A Datamonitor report Core Systems in US Retail Banking Still looking for reasons to change Published: Jan-04 Product Code: DMTC0950 Providing you with: Discussion of the current state of the core systems retail banking market - dissected by tiers Use this report to... Develop a compelling go-to-market strategy with Datamonitor s timely and concise analysis of key business and technology issues Discussion of the business and technology drivers/inhibitors for core systems investment - including outsourcing opportunities In-depth analysis of the market sizing and opportunities within Overview of the vendors servicing the core systems in the retail banking market www.datamonitor.com
Core Systems in US Retail Banking - Still looking for reasons to change DMTC0950 Introduction Over the years, US retail banks have molded their core systems into unmalleable monsters that they are scared to conquer. With banks struggling to make the business case and receiving little leadership from the vendor community, minimal replacement activity will remain the rule going forward. Instead, movement is only anticipated within outsourcing and componentization. Core systems technology investment has also become a tier specific story with the strategy and vision of Tier 1 / 2 banks and Tier 3 / 4 banks diverging. Key findings and highlights Despite the problems inherent in maintaining and developing legacy systems, Datamonitor s US Financial Services Technology Survey indicates that US retail banks will not be replacing core systems in the near future. Making the business case is the main inhibitor to core systems replacement. For many banks, in-house and vendor technology development is fulfilling near-term functionality requirements. The sheer scale of core systems transformation projects means that few banks are willing to contemplate replacement. The primary cause for the slow growth is that the core systems market is mature. The only new packaged system opportunities are currently found in Tier 3 and 4; but, even those are trending more and more toward outsourcing. Reasons to buy Develop a compelling go-to-market strategy with Datamonitor s timely and concise analysis of key business and technology issues Determine your short/medium/long-term objectives using Datamonitor s robust, granular market forecasts Assess your current offering in light of your current competitors and determine targeted strategic objectives for a competitive edge Contact us... From Europe: tel: +44 20 7675 7258 fax: +44 20 7675 7016 email: tcsales@datamonitor.com From the US: tel: +1 212 686 7400 fax: +1 212 686 2626 email: ustcmarketing@datamonitor.com From Asia-Pacific: tel: +61 2 9006 1526 fax: +61 2 9006 1559 email: apinfo@datamonitor.com
www.datamonitor.com Sample pages from the report Market Context Figure 4: A business integration platform and service-oriented architecture enables maximum flexibility Branch ATM Call center Internet Agent / broker Distribution channel s STP Product agnostic processes Product specific processes with reusability potential Product specific processes Source: Datamonitor Common channel services Incentive Market Context Doc mgmt / Product compensation Workflow Doc imaging mgmt / Pricing Product definition definition management Commissions (ICM) imaging Business Integration platform Business EAI integration / BPM platform Reporting Reporting General ledger down of legacy architecture and s, a road that many banks are electing to Deposits travel. Generally, legacy systems are wholly Processing tied to the front-end through hard-coded s Accounts Product spaghetti. Product Loans The Mortgages Product only way Product Other around this is to build a secure integration layer in the middle tier, based on a standard architecture, that wraps legacy core systems across product lines Product and interfaces factory with channel systems. The ultimate goal is to integrate best-ofbreed / siloed business unit systems and distribution channel systems into a standard Market Context D A T A M O N I T O R enterprise architecture. This will: Application server platform Enable real-time data integration across LOBs and distribution channels; Vendors become more flexible Decouple the hard-coded front-ends Figure from back 1: office What systems; are the most important drivers for core systems reengineering / replacement? Since there is little core systems replacement investment, vendors will increasingly be faced with the need to enable componentization Increase to react to the openness changing to market. facilitate The the interfacing of new channel alternative is to risk being perceived s in the market via standardized place as under-investing interfaces; in Which is most important? solutions developments and failing to provide the technology leadership that banks None of the above are seeking. This will most likely result in Interface increased to a competition central repository from in-house for a standard teams CIF company-wide. 10.6% Transparency of 60% IT costs Increased in Tier 1 and 2 banks as they become increasingly adept at component-based 2.1% Functionality 42.5% development. Figure 3: Middle tier integration layer wraps legacy core product systems 50% Move to real-time systems and interfaces with channel systems 6.3% Increased While Tier 1 and larger Tier 2 banks are the only ones that have the capacity 40% to add Meet business operational / needs more