FNS-derived system and the Quartz system in 2008. Temenos has largely focused on acquiring user bases (Financial Objects, Actis, Viveo, as mentioned). Oracle’s acquisition of Temenos’ key rival, I-flex, was highly notable and the first instance of a major technology company coming ‘off the fence’ in the core banking space by acquiring its own IPR. The deal caused consternation for those core system suppliers that had previously viewed Oracle as an independent technology partner. The deal has brought greater reach and in creasing incorporation of Oracle components with Flex cube, plus are versal of I-flex’s position on partners, where by it sought to provide all services itself. On the downside, it could be argued that there has been some loss of focus, with a watering down of the previous strong I-flex culture and drive, as well as a hike in price.
Since then, the largest consolidation has come in the US, with the announcement in April 2009 of Fidelity National Information Services’ $2.94 billion take over of Metavante, bringing together two of the four American heavyweights. The other of course has been FIS’ acquisition of Sungard.
The last two years (2015-2016) have been particularly rife with consolidation activities with the usual suspects taking the lead. Temenos made two notable acquisitions – the US based lending solution provider, Akcelerant, and the Luxembourg based fund administration software provider, Multi fonds. The former which provides Temenos with access to the US markets outlines at a fairly aggressive strategy to expand its markets.
Another supplier who has been aggressive in consolidating its treasury and capital markets capabilities is the Ion Investment Group. In the last five years, the group has acquired a bouquet of treasury and capital market solution system – Wall Street Systems, Pat systems, Financial Software Systems (FSS), Ffastfill, Triple Point and more recently Reval, a cloud based treasury solutions provider.
The year 2017 is going to be an interesting one to watch considering some of the larger deals that are underway, namely the Misys and D+H merger, which is likely to change to dynamics of the core banking systems market.
Product focus
Sometimes, a decision to move into a new business area enforces change. This was traditionally a driver in the derivatives space, where the complexity of the instrument often moved faster than the installed systems. There can also be more wholesale shifts of emphasis – Webster Bank in the US, for instance, replaced all of its core systems when it decided to change focus from its traditional savings bank business to broader commercial banking. The same can be seen in the
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moves by banks to go after retail deposits as well as where non- banks have sought to gain full status.
The quest for being recognised as an innovator and positioning for the millennials is also an important factor. In the past, it was quite typical for developing markets to look to Europe for innovation in banking. That is not necessarily the case today. European banks are generally seen to be burdened by their legacy infrastructures, so innovation do arise anywhere around the globe and that is seen as a critical factor for replacing core platform.
General inefficiencies – a lack of straight-through processing– can be the spur, particularly in the face of increasing volumes. Manual processes are often most prevalent where there are inter faces between systems and departments. There are also potentially sweeping, strategic reasons for improving efficiency. There is greater transparency now in terms of overall bank efficiency. Measures such as cost/income ratio are not ideal but greater scrutiny is given to the overall operational standing and health of particular banks. The in efficient are likely to be acquired; the efficient will be the acquirers. The poor state of Abbey’s core systems was a major part of Santander’s arguments when it successfully pursued this struggling UK player.
The ability to combine operations is a fine art and a number of banks have become good at it through practice– JP Morgan Chase has a good story here, for instance. But others struggle badly. A number of the banks that have moved aggressively into Central Europe have had a hard time in their efforts to move acquired banks to standard systems, hitting problems of culture as much as anything else, trying to force systems on what were previously strong, autonomous banks in their own right.
Recent trends indicate suppliers looking to develop their digital capabilities. Other than digital channels, a lot of investment is in the areas of front office systems and risk analytics systems.
Implementation models
There is ever more discussion about forms of hosted back office solutions around the globe, including via the cloud. Cloud in its real sense has been mostly adopted in Africa, typically among micro finance organisations, but with much lesser penetration levels in other markets - especially where outsourcing has been accepted to be strong. The banking sector yet to fully adopt different forms of pay-as-you-go models for its core business. While outsourcing itself has been an integral part of many banks for decades, albeit with a much higher prevalence in some (such as the US and Nordic region), it is largely to do with small to mid-tier banks as customers. Often, the outsourcing
Market Dynamics Report 2017 |
www.ibsintelligence.com
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