Global Core Banking: Steady But Unspectacular
Growth
November 19, 2013
Daniel W. Latimore, CFA
Senior Vice President, Banking
Stephen Greer, Analyst, Banking Group
A recording of today's webinar and copy of the presentation will be available to
Celent clients on our website at http://reports.celent.com/login.asp
© CELENT
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For today’s discussion
1. Market Overview and Key Trends
4
2. Hosted vs. On-Premise
10
3. Global Market Overview
14
4. Regional Market Overview
17
5. Core Banking Market Size
28
© CELENT
3
Section 1 Market Overview and Key Trends
Introduction to Core Market
Architectures are coming under increased scrutiny for agility,
cost and simplicity
Core architectures may finally start seeing significant activity; the discussion has certainly become
more persistent
• Agility requirements
• Cost imperatives
• Simplicity: Increased interest in “process orchestration” technologies to change customer experience without
replacing core
Banks increasingly willing to work within a partner ecosystem to deliver value to customers
• Increasing use of on-demand computing
• Selective outsourcing / partnerships to get more value out of existing assets
• Specific contracting arrangements to achieve specific tasks requiring specialized expertise
- Some have always been outsourced, at least partially, e.g., advertising, creative and legal
- Some have more recently been outsourced, e.g., call centers
- Some are now on the table:
- Cloud
- Marketing services
- Analytics
- Innovation
© CELENT
5
Market Drivers for Core Transformation
Trend
1
2
3
High level description
Implication upon CBS
External Forces
• Scalability problems as the bank grows
• These external drivers are usually met by
• Regulatory and compliance challenges as
complex workarounds by institutions still
banks must respond quickly to changes
running in batch
• Channel proliferation requires implementation
• The recent glitch at RBS is a good example of
of new customer-facing technologies
what can happen when batch processing goes
• Cost cutting.
awry
• Real time and 24x7 access
Specific
Competition
• In Australia, core banking migrations by the
top banks is having a domino effect on the
market
• Innovation pressure
Internal
Developmental
Imperatives
• COBOL/CICS developers are increasingly hard
• Older systems are fading into obscurity
to find, and banks relying on these systems are
finding it increasingly difficult to develop new
• Legacy programming languages
products
• Internal development can often be hampered
by old messy architectures that require a lot • Small banks can often be subject to the
development whims of larger, more influential
of manual work to get things done
client banks
• Market leadership
• Bringing products to market as quickly as
possible and with maximum flexibility
• Back-end innovation
Source: Celent
© CELENT
6
Most Core banking system solutions provide full or partial coverage for the
key functions, segments and products found within a bank
Generic Banking Architecture (simplified)
Data
management
Corporate
banking
platforms for
retail use
Retail-and business banking solutions
Branches
Cash
Management
Client/
Partner
Call Centre
Internet
Support
systems
Mobile
ATM
HR
Customer (relationship) management
Business loans
Structured
Investments
Mortgages
Consumer loans
Investments/
advisory
Deposits
Materials
Mgmt.
(Interfaces to) other systems/suppliers: Insurance, AM
Products
Finance/
Contract
Account-based functions
Collateral Management
Current Account
Office
Communication
Payments
Domestic Payments/International Payments
Market
Document
Mgmt.
Other operations
Securities Processing
Bank control/MIS
Accounting
Sales Controlling
Financial Controlling
Treasury
Included in most CBS solutions
Risk
Controlling
Market
Credit
Operational
Included in some CBS solutions
Risk
Management
Market
Credit
Operational
External Reporting
Not directly covered by CBS solutions
Source: Celent & Oliver Wyman
© CELENT
7
The Definition of Core is Changing
Traditional Core
Deposits
Loans
© CELENT
Evolving Core
Payments?
Components
The Cloud
Big Data
Digital Channels
“Componentization and
advanced middleware are
changing the nature of
core banking.”
8
Macro market trends continue to shape the competitive landscape and
influence banks’ decisions on core
Mergers and
Acquisitions
Bank M&A
Vendor M&A
Slow Moving Tier
Banking systems are complex
1 Banks
Change is costly and time consuming
Competitive Push may be lacking
Source: Celent
© CELENT
9
Section 2 Hosted vs. On-Premise
Hosted vs. On-Premise (1/2)
Common concerns around hosting
Global adoption
Financial Institutions
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
North America Western Europe Asia-Pacific
ASP
EEMEA
Latin America
Assets ($ billions)
On-Premise
North America Adoption
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
4425
1312
644
< $0.5
$0.5 - 1
ASP
158
65
61
$5-20
$20-100
>$100
Assets (US$ bn)
On-premise
# Financial Institutions
5000
4500
4000
3500
3000
2500
2000
1500
1000
500
0
$1-5
Source: Celent analysis
© CELENT
11
Banks
1. Infrastructural problems.
Telecommunications constraints
can limit the effectiveness and reliability of a
hosted model.
