Technology Shift Creates Offshore Opportunities For US Core Systems

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Recent events indicate that the US market for core banking systems will experience increasing rates of technology change, primarily driven by offshore suppliers. Offshore suppliers have experienced tremendous uptake for their new core system technology in developing markets, but are now developing strategies to penetrate the US market -- and recent wins in the US market suggests the US market is warming up to the idea.

New research report by Mercator Advisory Group: Recent events indicate that the US market for core banking systems will experience increasing rates of technology change, primarily driven by offshore suppliers. Offshore suppliers have experienced tremendous uptake for their new core system technology in developing markets, but are now developing strategies to penetrate the US market -- and recent wins in the US market suggests the US market is warming up to the idea.            

In 2003 Fidelity Information Systems bought Alltel and acquired the Corebank product. Corbank was rewritten in 2003 to implement a component-based development environment that utilizes web services and modeling as implementation and development methodologies. In August 2005 Oracle purchased a controlling interest in i-flex Solutions product, FLEXCUBE (that implements a component and model-based development and execution methodology), to replace its existing core system with an eye towards lowering the bank's operating costs while also speeding the introduction of new bank products and services. And just this March Metavante announced that it will implement the Temenos Core Banking product for large financial institutions in the US market. Tim Sloane, Director of the Debit Service for Mercator Advisory Group and the author of the report indicates that these events likely indicate a strategic shift that will slowly ripple through the core system market;

"These moves by Metavante and People's Bank are clearly the most significant proof point that these new architectures will, at a minimum, be carefully evaluated by US financial institutions on a very broad scale. But it is important to recognize that these adopters have carefully investigated and then embraced these new architectures, so it appears extremely likely that more US financial institutions would come to the same conclusion -- that these new architectures and integration tools will simultaneously lower operating costs while increasing the speed of deploying new and enhanced products and business processes."

Highlights of this report include:

  • Despite financial institutions resistance to foreign suppliers for core systems, foreign suppliers have made recent gains, as the i-flex win with People's Bank demonstrates.
  • These foreign-born interlopers have established beachheads through key US players including Oracle, Sun, IBM, Fidelity, and Metavante.
  • It is significant that these new core systems rely on component libraries, and business process management (BPM) solutions to enable rapid development and deployment while keeping maintenance cost slow.
  • It is also significant that many of these suppliers rely on modeling tools to manage the complexity that evolves as changes are made to applications that interlinked to other applications through SOA. Modeling tools are proving to be a critical tool that prevents unintended consequences in a SOA environment.
  • These new solutions all embrace the Service Oriented Architecture. While any SOA implementation will lower the cost of integration as compared to a monolithicapplication, it is unclear if these SOA implementations share a common approach to core services, such as security, which is required to achieve the highest efficiencies.
  • Since the majority of core system activity takes place in FI's with assets less than $250 million, deployment of these products as a service willbe critical to broad acceptance.

Members of Mercator Advisory Group have access to these reports as well as the upcoming research for the year ahead, presentations, analyst access and other membership benefits. Please visit us online at http://www.mercatoradvisorygroup.com.

For more information call Mercator Advisory Group's main line: 781-419-1700.

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ROBERT MISASI
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