Tuesday, 8 December 2015

The core banking systems market: then and now

  • As I prepare to leave IBS, the company I set up 24 years ago, it seems a fitting moment to take stock of how far the core banking systems market has come in that time.
By Martin Whybrow, founder of IBS Intelligence

Quality and Quantity

In terms of the number of systems and suppliers, the industry has appreciably shrunk, which isn’t good news for buyers. Over the years, more and more business has come to end up in the hands of fewer and fewer suppliers. This means that the shortlists for many bank selections have become wholly predictable.

At the outset, no supplier had more than one core system. BIS Banking Systems, Kapiti, IBIS, Kindle, Sanchez, Hogan, Systematics, EBS with its Globus system, Management Technologies Inc (MTI), Internet, FNS, ERI Bancaire, I-flex Solutions etc. They all had their strengths and weaknesses but they were certainly focused, with all of their efforts and R&D going into their flagship offerings.

Then came wave after wave of industry consolidation, much of it reducing choice. This has not only been in the core banking sector, of course, as other areas have undergone similar transformations, including those of payments, treasury, risk management and IT services (and it is still the case, as reflected in the recent announcement that the Diebold acquisition of Wincor Nixdorf has been agreed – what will that do to choice in the ATM sector?).

Perhaps it is no surprise that the suppliers that now lead their sectors (Temenos in core banking, Calypso and Murex in treasury and Avaloq in wealth management) are essentially still one-product companies. How much simpler life is here than at the likes of FIS and Sungard (what a colossal challenge the coming together of these will be), Misys, and Fiserv (13 systems for US credit unions, anyone?).

To my mind, the most successful consolidation was TCS’s takeover of the FNS business and of its Swiss joint-venture, TKS Teknosoft, combining the former’s Bancs retail system and the latter’s securities and wealth-oriented Quartz with the deep delivery and development resources of the Indian IT services giant. It is this grouping that has gained most of the really high-end deals over the years (Bank of China, State Bank of India).

While the quantity has reduced, there has been a vast improvement in quality. This is in terms of the breadth and depth of the systems, plus their delivery. In the past, releases were more hypothetical than actual, every customer had on-site customisation that often created expensive cul de sacs, and the systems became ever more fragile and monolithic structures running to millions of lines of code.

The Wild West

It was often ‘seat of the pants’ times in the formative years, in terms of projects and corporate strategy. Tales emerged from time to time of sales staff selling fictional modules and many parts of the world were wracked with corruption so selections were often – to put it politely – not based entirely on merit.

It is a common cry in so many walks of life (football, music, politics etc) but the characters back then seemed larger than life. The likes of George Koukis at Temenos (sweeping into the industry with his company CTW – standing for, Conquer the World), Patricia Drakes at IBIS, Rupert Soames at Misys (does he look back fondly to those days from his current challenging position as CEO of Serco?), the sadly departed Barrington J Fludgate at BIS then MTI, Tony Ward at FNS (still in the industry at Sofgen/Tech Mahindra), Leslie Loh at Singapore-based System Access and Rajesh Hukku and Ravisankar (‘Shanx’) at I-flex Solutions (two totally different personalities but a mix that seemed to work for this Indian Citigroup-derived upstart). And then there was Ernst Hennche, a pivotal early figure who worked on the development of the Cosmos system at Citigroup and then built Globus (which morphed into today’s Temenos T24).

When the industry came together, particularly at Swift’s Sibos show, it was often the Kindle team that led the way with the out of hours activities, setting up camp in the nearest Irish pub, with most of the vendors heading here at the end of long days on the stands. Today’s Sibos party is a shadow of its former self – the Russian Red Army Choir and the Leningrad Cowboys has to be the highlight of my career (anyone who was at Copenhagen 2005 Sibos will understand!).

But Sibos 2008 is the one that really sticks in the memory, the week the financial services sector went into meltdown. Bankers flew into Vienna and then headed straight back again, leaving empty stands (only the trade services team left on the Wachovia stand, for instance) and decimating the speaker programme. Lehman Brothers went down on the eve of the show and there were other casualties each day, creating a surreal environment within the conference centre for those that remained.

Don’t forget the regionals

Often below the spotlight, there has always been a good clutch of smaller, regional suppliers that have ably served their sectors. When involved in helping banks with selections, I always emphasised the value of these – often, they have a closer culture and can bring greater commitment to their customers than the mainstream players who have myriad customers of all shapes, sizes and geographies to support.

While some have been swallowed up, others have shown considerable staying power, perhaps particularly BML Istisharat, coming from Lebanon. Others include Path Solutions, Autosoft Dynamics from Pakistan, Capital Banking Solutions, ICSFS, ITS, SAB and Silverlake. Nearly all of these have benefitted from stable senior management. The same can be said of private banking system stalwart, ERI Bancaire and Infosys with Finacle.

And what of the future?

The majority of the systems that remain are showing their age. For all the evolution over the years, their roots were laid down at least two decades ago and that is a hindrance. SAP’s core system, Deposits Management, is a bit newer but heavy and expensive to implement so arguably overkill for many smaller institutions.

Hopefully the two or three low-end US newcomers can break through, so too a similar number in Western Europe, including Dutch duo, Five Degrees and Ohpen. Maybe Sword Apak can build on its success in the UK and break out from here. Cloud Lending and Mambu, with their cloud-based, low-price, fast implementation models, are also interesting additions at the low-end.

Existing suppliers find it difficult to come up with new systems, although Misys perseveres with Bankfusion and Oracle has its Oracle Banking Platform – albeit no known broad wins for the latter beyond the first two Australian takers. Of course, Bankfusion is now Fusionbanking Universal Banking – if there was one rule I’d have liked to have introduced over the years, it would have been to ban rebranding – if you can’t come up with a new system, don’t think anyone is going to be fooled by renaming it – that applies to you too, Sungard, now also Sopra with ‘Amplitude’ and ‘Sopra Banking Platform’ – or Delta-Bank and Thaler, respectively and rather more memorably.

And a ‘thank you’

Despite the odd whinge, it has been a pleasure reporting on the sector and I like to think we aided transparency by shining a light on the core banking systems market. We went and stuck our noses into people’s businesses, often when it was the last thing they needed – i.e. when something had gone wrong – but most could not have been more helpful. Occasionally toys were thrown out of prams, the messenger (i.e. us) was blamed, and suppliers stopped talking to us (a few had thinner skins than the rest) but most took the rough with the smooth, recognising our independence and accuracy.

So a big thank you to everyone who gave their time and to my many excellent colleagues over the years. I am not sure what the next chapter holds, but I am sure I’ll keep watching this sector from some vantage point going forward.

About the author: Martin has been focusing on the core banking software sector for many years. He set up IBS Intelligence back in 1991, and has grown it to be recognised as a worldwide authority on all matters fintech and banking technology. 

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