In the meantime, we're happy selling it in Germany, France, Italy."
Guillermo Kopp, an executive director and global research fellow at TowerGroup, a Needham, Mass., research group owned by MasterCard Inc., said the combination of assets could prove persuasive to bankers.
"Oracle has the aura of effectiveness, plus the delivery or CRM and HR, and now core banking," Mr. Kopp said. "The aggregation of assets makes it more credible and reduces the risk."
He compared a core conversion to heart surgery. "The idea of surgery is very scary, but the risk is not what it was 20 years ago."