As IT infrastructure improves around the globe,
this should
be mitigated
2. Some geographies simply don’t have a large
enough financial services sector to make it
reasonable for vendors to host in a data centre
3. Regulatory constraints. Country-specific
regulatory measures may requires data be
handled within borders
4. Misperceptions. Scalability concerns,
developmental control, security risks, and data
risks
Hosted vs. On-Premise (2/2)
Benefits from hosting
Global adoption
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
600
512
500
300
215
193
191
Banks
400
200
160
115
100
0
< $0.5
$0.5 - 1
$1-5
$5-20
$20-100
Assets (US$ bn)
On-Premise
ASP
>$100
# Financial Institutions
European adoption
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
400
343
285
366
351
350
300
259
250
174
200
150
# Banks
1. Standardization of compliance: Ready made
regulatory systems rolled out to the datacentre
2. Cost savings: Data centres can share
resources and drive down costs by pooling
services. Offsite deployment means the
maintenance and hardware costs are taken on
by the vendor, while the bank is freed from
keeping on expensive IT professionals.
3. Better infrastructure (upgrades, scalability,
etc.): Vendors will usually make sure there is
sufficient bandwidth to support high traffic, and
the focus on providing a hosted model means
there’s an emphasis on hardware, availability,
and automatic upgrading.
4. Focus on main business: Small banks with
limited resources can focus more of their
energy on bolstering their main business,
which is banking.
100
50
0
< $0.5
$0.5 - 1
$1-5
$5-20
$20-100
>$100
Assets (US$ bn)
ASP
On-Premise
# Financial Institutions
Source: Celent analysis
© CELENT
12
Banks are willing to use cloud to reduce costs; security concerns often
make bigger banks reluctant to cede control
Bank willingness to adopt cloud
• Cloud computing enables ubiquitous,
convenient, on-demand network access
to a shared pool of computing
resources that can be rapidly
provisioned and released with minimal
management effort or service provider
interaction
• Service models
– SaaS: Software as a Service
– PaaS: Platform as a Service
– IaaS: Infrastructure as a Service
• Deployment models
– Private Cloud
– Community Cloud
– Public Cloud
– Hybrid Cloud
• On/Off premise an important distinction
Source: National Institute of Standards and Technology; Celent Analysis
© CELENT
Software
Platform
Infrastructure
Private
Community
Public
Hybrid
Larger Banks
Smaller Banks
13
Section 3 Global Market Overview
Global Market Share For Core Systems
<$1 Billion in Assets
Oracle
3%
Sopra
2%
Diasoft
2%
$1-$20 Billion in Assets
ERI Bancaire
3%
Oracle
4%
Misys
1%
Temenos
6%
Harland
Financial
Solutions
6%
TCS
3%
Accenture
2%
Fiserv
17%
Infosys
5%
Fiserv
39%
JHA
6%
Other
12%
Misys
14%
Temenos
10%
FIS
14%
>$20 Billion in Assets
JHA
15%
Accenture
3%
Sopra
3%
CSC
4%
ERI
2%
FIS
12%
Other
12%
Sopra
12%
FIS
24%
Other
5%
Infosys
6%
SAP
6%
TCS
6%
Temenos
21%
Oracle
6%
Misys
14%
© CELENT
15
Section 4 Regional Market Overview
North America Market Share For Core Systems
<$1 Billion in Assets
$1-$20 Billion in Assets
Other
1%
Others
8%
Harland
Financial
Solutions
8%
FIS
18%
Jack Henry &
Associates
20%
Fiserv
53%
Jack Henry &
Associates
20%
>$20 Billion in Assets
Fiserv
48%
FIS
24%
Fiserv
9%
Oracle
11%
FIS
42%
CSC
15%
Others
23%
© CELENT
17
Current Market Conditions in North America
1
Welcome
newcomers
2
Large banks
feeling the push
3
Banks still
reluctant
4
Hosted is still
preferred
• International entrants like TCS, Temenos, Accenture, and Infosys are breaking into a once very insular
market
• Barriers to entry are still an issue
• As international vendors start winning deals, domestic providers will feel the push
• ROI and efficiency of advanced real-time systems will be self-evident
• Large banks will still sit unmoved for a while
• Lack of experience, lack of familiarity, and lack of existing relationships with many international
vendors will play a major role
• US is by far the largest banking market in the world
• Hosting makes sense, and helps small banks achieve cost savings that might lead to their extinction in
