Core Banking Vendor Q&A: Status of the Marketplace – FIS

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 …

by | November 14, 2013 | bobsguide

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 and Infosys, to assess their response to the Gartner report and the current state of the marketplace. Below FIS’ Michel Jacobs, head of N. American product strategy, 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 (Michel Jacobs, Head of N. American Product Strategy, FIS): Banks looking for a change are seeking a modern core banking solution stack: componentization and open systems are critical tenets of retail banks’ buying criteria at the moment in this marketplace and key identifiable trends. FIS’ is also seeing an increased interest in outsourcing across multiple markets.

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 (Michel Jacobs, Head of N. American Product Strategy, FIS): New technologies must consider stringent risk management principals, incorporate open standards, iron clad security infrastructures and levels of abstraction, allowing banks to own the user experience and adapt quickly to market conditions. The definition of core banking will I believe change over time as the core is stripped back to its origins; handing debits, credits and being the financial system of record. Other processes will be offloaded to components with specially designed specific product and pricing engines.

Q3 (bobsguide): Where are you seeing most of your growth from – (i) geographically? (ii) in terms of functionality and delivery mechanisms like SaaS?

A3 (Michel Jacobs, Head of N. American Product Strategy, FIS): Sales growth at FIS is geographically balanced across the key North America, Asia, and Europe, Middle-East and Africa (EMEA) regions, with no one region particularly dominating in the amount of core banking technology systems that we sell.

In terms of functionality – with the exception of compliance requirements, which continue to drive a significant proportion of new add-on features and contract wins – we at FIS are noticing the trend towards Software-as-a-Service (SaaS) installations most. The move towards cloud-based SaaS delivered core banking solutions is happening on a universal basis and is a trend that just seems to strengthen year-by-year.

Q4 (bobsguide): What proportion of your recent implementations are replacement / upgrade work in developed markets versus new build contracts in emerging markets?

A4 (Michel Jacobs, Head of N. American Product Strategy, FIS): Most of our recent contract awards and core banking technology installation work falls into the category of new market entrants in established markets; the so-called ‘challenger’ or ‘newcomer’ banks, payment and financial services providers that are using technology or new customer service propositions to enter the retail banking marketplace. FIS has been investing a lot in upgrading existing platforms in established markets due to this trend.

Q5 (bobsguide): Do you think we’ll continue to see a consolidation trend among core banking technology vendors such as FIS 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 (Michel Jacobs, Head of N. American Product Strategy, FIS): In my opinion consolidation will continue in the core banking technology marketplace, but not necessarily at the pace previously seen. FIS believes that you will begin to see more partnership formations across the sector in order to create coalitions that provide skills and assets that cover the full impact of transformation. This can be inclusive of software, consulting and infrastructure providers, all collaborating where needed to offer comprehensive products and service propositions.

Q6 (bobsguide): Is there increasing demand for better regulatory and risk reporting functionality across payment chains and improved BI customer data?

A6 (Michel Jacobs, Head of N. American Product Strategy, FIS): Regulatory changes and compliance requirements have become a significant drain on bank resources. As regulatory intervention and rules continue to proliferate, retail banks are having to work hard to maintain their systems and to ensure compliance. In part this is driving a move towards utility SaaS models for core banking provision, and for those retail banks still processing in-house it is a major source of expenditure.

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 (Michel Jacobs, Head of N. American Product Strategy, FIS): Chief information officers (CIOs) at retail banks have clearly identified that an opportunity exists to outsource in order to reduce their costs, mitigate risks and relieve some of the compliance burden. Outsourcing ‘utility’ functions in order to ‘keep the lights on’ has picked up pace as a clear, discernible trend. This practice allows CIOs to refocus constrained budgets toward investing in innovations for the future, the mobile channel or other revenue-adding products.

Q8 (bobsguide): Anything to add?

A8 (Michel Jacobs, Head of N. American Product Strategy, FIS): The market for core banking systems in general is recovering slowly from the impacts of the recent recessions in developed markets. After a period of constrained investment at retail banks there is a backlog of upgrade and enhancement activity that is only now starting to reach consumers. There are positive signs for the industry, however, and the focus is clearly on preparing banks for future growth and reorienting product and service offerings to meet customer needs more closely.

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