The recent Gartner ‘International Retail Core Banking Report 2013’ ranked many of the major technology vendors in this space, which provide vital current account back-end processing software to banks around the world. The core banking report, covered in bobsguide, also highlighted some emerging trends such as a tendency to consolidate; the need to integrate ‘surround systems’ such as big data analytics, anti-fraud or the mobile channel into core banking systems; the rise of new customer banks in the Middle-East and beyond; and of new cloud-based delivery mechanisms. Bobsguide’s Neil Ainger talked to a number of core banking technology vendors such as Temenos, Fiserv, Infosys and FIS to assess their response to the Gartner report and the current state of the marketplace. Below Polaris’ Jaideep Billa, joint chief executive, answers bobsguide’s Q&A questions.
Q1 (bobsguide): As the Gartner ‘International Retail Core Banking Report 2013’ is released and the list of core banking vendors in the so-called Magic Quadrant is revealed once more, what technology and market trends are you discerning?
A1 (Jaideep Billa, joint chief executive and head of consumer and institutional money management, Polaris): We have noticed that the realm of functionality expected from a core banking solution varies significantly across markets and even at times across different customers in the same country. This is understandable because while we have banks in advanced markets looking at core banking systems as a back-end system exposing services for surround systems to consume, we also conversely have banks looking at end-to-end integrated solutions.
There is a definite trend to integrate ‘surround systems’, such as big data analytics or anti-fraud security capabilities, into core banking solutions and this is especially noticeable in the emerging markets where legacy issues are of less concern. Payments, additional mobile or other channels, cards, account origination, and analytics are just some of the ‘surround’ capabilities that retail banks now want incorporated into their core solution.
In advanced markets, we are observing a preference for core banking solutions to work with master data management systems, which serve as a source of reference data and can perhaps fit in better with existing systems. This helps retail banks in ‘the West’ deal with the complexities of managing data and helps to optimise costs and efficiencies in a heterogeneous IT environment.
Retail banks in all geographies are also realising the need to maximize the benefit of branch visits by customers via high value interactions with skilled professionals who can act as universal bankers using advanced multi-device branch solutions [opening up cross-sell opportunities and speedier customer service].
Banks that are unwilling to take the risk of introducing a core modernisation programme - and there are some - are instead exploring the possibility of adopting branch solutions that can interface with an underlying legacy core banking system, as well as customer relationship management (CRM) systems, in order to enable branch or call centre staff perform the role of a universal banker serving everyone’s needs. Some retail banks are also looking to enhance their segment-based offerings through peripheral solutions such as product bundling solutions, which can also work along with legacy systems.
Cloud-based delivery mechanisms are increasingly popular too and Software-as-a-Service (SaaS) is generating good interest among the banking community worldwide. SaaS adoption is limited to specific segments, however, and is not universal with emerging market or smaller banks tending to favour it as they haven’t yet invested in alternative systems. We are expecting SaaS adoption to increase in years to come.
Q2 (bobsguide): What other trends are you seeing in the core banking marketplace? For example, increasing standardisation and interoperability / connectivity requirements as banks move towards shared services platforms or common SOAs; less banks wanting more flexible, agile systems that can launch a product faster; a demand for more monitoring BI data, etc.
A2 (Jaideep Billa, Polaris): Complexity reduction is the major trend Polaris is seeing. This desire extends into all areas of the business, operations, technology and implementation disciplines and is the utmost priority for banks. Retail banks today want to deliver enterprise value at the lowest possible cost via important delivery channels like the branch, internet or mobile, while leveraging the specialty of existing legacy systems. Componentized solutions based upon business needs have become the need of the hour.
The emergence of the so-called ‘Omni-channel’ era in retail banking has led to major transformations in the consumer value proposition with banks nowadays having to quickly offer a range of banking services 24x7 from answering enquiries to full transaction services across a wide array of channels. Multi-entity capabilities and multicurrency and multilingual support are also an essential prerequisite for a modern core banking solution, which must be able to analyse large volumes of customer data to enable segment-based product offerings and effective pricing to be quickly rolled out. In addition, there is the expectation that core banking systems should be able to support premium, affluent banking wealth management-type services to correctly identified retail customers.
Q3 (bobsguide): Where are you seeing most of your growth from – (i) geographically? (ii) in terms of functionality and delivery mechanisms like SaaS?
A3 (Jaideep Billa, Polaris): We are a global player, hence our focus and clients are global in nature. In answer to your geographic question, however, Polaris is seeing a lot of traction at the moment from the Asia-Pacific markets and the Europe, Middle-East and Africa (EMEA) region - with the latter two areas particularly prevalent in the retail banking space.