process in these components and integrate them into an existing core system, lower tier Distribution effectively efficiency Branch ATM Call 30% center Internet Agent / broker channel 10.6% 17.0% participants should be able to benefit through an outsourcing platform. The move s Lower cost, 10.6% towards marketing more componentized core systems s will prove 20% challenging on a number of fronts for vendors, but they will increasingly Common need channel to deal services with issues such as: Application server 10% platform Integration layer EAI Costs and time spend in adapting technology to standard component 0% Meet Increased Increased Lower cost Transparency real-time platform for above Move to - Provide a None of the interfaces; business functionality operational/ needs more process of IT costs systems business Reporting effectively efficiency transformation Processing s Core Systems in US Retail Banking General Note: DMTC0950 Respondents could cite up to two responses Ledger Datamonitor (Published 01/2004) Accounts Loans Source: Page Mortgages Datamonitor US 30 Other Financial Services Technology Survey [50 retail bank interviews], Q4 D A T A M O N I T O R Other support This report is a licensed product and is not to be photocopied Product factory Percentage of respondents Source: Datamonitor This chart shows banks strategic D A T A M O drivers N I T O R for core systems re-engineering / replacement. Meeting business needs and increased functionality were the most commonly cited drivers for competitive differentiation. In terms of most important driver, increased functionality (43%) was clearly ahead of operational efficiency (17%). Core Systems in US Retail Banking Increased functionality / Time-to-market DMTC0950 Datamonitor (Published 01/2004) Page 25 As demonstrated by the chart above, increased functionality and meeting business This report is a licensed product and is not to be photocopied needs more effectively emerged as the primary drivers for core systems reengineering / replacement. The business is demanding a more flexible, functional core systems platform. Increased functionality was identified by 43% of banks as the primary driver for core systems re-engineering / replacement. As US retail banks chase revenue growth, enabling differentiation via efficient product Core Systems in US Retail Banking DMTC0950 Datamonitor (Published 01/2004) Page 16 This report is a licensed product and is not to be photocopied Request more sample pages...for FREE! From Europe: tel: +44 20 7675 7258 fax: +44 20 7675 7016 email: tcsales@datamonitor.com From the US: tel: +1 212 686 7400 fax: +1 212 686 2626 email: ustcmarketing@datamonitor.com From Asia-Pacific: tel: +61 2 9006 1526 fax: +61 2 9006 1559 email: apinfo@datamonitor.com
Core Systems in US Retail Banking - Still looking for reasons to change DMTC0950 Table of contents CHAPTER 1 EXECUTIVE SUMMARY Report key findings Business drivers for core systems change Core systems replacement Core systems technology drivers Market opportunity Vendor dynamics CHAPTER 2 MARKET CONTEXT Introduction The current state of the US retail banking core systems market - a tier-specific story - Tier 1 banks are seeking to build on legacy - Tier 2s are grappling with post M&A integration - Tiers 3 / 4 banks are continuing to transition to outsourced solutions Business drivers for core systems change - Increased functionality and meeting business needs are driving core systems development Core systems replacment - not happening anytime soon Making the business case is the main inhibitor to core systems replacement Core systems technology drivers Architecture standardization - the rise of the integration layer - From data integration to business process integration Re-engineering core system s for componentization - Vendors become more flexible Core systems outsourcing Core system development / management outsourcing - Application development outsourcing set to increase strongly, although US banks remain skeptical of full offshoring - Application management is a key upsell opportunity for packaged vendors CHAPTER 5 APPENDIX Future readings SPP writing team LIST OF TABLES Table 1: US retail banking core systems IT spend 2003-2006, $m Table 2: US core systems IT spend by source 2003-2006, $m LIST OF FIGURES Figure 1: "What are the most important drivers for core systems re-engineering / replacement?" Figure 2: "Which of the following best describes your approach to core systems IT development?" Figure 3: Middle tier integration layer wraps legacy core product systems and interfaces with channel systems Figure 4: A business integration platform and service-oriented architecture enables maximum flexibility Figure 5: US retail banking core systems IT spend 2003-2006 Figure 6: US core systems IT spend by source 2003-2006, $m CHAPTER 3 MARKET OPPORTUNITY Growth in US retail banking core systems IT spend will remain in the low single digit range The move away from internal spending continues, albeit at a slow pace CHAPTER 4 VENDOR DYNAMICS Headlines Competitive landscape...datamonitor believes that offshore development success stories are creating increased momentum for core systems development outsourcing, particularly in Tier 1s, liberating a conservative industry usually bent on in-house development... Steve Sacks, CRM Global Service Offering Director - EDS
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