Core systems strategy in retail banking (Review Report)

Compliance pressures, the need for faster product time-to-market and organizational agility are driving the need for banks to re-vamp the back office. The challenge is for banks to tackle the scale of these projects and implement future-proof solutions with the minimum of disruption to everyday operations.



Report Highlights
The wider macroeconomic environment is placing increasing pressure on banks. Rising interest rates, inflation and stock market shocks are all contributing to a more complex market for financial institutions. Banks that have efficient, flexible back office operations will triumph in the long term. Over recent years banks have become increasingly acquisitive in order to sustain growth, driving both consolidation in domestic markets as well as cross-border activity, particularly in high-growth markets. As a result, many banks have begun to address the core systems implications of their M&A activities. Many vendor solutions are now sophisticated and flexible enough to meet the complex requirements of even top-tier banks straight out of the box. As a result, who builds, hosts, develops and maintains core systems is becoming more of a sourcing issue rather than of strategic competitive advantage.


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Overview 1
Catalyst 1
Summary 1
Methodology 1
Executive Summary 2
Introduction 2
Industry pressures & drivers around core systems (Market Focus) 2
Core systems strategies in retail banking (Strategy Focus) 2
Technology strategies & best practice in core transformation (Technology Focus) 2
Core banking strategies in retail banking (Databook) 3

Industry pressures & drivers around core systems (Market Focus) 7
Summary 7
A challenging macroeconomic environment is putting pressure on margins 7
Margin pressure is being driven up as markets mature 8
Interest rate rises are having a mixed impact 8
The US sub-prime crisis will have a lasting impact 8
Industry consolidation and competitive pressures require business agility 8
New entrants are highlighting the shortcomings of legacy systems of incumbent banks 8
A core systems strategy is key for banks with acquisitive appetites 9
Flexibility is a key success factor in an increasingly demanding market 9
Product time to market is increasingly important as competition grows 9
Customer relationship management can be an important differentiator in an commoditizing market 11
Regulations are acting as a catalyst for core systems investment 11
Banks are struggling to meet the increasing regulatory burden with legacy core systems 11
Regulatory compliance can bring business benefits 11
SEPA is set to drive pan-European banking 11
Core systems strategies in retail banking (Strategy Focus) 13
Summary 13
A customer-centric approach will be a strategic priority for retail banks going forward 13
Customer service underpins customer retention and cross-sales 14
Product origination should be consistent across channels 14
Flexibility will be key for banks seeking to move to a future proof platform 15
Product development and time to market to support a customer-centric focus 15
Scalability and breadth to support future growth opportunities 16
Acquisitive banks should develop a framework for incorporating new institutions 16
Expanding into new geographies offers the opportunity to leverage synergies across borders 16
Core systems investments should support future regulatory developments 17
Cost control and operational efficiency will be the foundations of core renewal investments 17
Total cost of ownership remains a key issue on the IT side 17
Improving operational efficiency will improve organizational flexibility 18
Banks will start to consider alternative sourcing strategies to further improve flexibility 18
Information management and internal controls need to be built into core systems platforms 18
Information management is essential to support and improve both the back and front office operations 19
Audit and control should be addressed from an enterprise-wide perspective, and rooted in the core system 19
Technology strategies & best practice in core transformation (Technology Focus) 20
Summary 20
Centralization is the key to an efficient, customer-centric bank 21
Centralization helps banks take steps towards improving customer-centricity and operational efficiency 21
Moving to a centralized architecture also benefits organizational audit and controls 21
For banks with a pan-regional presence, moving to a centralized, common platform is an option 22
A flexible, real-time architecture will enable banks to address their business challenges 22
Moving to real-time operations will increasingly be a strategic imperative 22
Standardization will facilitate a componentized approach 23
Service oriented architecture and process rationalization will enable process excellence 23
A parameterized approach to product origination offers greater flexibility 23
Sourcing options are wide as banks move away from developing in-house 24
Banks have a wider range of core systems renewal options than ever before 24
Re-architecting enables banks to bring their proven systems responsive to the modern-day environment 25
Replacement is becoming more acceptable as an option 26
Core banking strategies in retail banking (Databook) 28
Introduction 28
European retail banking core systems IT spend by country, 2006 - 2010 28
European retail banking core systems IT spend by source, 2006 - 2010 30
Benelux retail banking core systems IT spend by source, 2006 - 2010 31
French retail banking core systems IT spend by source, 2006 - 2010 32
German retail banking core systems IT spend by source, 2006 - 2010 33
Italian retail banking core systems IT spend by source, 2006 - 2010 34
Nordic retail banking core systems IT spend by source, 2006 - 2010 35
Other Western European retail banking core systems IT spend by source, 2006 - 2010 36
Spanish retail banking core systems IT spend by source, 2006 - 2010 37
Swiss retail banking core systems IT spend by source, 2006 - 2010 38
UK retail banking core systems IT spend by source, 2006 - 2010 39
North American retail banking core systems IT spend by country, 2006 - 2010 40
North American retail banking core systems IT spend by source, 2006 - 2010 41
US retail banking core systems IT spend by source, 2006 - 2010 42
Canadian retail banking core systems IT spend by source, 2006 - 2010 43
APPENDIX 44
Definitions 44
Core system 44
Internal spending 44
External spending 44
Hardware 44
Outsourcing 44
Infrastructure software 44
Application software 44
Professional services 44
Systems integration 44
Further reading 45
Ask the analyst 45
Datamonitor consulting 45
Disclaimer 45