In terms of functionality, our primary growth area is core banking for commercial banks. This includes payments, debt origination and debt collection core banking modules, which are increasingly popular. We are also seeing growth in core banking solution demand from central bank customers. The central banks of almost all emerging countries are contemplating significant modernization initiatives to cope with the economic expansion being seen in emerging markets. I believe Polaris is uniquely positioned in this sub-segment with its Indian heritage and our range of products, allied to enviable references.
Polaris is also actively pursuing the growing interest in SaaS-based cloud delivery models and I expect the company to capitalise on this trend thanks to our investments in this area.
Q4 (bobsguide): What proportion of your recent implementations are replacement / upgrade work in developed markets versus new build contracts in emerging markets?
A4 (Jaideep Billa, Polaris): As most of the banks in the developed world and some banks in developing countries have an outdated core banking solution already implemented, we expect growth from all regions, and are accordingly actively promoting our Intellect solution worldwide. In order to give you an idea of how are current order book is split I’d say that 60% of our recent implementations are replacement work and 40% are contracts for new build core banking systems. We can build new core banking systems from scratch if commissioned and, naturally, most jobs like this come from the emerging markets, although even established banks sooner or later may desire a totally new, flexible system.
Q5 (bobsguide): Do you think we’ll continue to see a consolidation trend among core banking technology vendors such as Polaris and what impact do you think this will have upon bank end users, which typically focus on innovation and price as key determining factors?
A5 (Jaideep Billa, Polaris): Yes, we do anticipate a continued consolidation trend among core banking technology system vendors. However, while consolidation results in driving down costs, banks are also looking for software partners to offer innovative solutions in the areas of business intelligence, analytics, mobile applications and so forth, so price is not the only determining factor in contract awards. Retail banks are typically consolidating their back-end operations, but simultaneously seeking innovation in the customer facing front-end application segment, where I believe there is a space for smaller players.
Q6 (bobsguide): Is there increasing demand for better regulatory and risk reporting functionality across payment chains and improved BI customer data?
A6 (Jaideep Billa, Polaris): Yes, in addition to enhanced regulatory and risk reporting functionality, we are also witnessing demand for real-time monitoring of payments from treasury end users and regulators, which of course banks have to respond to. Our commercial banking clients have been fairly successful in responding to such demands, thanks to Polaris’ rules-driven design approach, which enables a business end user of our software to configure their own business rules based upon specific requirements.
Q7 (bobsguide): As bank CIO budgets are increasingly constrained by regulatory compliance costs and ‘keep the lights on’ legacy costs what impact is this having on the core banking market in terms of available tech budget and preparedness to invest? Is there a preference for Opex SaaS solutions, as opposed to old style Capex build-out solutions?
A7 (Jaideep Billa, Polaris): While it is true many banks are often late to the game requesting prices based upon an operational expense (Opex) SaaS-based model, I think that the available technology budget is not the primary constraint in the core banking market at the moment. In my opinion, the biggest constraint continues to be the ‘fear of failure of legacy modernisation’, with many retail banks deciding not to try and introduce more modern, flexible systems because they are afraid it might upset customer service provision.
Having said that, I do believe there is a clear segment of retail banks across emerging economies in India, China and elsewhere where adopting the SaaS ‘asset light’ strategy to enter the marketplace and get operational quickly is a key driver. They don’t have the legacy fear, so are generally in favour of the Opex SaaS model. It is for this segment that Polaris provides a dedicated financial technology-grid (FT-Grid) offering’. Some banks may though may still look upon a core banking modernisation project as a strategic initiative and favour the internal build-out capital expense (Capex) model where they want their own systems, run in-house. There are no hard and fast rules.
Q8 (bobsguide): Anything to add?
A8 (Jaideep Billa, Polaris): We are upbeat about the prospects of advanced branch banking solutions gaining popularity in advanced markets. Although the total number of transactions at branches may be declining and branch costs are going up, the retail branch property on the High Street is still the preferred channel for relationship opening, new product sales, cross-selling and problem resolution. Banks will therefore continue to focus on maximising customer visits to branches for the foreseeable future and are looking for technology solutions that can enable this to happen.
Core banking for central banks has also been emerging as a strong growth segment. Polaris believes this segment will continue to expand because central banks in emerging economies are increasingly playing a vital role in ensuring economic stability, and they need the oversight tools to be able to do this. New regulations are also contributing to this trend, with central banks in Europe and core custody banks for instance, looking for collateral management solutions.