other geographies
The five-year outlook for the NA core market looks positive
© CELENT
18
Western Europe Market Share For Core Systems
<$1 Billion in Assets
SAP
Misys Others 4%
4%
4%
$1-$20 Billion in Assets
Infosys
2%
Infosys
2%
Oracle
4%
SAP
2%
Other
3%
Accenture
5%
TCS
4%
Sopra
33%
ERI Bancaire
7%
Temenos
43%
Oracle
11%
FIS
8%
FIS
12%
>$20 Billion in Assets
Sopra
16%
Oracle
4%
Others
4%
Temenos
16%
Misys
20%
CSC
3%
ERI Bancaire
4%
Accenture
4%
Sopra
5%
FIS
33%
SAP
6%
Misys
13%
Temenos
24%
© CELENT
19
Current Market Conditions in Western Europe
• Lots of opportunity to simplify fragmented market landscape
1
Diverse landscape
2
Proprietary has
traditionally
reigned
• Most large European banks traditionally built their own proprietary systems
3
European crossborder standards
and regulation
• Regulations and cross-border initiatives (i.e. SEPA) are putting pressure on revenue
• Many multi-national banks are running different systems in each country
• A few large banks have made the switch to vendor provided systems over the last few years
• Banks are looking at ways to increase efficiency
• The BIAN initiative has been extremely popular with European Financial Institutions
4
Standardization
pushes
• Members include ING, ABN Amro, Banco Galicia, UBS, Erste Bank, Rabobank, Postbank, Deustche
Bank, and Credit Suisse, in addition to others
• This componentization and better interoperatibility
Pan-European initiatives are driving unification
© CELENT
20
Asia-Pacific Market Share For Core Systems
<$1 Billion in Assets
Polaris
6%
Others
8%
$1-$20 Billion in Assets
DataVision
4%
Polaris
6%
TCS
23%
Nucleus
6%
Infosys
10%
Temenos
10%
Oracle
10%
Fiserv
5%
FIS
6%
Oracle
8%
InfrasoftTech
15%
Others
9%
Nucleus
14%
Misys
19%
>$20 Billion in Assets
Polaris
4%
Oracle
10%
Infosys
18%
TCS
14%
Temenos
9%
Others
22%
Infosys
13%
TCS
21%
Temenos
15%
FIS
15%
© CELENT
21
Current Market Conditions in Asia-Pacific
• More deals in general
1
Hotbed of activity
2
Wealth creation is
driving the need
for customer
centricity and
scalability
• Estimated by Celent for 4.3% annual growth.
• Fastest growing core banking markets
• Banks in high-growth markets are more likely to do core migrations
• Lots of interesting innovations coming out of the Asia-Pacific region
• Large Chinese city banks are seeing increased core activity
• Indian vendors have done well serving their local demographic
3
Indian vendors are
successful locally
4
Australia is seeing
a wave of domino
migrations
• Lots of community banks
• Hosted implementations rising
• Westpac, NAB, CBA, and ANZ have all had very highly publicized transformations
Managing rapid growth is the key component of APAC migrations
© CELENT
22
Eastern Europe, Middle-East, and Africa Market Share For Core Systems
<$1 Billion in Assets
Path Solutions
4%
TCS ITS
3% 2%
$1-$20 Billion in Assets
Misys
2%
SunGard
5%
Path Solutions
4%
ICSFS
4%
ITS
4%
SunGard
6%
Diasoft
25%
Infosys
6%
Misys
25%
Others
8%
ICSFS
6%
Temenos
19%
Nucleus
8%
Others
6%
Nucleus
3%
Sopra
14%
Temenos
15%
Infosys
9%
>$20 Billion in Assets
Sopra
10%
Diasoft
12%
Diasoft
5%
FIS
8%
SAP
6%
Temenos
33%
Infosys
10%
Others
13%
Misys
25%
© CELENT
23
Current Market Conditions in Eastern Europe, Middle East, and Africa
1
Rise of
international
subsidiaries
• Traditionally large state-owned entities have dominated
2
Niche vendors play
well here
• Islamic Banking vendors are popular in this geography
3
Hosting is difficult
4
• State-owned and centrals are now competing with international subsidiaries and local players
• Many vendors in these geographies are specialists in certain environments
• Hosting is seeing some traction, but is difficult
Channel banking
• Regulations and infrastructure acting as large barriers
• Payments services, remittances, and mobile transactions are catalysts for technology
transformation
• Channel focus is driven by unique market requirements
EEMEA is a unique market with non-standard flexibility requirements
© CELENT
24
Latin America Market Share For Core Systems
<$1 Billion in Assets