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Table 1: European retail banking core systems IT spend by country, 2006 - 2010 29
Table 2: European retail banking core systems IT spend by source, 2006 - 2010 30
Table 3: Benelux retail banking core systems IT spend by source, 2006 - 2010 31
Table 4: French retail banking core systems IT spend by source, 2006 - 2010 32
Table 5: German retail banking core systems IT spend by source, 2006 - 2010 33
Table 6: Italian retail banking core systems IT spend by source, 2006 - 2010 34
Table 7: Nordic retail banking core systems IT spend by source, 2006 - 2010 35
Table 8: Other Western European retail banking core systems IT spend by source, 2006 - 2010 36
Table 9: Spanish retail banking core systems IT spend by source, 2006 - 2010 37
Table 10: Swiss retail banking core systems IT spend by source, 2006 - 2010 38
Table 11: UK retail banking core systems IT spend by source, 2006 - 2010 39
Table 12: North American retail banking core systems IT spend by country, 2006 - 2010 40
Table 13: North American retail banking core systems IT spend by source, 2006 - 2010 41
Table 14: US retail banking core systems IT spend by source, 2006 - 2010 42
Table 15: Canadian retail banking core systems IT spend by source, 2006 - 2010 43


Figure 1: European banks technology priorities 7
Figure 2: European banks business priorities 10
Figure 3: European banks' priorities for enhancing business growth through technology 14
Figure 4: Approach to core systems strategy over next years in Europe 25
Figure 5: European retail banking core systems IT spend by country, 2006 - 2010 28
Figure 6: European retail banking core systems IT spend by source, 2006 - 2010 30
Figure 7: Benelux retail banking core systems IT spend by source, 2006 - 2010 31
Figure 8: French retail banking core systems IT spend by source, 2006 - 2010 32
Figure 9: German retail banking core systems IT spend by source, 2006 - 2010 33
Figure 10: Italian retail banking core systems IT spend by source, 2006 - 2010 34
Figure 11: Nordic retail banking core systems IT spend by source, 2006 - 2010 35
Figure 12: Other Western European retail banking core systems IT spend by source, 2006 - 2010 36
Figure 13: Spanish retail banking core systems IT spend by source, 2006 - 2010 37
Figure 14: Swiss retail banking core systems IT spend by source, 2006 - 2010 38
Figure 15: UK retail banking core systems IT spend by source, 2006 - 2010 39
Figure 16: North American retail banking core systems IT spend by country, 2006 - 2010 40
Figure 17: North American retail banking core systems IT spend by source, 2006 - 2010 41
Figure 18: US retail banking core systems IT spend by source, 2006 - 2010 42
Figure 19: Canadian retail banking core systems IT spend by source, 2006 - 2010 43
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