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 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 and Fiserv to assess their response to the Gartner report and the current state of the marketplace. First up is Temenos’ Chris McGinnis, head of strategic planning at Temenos, who 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 (Chris McGinnis, head of strategic planning at Temenos): The core banking technology market has been challenging in recent years. Europe remains at the early stages of a wider economic recovery, with banks just now starting to take a longer term view and think about investing in new back-end processing systems. We have begun to see an increase in large deal activity, particularly in retail and universal banking outside of Europe, where the growth prospects are generally looking better.
With the challenging core banking market in recent times [since the crash and the subsequent squeeze on anything but compliance budgets -Ed] it has been especially important for Temenos to have a multi-product offering that spans beyond core banking, including business intelligence (BI) tools, across channels such as the mobile arena and into other non-retail banking segments, such as private wealth management - these have all been drivers for growth with Temenos’ T24 core banking platform in recent years.
Banks have been looking to spend money on shorter technology projects, with quicker ‘time to value’ and this has played to our strength as well, because Temenos has a number of core banking and service modules that can be deployed directly or on a cloud-based Software-as-a-Service (SaaS) basis, depending upon the customer’s need. One interesting dynamic that I have spotted is that having a multi-product offering has also made Temenos’ core proposition stronger as, for example, we may start discussing new channels with a customer but the discussion will soon move on to how we could help with their core banking platform and perhaps integrate the two.
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 (Chris McGinnis, Temenos): One trend we are really seeing is banks’ investing heavily in transaction banking. It's a growing market boosted by the growth in electronic payments and the rising participation of the previously unbanked. It is also a steady, safe and profitable area for banks to be active in, which is attractive post-crash.
However, while transaction banking revenues and volumes are growing, banks are still facing a number of challenges in this area. There are new regulations, such as the single euro payments area (SEPA) harmonisation project; which are pushing up technology costs in the field. There are also many newcomer competitors in the transaction banking and payments space, such as PayPal, who’ve just recently launched an offering for corporate banks, and numerous new mobile payment and commerce players such as Square; all of whom are pushing down revenues per transaction as competition heats up. Additionally, the complex IT and operational structures of retail banks mean that they haven't been able to extract economies-of- scale savings with legacy or silo issues often an impediment here. Banks are now looking for core banking systems or add-ons that can overcome these issues.
Q3 (bobsguide): Where are you seeing most of your growth from – (i) geographically? (ii) in terms of functionality and delivery mechanisms like SaaS?
A3 (Chris McGinnis, Temenos): Emerging markets in Asia and elsewhere are performing strongly for Temenos, driven on by overall market growth and newcomers to the market. In the US, we believe there remains a big opportunity for a market disruptor to grow with a modern, efficient scalable offering. Europe remains at the early stages of its economic recovery, with retail banks only recently beginning to take a longer-term view and consider tech investments once again. Large deal activity is on the rise outside of Europe, particularly in retail and universal banking in the Middle-East, Africa and other fast growing regions. This also tends to be new business, rather than upgrade or replacement work.
Q4 (bobsguide): Do you think we’ll continue to see a consolidation trend among core banking technology vendors such as Temenos and what impact do you think this will have upon bank end users, which typically focus on innovation and price as key determining factors?
A4 (Chris McGinnis, Temenos): We do think the core banking market will continue to consolidate. Temenos will play a key part acting as a consolidator in the marketplace.
Q5 (bobsguide): As bank CIOs 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, a preference for Opex SaaS solutions, as opposed to old style Capex build-out solutions, etc?
A5 (Chris McGinnis, Temenos): We believe the adoption of Software-as-a-Service (SaaS) solutions in the cloud will happen slower in financial services (FS) than in other industries because of the risk perception around core banking replacement, regardless of how it's delivered. These are vital processing systems that update people’s bank accounts around the world and handle all their banking activities so you have to be careful about where you host them and how you update them. Having said that, I do believe cloud computing and the SaaS delivery mechanism is massively disruptive for the sector. The cost advantage to running software using this model is so attractive from an upfront cost perspective, and allows banks to go to market very quickly. This is going to have a major impact on the core banking technology sector over the coming years.
Overall we think it's important to offer our customers choice in terms of being able to deploy our products in any way they like - whether it’s on-premise, or through a SaaS or business process outsourcing (BPO) offering. Our customers will decide what is best for them, but there is no doubt the cloud is another developing option.