$1-$20 Billion in Assets
FIS
2%
Temenos
10%
Bantotal
7%
Oracle
23%
Temenos
8%
FIS
6%
Others
19%
Others
14%
Fiserv
10%
Cobiscorp
18%
Cobiscorp
19%
Bantotal
15%
Top Systems
17%
>$20 Billion in Assets
Temenos
14%
Oracle
16%
Accenture
16%
Oracle
20%
Accenture
15%
Others
17%
SAP
17%
FIS
17%
© CELENT
25
Current Market Conditions in Latin America
1
Specialists find the
most success
• Latin American specialists consistently sell the most new core deals annually
2
Regulatory
environments a
barrier
• A wide range of distinct and protective regulatory environments have been difficult for many
international vendors breaking into Latin America
• Top Systems, Bantotal, and Cobiscorp
• Regional experience is usually a key indicator for success
• Global vendors have had success with large banks
3
Large banks
4
Channel banking
• Most of the activity coming from midsize-large institutions that need to compete with the large players
but aren’t small enough to be acquired
• Capturing the un-banking
• CRM solutions in demand
Latin America is generally a ‘locals only’ game for core banking
© CELENT
26
Section 5 Core Banking Market Size
The Global Core market exhibits market-specific idiosyncrasies
• Celent estimates today’s market to be $8.6 billion in revenue
• Overall growth over the next four years should be 4.0%
• Despite significant pressures, banks are a cautious lot
– Few banks wish to be pioneers with a vendor new to their geography
– Progressive transformation is now the preferred migration path
– A few success stories in heritage geographies will unleash pent-up demand
Core Revenue Globally
2013 Core
Revenue ($
billions)
5-year
CAGR
© CELENT
NA
EU
APAC
EEMEA/ LATAM
2.9
0.9
2.8
2.0
3.7%
3.5%
4.3%
4.1%
28
Scope and considerations for market sizing
Price Structure
1
License Fee
2
Implementation Fee
3
Maintenance Fee
•
•
One-time fee charged to the bank
Usually is correlated with the asset size of the bank and the number of modules
•
•
Generally covers the cost of the vendor supporting integration and implementation
Larger vendors offer certain implementation services directly, but often enlist
system integration partners to complete much of the process
•
•
Annual cost of maintaining the core system
Typically includes upgrades and enhancements made by the core vendor
Pricing Estimates
PRICING
LICENSE FEE
IMPLEMENTATION FEE FOR
VENDOR
DATA MIGRATION,
HARDWARE, AND GAP
CLOSURE
ANNUAL MAINTENANCE FEE
TOP 500 INSTALLATIONS:
ESTIMATED VALUE (US$
MILLIONS)
$15
$15
500-1000 INSTALLATIONS:
ESTIMATED VALUE
(US$ MILLIONS)
$10
$10
REMAINING VENDORSERVICED BANKS
1.5
1.5
$100
$25
0.7
$3
$2
0.4
COMMENTS
Estimated as a one-time payment
100% of license; one time only
20% of license; paid annually (except for smallest)
Source: Celent & Vendors
© CELENT
29
Core revenue by region shows slight disparities in growth driven by regional
demand
Core Revenue by Region
NORTH AMERICA
WESTERN
EUROPE
ESTIMATED
MIGRATION
RATES
179
2%
239
$12,000
2%
US$ millions
REGION
NUMBER OF
INSTALLATIONS
IN
TOP 1,000
BANKS
CAGRs
Overall
NA
Europe
APAC
LA/EEMEA
4.0%
3.7
3.5
4.3
4.1
$10,000
$8,000
$6,000
ASIA-PACIFIC
360
6%
$4,000
$2,000
LATIN AMERICA,
MIDDLE EAST,
EASTERN
EUROPE, AFRICA
222
7%
$0
2013
2014
North America
APAC
2015
Europe
2016
2017
LA/ EEMEA
Source: Celent & Vendors
© CELENT
30
Maintenance will a driver of core revenue growth despite standing at 41% of
total revenue today
$12,000
CAGRs
Overall:
4.0%
Maintenance: 6.1
New:
2.4
US$ million
$10,000
$8,000
$6,000
$4,000
$2,000
$0
2013
2014
2015
Maintenance
2016
2017
New Project
Source: Celent & Vendors
© CELENT
31
Conclusion
Global Observations
1
Banks are increasingly willing to consider core replacements, whether big bang or
phased (which is dependent on size)
2
Cost and customer demands for agility are key drivers motivating banks to finally make
the switch
3
Vendor products have matured enough that the trepidation banks have typically felt may
no longer be warranted
© CELENT
32
Thank You
Daniel W. Latimore,
CFA
Senior Vice President,
Banking
dlatimore@celent.com
Twitter: @danlatimore
Stephen Greer
Analyst,
Banking
sgreer@celent.com