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Future Outlook The question that always in mind when you look at any


market overviews is about what’s in store for the future. And there just as one reads in investment disclaimers, past performance are not necessarily a guarantee for the future. Still, one definitely gets a perspective on how the future outlook is likely to be, based on both the performances experienced over the last few years, and also the macro economic outlook that is observed in the market. Firstly, for some global trends. The banking IT expenditure


is growing at a healthy 3.7% over the last 5 years, with the an estimated $154 billion in 2015, expected to cross $160 in 2016. A little more than a third of this is spent on packaged software, while the balance is spent between services and hardware. Interestingly, APAC contributes to a third of the investment, EMEA spending about 35% and the balance in the Americas.


Back office suppliers, including the universal, core, lending, wealth and private banking systems,


in the From a geographical standpoint, Asia Pacific, including


the Central and South Asia and Australia continues to be a region to watch for. While they collectively contributed to more than 20% of the back office package spends that were observed in the last 5 years, the deals just in the last year alone 89, almost a third of the overall total of 274. But a natural reflection of the increasing spend in the economies that are looking more vibrant, and also an indication of the spend driven by innovations that banks are looking to invest in to leapfrog their western counterparts. The profile of investments made by banks are also


looking to change, with higher proliferation of service oriented architecture (SOA) and outsourcing models that are increasingly adopted by global banks. The buzz of digital, cloud, analytics, mobility and big-data are hard to miss in any banking conference – be it a congregation of bankers or technologists. And that would also bring us to the billion-dollar question – where do banks look to invest? The profile of the IT spend has shifted from single universal banking systems to those of multiple specialized applications, and it would only be fair to say the next few years are likely to see a preference of breadth over depth in the choices banks are seeking to make.


meanwhile, do continue to enhance their capabilities – both from a geographical reach (as evidenced by the spread of the deals by vendors across regions) and also from a functional breadth. 60-70% of the market yet continues to remain driven by replacements, although the balance is seen to be more from new bank licenses and bank mergers. Emergence of digital lending platforms will have implications on the construct of loan origination and management applications, and demand on having omni- channel experience will also necessitate large suppliers to invest in their technology addressing this need. Demands on Risk systems are also likely to include new risk categories, driven by an even more vigilant regulatory outlook and increasing norms of compliance. A best-in-class architecture design looks at 8 layers of the bank: the channel layer that interfaces with the customer, the services/front-office, risk/middle-office and core/back-office layers of the core systems, the analytics & reporting layer dealing with the business intelligence, the support layer that helps with the back-end functions, the external layer that includes inter-bank and payments and the inevitable middleware layer that stitches them all together. While the traditional and conventional layers of Core banking, Lending and risk do continue to remain important, a much higher share of incremental investment is clearly been observed in the areas of digital banking – primarily driven by internet and mobile technology, payments – an area that has been most spoken about both in the technology and banking circles, but also in the new world of Fintech and startups. There are at least 8000 new Fintech startups in the


last count, and 40% of them are stated to be disruptive in outlook. More than 63% of these investments are in the US alone. And that also brings us back to the implications from a supplier standpoint. With over $14 bn investment made in new Fintech in 2015 alone, the new era of disruptive technologies are not only impacting banks and their investments, but also suppliers who need to fast embrace the ‘cool’ fintech world. And then quite logically, one should expect more


consolidation in the Fintech supplier world, which is driven at both ends of the spectrum. Large players looking to consolidate from a geographical and coverage standpoint – recent examples of the respective acquisition of FIS / Sungard and D+H /Fundtech evidencing this trend, and also that of the consolidation that is quite likely to happen in the emerging ‘new’ Fintech world. About 429 M&A deals have been reported in 2015 alone, and this is quite likely to continue, considering the proliferation of multiple new startups in this space. The incubation services offered by banks is an interesting new development that is likely to redefine the space of Banking Technology in the years to come.


Market Dynamics Report www.ibsintelligence.com 293


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