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The Retail Financial Services Technology Outlook: Future Growth and the Impact of Compliance, Core Systems Renewal and Outsourcing
Business Insights, Oct 2004
The Retail Financial Services Technology Outlook
Executive summary 10
Regulatory compliance 10
Core systems renewal 11
Balancing business growth with efficiency measures 12
Retail banks’ focus on the branch 13
Insurers’ focus on distribution 14
US leadership in outsourcing 15
Technology vendors in the retail FS sector 16
Chapter 1 Introduction 18
Chapter 2 Regulatory compliance 20
Summary 20
Introduction 21
Traditional approach to regulatory reporting 22
Compliance is climbing the corporate ladder 23
Key regulations 24
Managing the regulatory framework 25
Data management solutions are at the heart of compliance IT 25
Security and business continuity play a key role 26
Consolidate disparate reporting applications 27
Using compliance to positive effect 27
Anti-money laundering 28
The risk-based approach to AML 29
Key vendors in the AML space 30
Searchspace 30
Mantas 30
ACI Worldwide 31
SAS Institute 31
Future outlook 32
Basel II 32
Background 33
Credit risk practices 33
Business drivers 34
Areas where efforts are focused 35
Transactional / operational source systems 35
Data consolidation 35
Regulatory information reporting 36
Barriers to compliance efforts 36
Challenges in creating IAS / Basel II synergies 36
Ambiguity in the ownership of Basel II efforts 37
Key vendors 37
Finance / risk advisories 37
Risk infrastructure (software) providers 37
Risk applications providers 38
Systems integrators 38
Business solution integrators 38
Appealing to FSIs 39
Chapter 3 Core systems renewal 42
Summary 42
Introduction 43
European FSIs’ preparation for core systems renewal 43
US attitudes to core system renewal 44
Drivers of core systems renewal 45
Benefits 46
Key barriers to core systems renewal 47
Taking the plunge 48
Mastering core systems renewal 49
Service-oriented architecture 51
The ‘third way’: component-based replacement 53
Taking a proactive approach 53
Gaining from core systems investment 54
Packaged applications fail to impress 55
No one vendor dominates the market 55
Future prospects 56
Chapter 4 Balancing business growth with
efficiency measures 58
Summary 58
Introduction 59
The importance of business growth 60
Influence on IT spending strategies 62
The importance of process efficiencies 63
Keeping matters in perspective 64
Influence on IT spending strategies 65
Addressing the IT infrastructure 65
BPM: Creating efficiencies and building future growth 66
Addressing business processes 67
BPM market outlook 69
Moving towards business transformation 69
Market drivers for business transformation 70
Significant barriers impede business transformation 71
Despite concerns, business transformation is here to stay 71
Vendors flock to the market opportunities 73
Chapter 5 Retail banks’ focus on the branch 75
Summary 75
Introduction 76
New wave of M&A activity in US retail banking 78
Uncertainty in Canadian retail banking 78
Business trends 79
The branch remains the focus of organic growth strategy 79
The branch as sales center 80
Bancassurance a key driver of this trend in Europe 80
Regulatory compliance takes center stage 81
Technology strategies 82
Renewed investment in branch networks 82
Despite public opposition, outsourcing is prevalent, especially in North
America 83
US banks turn to end-to-end integration of core processes 83
Infrastructure will be the primary area for IT spending 85
Continued investment in CRM and channel integration technologies 85
Chapter 6 Insurers’ focus on distribution 87
Summary 87
Introduction 88
Weathering the storm 88
Changing role of insurers 89
Insurers’ caution 90
IT spend 91
Challenges persist in the marketplace 91
Distribution at the center of insurers’ future 93
Bancassurance as a fast growth distribution channel 94
Drivers behind bancassurance 95
Legacy business models hinder banks and insurers 96
Technology implications of bancassurance 96
The US lags in take-up of bancassurance 97
Enabling intermediary integration 98
Too much focus on the front-end only 99
Back-office-related projects 100
Areas that require further investment 100
Chapter 7 US leadership in outsourcing 103
Summary 103
Introduction 104
Geographical differences 104
Variations in uptake across the financial services sector 105
Outsourcing drivers 106
IT spending 106
Efficiency measures feed into outsourcing trend 107
Challenges for outsourcing providers 108
Vendors in the outsourcing market 109
Sub-markets in outsourcing 110
Infrastructure outsourcing 110
Infrastructure outsourcing vendors 111
Application outsourcing 113
The main vendors 114
Business process outsourcing (BPO) 115
The main vendors 116
Offshore vs. onshore outsourcing 117
Regional differences 117
Threat of offshoring to onshore jobs is exaggerated 118
Vendors need to move away from price-led strategies 119
Chapter 8 Technology vendors in the retail
FS sector 121
Summary 121
Introduction 121
Retail banking 122
European retail banking market 122
IBM 122
Hewlett-Packard (HP) 123
EDS 123
Siemens Business Services 123
Getronics 124
Atos Origin 124
Others 124
US retail banking 125
Accenture 125
DWL 125
EDS 126
Fidelity Information Services 126
Fiserv 126
Getronics 126
HP 127
IBM 127
Others 127
European insurance market 128
IBM 128
CSC 128
Unisys 128
Others 129
Core systems 130
Emerging winners 130
Alnova 130
SAP 130
TietoEnator 131
Unproven contenders 131
Unisys 131
Niche challengers 131
Fidelity Information Services 131
The US vendor market for core systems 132
Market leaders 132
Established specialists 133
Niche players 133
New entrants 133
European business transformation vendors 134
Business transformation elite 134
IBM 134
Accenture 135
Unisys 135
Business transformation contenders 135
EDS 135
CSC 136
TietoEnator 136
Index 137
List of Figures
Figure 2.1: Compliance IT spend vs. total spend in the US 22
Figure 2.2: Integrating disparate technologies into compliance framework 26
Figure 2.3: AML spend and year-on-year growth 2001-2006 28
Figure 2.4: Retail banks’ priorities in improving credit risk framework 36
Figure 3.5: Middle tier integration layer wraps legacy core product systems and interfaces with
channel systems 50
Figure 3.6: An SOA enables maximum business agility 52
Figure 3.7: Global core banking systems IT spend, 2002-2005 54
Figure 4.8: European Financial Services infrastructure strategy 60
Figure 4.9: Process excellence framework 67
Figure 4.10: European business transformation IT spend by line of business and by process, 2003-
2006 72
Figure 5.11: External European retail banking technology spending, 2002 - 2006 76
Figure 5.12: US retail banking IT spend, 2003-2006 77
Figure 6.13: European insurers are becoming more balanced in their approach to strategic IT
objectives 92
Figure 6.14: Insurance technology architecture of the future 93
Figure 6.15: Bancassurance share of distribution in Europe 94
Figure 7.16: Efficiency remains the most important influencer of IT strategy in European FSIs 106
Figure 7.17: Offshore outsourcing poses no serious risk to N. American and W. European financial
services job markets 118
List of Tables
Table 2.1: Summaries of key laws and regulations 24
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