Core Banking Systems Survey 2008 1

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Core BankingSystems Survey

Survey results 2008

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FinancialServices thewayweseeit

Core Banking Systems Survey

Gert Jan van Dorsten

Andr Spruit

Arthur Barendsen

Survey results 2008


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About the report

Capgemini has conducted a comprehensive study of current trends in core banking and

the functionality of the major core banking systems available in the main financial markets

in the world.

This survey was written and compiled during the period from September to December

2007. The report is based on desk research and on a request for information sent out to

the leading core banking system vendors.

The authors selected the vendors and their products after consulting with Capgeminis

international Core Banking/Banking Packages network. The survey focused specifically

on core banking solutions for top-tier banks having a strong position in the important

financial markets in the world and offering the solution in more than one country.

The Core Banking Systems Survey 2008 is the latest in a series of banking systems

surveys. The Asset Management Systems Survey and the Treasury Systems Survey were

published in 2007. The previous Retail Banking Systems Survey was published in 2006.

About the authors

The authors of the Core Banking Systems Survey are Gert Jan van Dorsten, Andr Spruit

and Arthur Barendsen. They are leading consultants within the core banking community

of the Capgemini banking practice in the Netherlands.

Gert Jan van Dorsten is a principal consultant specialized in banking packages in general,

with a focus on the domain of core banking back-office solutions and selecting and

implementing package-based solutions for financial institutions. Gert Jan is also expert

group manager in the Netherlands for core banking and manager of the global FS

Industry Packages Center of Excellence.

Andr Spruit is a managing consultant specialized in selecting and implementingpackage-based solutions for financial institutions. Andr focuses on core banking

packages and before joining Capgemini at the end of 2006 worked for one of the leading

vendors in this domain and in the financial services industry itself.

Arthur Barendsen is a consultant with experience in embedding packages in a global

banking organization.

Gert Jan van Dorsten

Principal Consultant

Capgemini Nederland B.V.

Andr Spruit

Managing Consultant


Arthur Barendsen

Consultant



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Preface

I am very proud to present the resultsof the 2008 Capgeminis Core BankingSystems Survey. The 2008 survey pro-vides an in-depth and timely insightinto the state of the package solution

providers industry serving the corebanking business in top-tier banksthroughout the world.

The main objective of this survey is tohelp you understand the various corebanking systems that are available inthe world. It gives you insights intobusiness trends, banks and vendors,package selection criteria, implementa-tion methods and information concern-ing and provided by the solution vend-

ors. It should assist you in efficientlyand fundamentally narrowing downthe search for the right solution pro-vider and make it easy to connect withthe vendors on a well-informed basis.

Capgemini can provide financial insti-tutions with considerable benefits inthe area of system selection and imple-mentation, including: a broad spectrum of services and in-

depth experience of every phase ofthe system selection process;

an exceptional track record based onthe successful implementation ofmany different types of packagesolutions;

different application maintenancecontracts on vendor solutions;

leading-edge capabilities closelyattuned to current and future indus-try changes;

strategic and comprehensiveservices tailored to the individual-ized need of each client;

global services and resources (pro-vided in the Rightshore offers

which combine on-, near and off-shore sourcing models), combinedwith strong regional teams withexcellent local delivery capabilities.

Should you require any further infor-mation or assistance in this area, pleasecontact the appropriate Capgemini rep-resentative, whose details you can findin the appendix, or contact our localoffices.

We welcome feedback and sugges-tions for improvements to this survey.

I would like to thank all the partici-pating vendors and all colleaguesinvolved for their efforts and contri-butions, especially Martijn RomColthoff, Maurice Vuijk, Pascal Breetand Henk Dekker for their inputs forthe chapter on trends.

Yours sincerely,

Gert Jan van DorstenPrincipal ConsultantBanking Practice, The NetherlandsManager Global FS Industry PackagesCenter of ExcellenceCapgemini Nederland B.V.

