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I am former editor of The Banker, a Financial Times publication. I joined the publication in August 2015 as transaction banking and technology editor, was promoted to deputy editor in September 2016 and then to managing editor in April 2019. The crowning glory was my appointment as editor in March 2021, the first female editor in the publication's history. Previously I was features editor at Profit&Loss, editorial director of Treasury Today and editor of gtnews.com. I also worked on Banking Technology, Computer Weekly and IBM Computer Today. I have a BSc from the University of Victoria, Canada.

Friday 24 July 2009

Tackling the core

Features

Without a doubt, core systems replacement is starting to happen, but at different rates, and for different reasons, in different places.

An inexorable move to real-time processing, increased technology risk associated with ageing systems and the adoption of customer-centric business practices in financial services are among the factors combining to overcoming inertia in replacing core systems.

Widespread core system renewal is happening — well, in Europe at least. In a recent survey of 120 European financial institutions, over 80% of larger banks, (those servicing over 500,000 domestic customers) and just fewer than 70% of smaller banks expect to upgrade all or part of their core systems over the next five years. In Eastern Europe a significant majority of banks plan to do so within the next three years.

This pan-Europe survey, commissioned by Infosys, HP and Intel, identified the catalysts driving this systems revamp as the need to unshackle business from the constraints of antiquated banking systems, improve responsiveness to customers, enhance effectiveness, achieve compliance and boost profitability.

“We found that overall about 80% of most countries said that the biggest driver is flexibility and the time to market,” says Amit Dua, regional manager of Infosys Europe. “The second is compliance. It’s okay for a bank to follow a particular regulation or a directive, but when tens of these regulations are being thrown at them, they end up losing the game unless they have a holistic view of compliance or data.”

Although the regulatory environment in the US is arguably just as intense, the core systems replacement market remains largely static there. Dua attributes this to the fact that the US domestic market does not face the challenges of European banks of cross border operations.

“Most large European banks are doing cross border acquisitions. For example Unicredit, Intesa, SocGen, BNP or Erste all have operations everywhere, from 20 to 40 odd countries in central, eastern and southern Europe,” he says. “This throws up the challenges of the cost of carrying disparate platforms in each country. As a result of multiple systems, there are not economies of scale in their applications and technology infrastructure, plus there are linguistic barriers and compliance issues that can be very country specific.”

Infosys is focused on building its core systems business in Europe, so is interested in national differences. One recent project win involves implementing the Finacle core banking system at Hrvatska Postanska Banka in Croatia, scheduled to go live in October. Infosys started the Croatian bank’s technology transformation with Finacle’s e-banking solution, which it made available in the Croatian language and configured the payment module to Croatian law.

Speaking at SAP’s user conference in Vienna last month, Gavin Whyte, programme manager at ABN Amro, affirmed what Dua says, stating that ABN had hundreds of core systems that couldn’t be converted overnight, but the pressure was on to reduce overall cost. “We spent too much time processing transactional banking and needed to spend less time crunching numbers. We needed a single source of the truth. We had to respond to a shift in the size and competencies of the workforce.”

ABN broke the project down into two phases: business principles, which looked at standardisation and flexibility; and architectural principles. ABN specifically looked to buy, not build, so wanted vendor alignment and also a commitment from the vendor to service oriented architecture. There are still differences between the tiers of banks, with the bigger banks with larger IT staff resources looking for a phased migration approach, whereas the smaller banks are looking more for a “bank-in-a-box” solution, but both are seriously looking at SOA.

Jonathan Lester, business development manager, Callataÿ & Wouters, whose Thaler core banking system has been deployed at Bank Commonwealth in Indonesia, National Savings & Investments in the UK and Cortal Consors, a Belgian subsidiary of BNP Paribas, says that service oriented archtecture is on the agenda of everyone he talks to. But is it a panacea? “It is the end game where the banks would like to be in order to create flexibility instead of employing thousands of IT guys,” says Lester.

ABN’s architectural requirements are in sync with comments from Marc Cunning, group strategy director at leading core systems firm Temenos. He says that there has been a shift towards requests based more upon the architecture of products and away from selecting a system based on features and functions of five years ago. “They don’t ask that anymore because they tend to assume that you do these things. There has been a commoditisation of the core banking function. As all of our products have matured, customers assume that the consolidated leading players, whether us or our competitors, have the functionality, so they are more interested in architecture because they realise that that is what is going to give them benefits past the 10 year horizon for this new project.”

Temenos is seeing growing business in the Asia Pacific region and is expanding its footprint to take advantage of this. Just after announcing a deal to implement T24 at Sumitomo Mitsui Banking Corporation to support its Asia Pacific operations, the firm announced a deal with India’s Satyam Computer Services for the provision of systems integration and implementation services for Temenos T24 and Temenos CoreBanking globally, with an initial focus in the Asia Pacific.

Temenos is seeing much more activity in Tier 1 and Tier 2 banks than it used to, says Cunning. This reflects two things: greater activity because they feel they can take packaged software from companies because the packages will work — e.g. the IT has matured; and secondly Temenos as a company has matured. “Tier 1 banks don’t buy from small companies, so now we have more Tier 1 and 2 business than we used to.”

Indian core banking firm I-flex is also looking to target customers in the higher tiers, following its acquisition by software giant Oracle in 2005. Olivier Trancart, executive vice president and head of global sales of I-flex solutions, says that the firm had reached a critical point where they needed to put decision makers in line with IT.

Microsoft has also made some moves into the core banking business. Belgium’s Bank J. Van Breda, which is a small, niche bank focusing on liberal professionals and SMEs, decided to move from a bespoke system developed in-house in 1986, and running on an IBM mainframe platform, to a core system built on Microsoft’s .Net. The bank joined the Etude programme from SlaterLabs, a start-up headed by John Slater, a former IBM and Temenos executive, to build the first core banking application entirely using the Microsoft .Net framework.

“When the Etude Programme was launched last year, we saw the potential it had to transform the banking landscape,” says David Vander, managing director, worldwide financial fervices, Microsoft. “It is a great example of our partners using Microsoft .NET to quickly build and deploy flexible banking solutions with a modular approach and we are fully supportive of this initiative. With banks like Bank J. Van Breda leading the way, we are excited to see how their businesses are transformed as staff become more able to focus on core, revenue generating activities, rather than maintaining banking applications.”

The project started in 2003 because the Bank J. Van Breda could see that its old system was going to run into problems in the future to stay on par with the other Belgian banks — it wouldn’t be competitive enough. “We decided we needed to build applications and not to do it on mainframe because it was old environment,” says Marc Wijnants, the bank’s chief information officer. “We placed that within timeframe of 10 years. We had two options: a J2EE platform or .Net, which was very new at that moment. Decided with .Net because of the productivity of development and also we had the-feeling that is was easier to build a user friendly application. We think usability is very important.”

Although the .Net platform works well for a small bank like J. Van Breda, would it hold up for a larger tier bank? Slater, chief executive of SlaterLabs, says: “From the testing and benchmarking we have done in the market, we haven’t run into — to our surprise — any thresholds in terms of performance response time that would indicate we have a ceiling in terms of the size of operation or bank that we could aspire to secure as a customer. We are talking to many banks that have excess of 10 million customers. Deutsche Postbank, the largest bank because it handles other countries’ giro payments, was hitting 640 to 650 transactions per second at peak. They were testing our software and coming out with solid benchmarking statistics which will be out in June.”

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