Outdated core systems a drag on growth for European banks - survey

11 May 2012 | 5923 views | 4 Cogs1

Around three quarters of European banks are using outdated core systems, affecting their ability to innovate and accelerate growth, according to a survey commissioned by vendor Infosys.

The poll of 65 C-level executives at European financial institutions, carried out by Ovum, shows that 80% of respondents think that outdated core banking systems are causing them to struggle to bring new products to market quickly.

The survey reveals that three quarters of the banks face difficulties getting access to timely data, and close to two thirds feel that existing systems do not support regulatory change.

Meanwhile, more than half of respondents say they are focusing on increasing wallet share within the existing client base, with only 20% trying to achieve growth through new customer acquisition. However, providing a unified customer experience across channels is an issue for about half of European banks, impacting their ability to effectively cross-sell.

Technology systems are seen as a stumbling block rather than an enabler when it comes to carrying out process change led by the business, say three quarters, while 80% think the complexity of IT, combined with insufficient expertise within the business, is a major barrier to core system replacement.

Daniel Mayo, practice leader, financial services technology, Ovum, says: "There is a clear disconnect between market needs and market capabilities when it comes to core banking systems. Many banks are trying to restore revenue and drive growth through better servicing and cross-selling to their existing customer base. While European banks with modern packaged systems have faith that they are equipped to tackle the challenges in the coming years, those using older core banking systems do not."

Recent research from Celent suggests that the global core banking market was worth around $4.8 billion last year and is expected to grow to $5.1 billion by the end of 2013. However, the firm does not expect to see a surge of activity in Europe, predicting that any growth will come from less mature markets such as Asia and Latin America.

Comments: (4)

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Gary Wright - BISS Research - London | 11 May, 2012, 11:00

Yup! This is not really news as its been long known that Banks struggle to replace legacy systems. The personal risks of procurement and protectionism are massive barriers to investment. There is a lack of knowledge at a business level of IT that generally lets internal IT hold the wheel and obviously steer direction towards internal developments. A survey on the success of internal IT developments would be more enlightening but who would come clean on that?

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Darren Pearson - The Realization Group - London | 12 May, 2012, 14:47

Bang on the money as usual Gary.

It looks like many firms (regardless of name, brand & Tier) are now paying the price for short-cuts & system bolt-on's accumulated over the years via buy-outs etc. I can think of one immediately who have a myriad of systems for various asset-classes which means it's a nightmare to consolidate multi-class reporting ++ which triggers so much manual workaround externally plus, seriously inhibits STP opportunities & Ops-efficiencies in the PT space..

Chickens & roost are the words that come to mind, chuckle, bon w/end

Best, DP

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Gary Wright - BISS Research - London | 12 May, 2012, 15:05

Thanks Darren

The CISI are planing a lunch time briefing on this subject and trying to get a FS firm to front up. Thats not an easy thing to do as this topic is far to controversal and scary for FS firms to admitt there short comings and now the growing legacy risks that will hinder badly their regulatory and future business capability. Boards should be made accountable but it will never happen

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A Finextra member | 14 May, 2012, 07:53

Dear Sirs, It is true that banks have outdated core systems. This is due to an informed decision by said bank boards to follow the Goldman Sachs yardstick for positive shareholder value: Mimimize IT and staff spend and get rewarded by the analysts that rate you as top notch in efficiency! Therefore the non-investment and the outsourcing to third world countries. Another consequence however is the decreacing capacity to service customer needs, but investors care little what happens after the upcoming quarterly report - they worry about that only if they still hold the shares in question. And then the prescription is more of the Goldman Sachs medicine!

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