Utrecht, February 2008


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1 Background to the survey 7

2 Trends in core banking 9

2.1 Core banking replacement 9

2.2 The core banking market 102.3 The core banking clients 11

2.3.1 Retail/consumer banking 11

2.3.2 Wholesale/corporate banking 12

2.3.3 Others 12

2.4 The core banking domains 12

2.4.1 Payments & cash management 13

2.4.2 Savings 13

2.4.3 Loans and mortgages 14

2.4.4 Securities 15

3 Global banking overview 2006 - 2007 16

3.1 Banks worldwide 16

3.1.1 North America 163.1.2 Europe 16

3.1.3 Asia 16

3.1.4 Australia 16

3.1.5 South America 16

3.1.6 Africa 17

3.2 A changing landscape 17

3.3 Showcase: ABN AMRO acquisition 17

4 Vendor solutions 18

4.1 Introduction 18

4.2 History of core banking systems 18

4.3 Recent market developments 19

4.4 Recent developments in package solutions 21

4.5 Competitive landscape 22

4.6 Future of the market 22

4.7 Specialized best of breed solutions 23

5 Package-based solutions 24

5.1 Integrated Architecture Framework 24

5.2 Stage 1: Make or buy 25

5.3 Stage 2: Selection 26

5.3.1 Methodology 26

5.3.2 Integrated or best of breed 28

5.3.3 Selection criteria 29

5.4 Stage 3: Implementation 30

5.4.1 Methodology 30

5.5 Stage 4: Operation 33

5.5.1 Organization 33

5.5.2 Location 34

Contents


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6 Capgemini in core banking 35

Appendix 1: Detailed systems overview 39

Appendix 2: Capgemini contacts 67

Reference List:

The Banker - Retail Banking Performance

BCG - Renewing core banking IT systems, 2006

BCG - Striving for organic growth in Retail Banking

Capgemini/EFMA/ING - World Retail Banking Report 2007

Capgemini/EFMA/ING - World Retail Banking Report 2008

Capgemini/EFMA/ABN AMRO - World Payments Report 2008

Capgemini - SOA and Retail Banking Industrialization: An amazing fit

Datamonitor - European Core Systems Strategies, 2007

Forrester - Banking Platform Renewal, 2005

Forrester - Banking Platform Wins 2005: VendorsForrester - Banking Platform Wins 2006: Vendors

Forrester - The wave of core banking suites 2007

Gartner - Dataquest Insight - Banking Industry Primer, 2006

Gartner - Magic Quadrant 2006 Retail Core Banking

Gartner - Hype Cycle for Emerging Back Office Technologies and Applications

(Banking and Investments) 2007

IBS - Sales League Table 2006

IBS - Sales League Table 2007

IBS - Core Banking Systems - 30 case studies

SAP/EFMA - Retail Banking Study 2006


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We feel it provides the reader withvaluable insights into the trends andsolutions in the domain of corebanking.

This survey is the third edition andfollows on from the 2003 and 2006Retail Banking Systems Surveys. It isthe latest report in a series ofCapgemini publications in the area ofpackage-based solutions in the bank-ing domain. The other areas coveredare asset management, private bank-ing, payments, treasury managementand risk management.

The list of vendors requested for par-

ticipation was compiled after con-sulting the banking packages andcore banking network of Capgeminiand various publications. It includesall the important vendors for the mainmarkets in the world which operateglobally or at least regionally in onecontinent (see figure 1). Capgemini

professionals from all over the worldhave provided valuable input for thesurvey. Essential information wasgathered from current and previousassignments conducted by Capgemini

for core banking clients with packageselections or implementations.

Based on requested information, thesurvey presents a practical overview ofthe solutions currently available andthe capabilities of each system. Themain objective is to help users tounderstand the various products thatexist in the market and to narrowdown the search and make it easy toconnect with the vendors on a well-

informed basis. This is very importantin the initial phase(s) of the packageselection process. It should always bekept in mind that package selection isa challenging, complex process andthat it also marks the start of a rela-tionship with one or more externalsuppliers.

1 Background to the survey

The 2008 Core Banking Systems Survey is based on desk research and a survey

sent out to a group of sixteen vendors of core banking solutions.

Figure 1: Origination of systems

15%

Europe-South

Europe-West

Europe-Central

Europe-North

Asia

America

Australia

5%

10%

15%

10%

20%

25%

Background to the survey


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The following core banking solutionproviders participated in the survey(in alphabetical order): see figure 2.There are several aspects that shouldbe considered when selecting a core

banking system, based on the compa-nys business vision. These range fromfunctionality, architecture and non-functional requirements to vendor sta-bility and implementation capabilities.

The answers to the vendor survey arepublished in unamended form as anappendix to this booklet.

Capgemini is an independent advisorand has no exclusive contracts with

any of the participating vendors.Furthermore, Capgemini has notattributed opinions to any of the dataor vendors.

Figure 2: Participating vendors and solutions

Vendor Package

Accenture AlnovaFinancialSolutionsCallata&WoutersS.A. Thaler

DeltaInformatique Delta-Bank

FidelityNationalInformationServices(FIS) Corebank

Profile

Systematics

Fiserv,Inc. ICBS

i-flexsolutions Flexcube

InfosysTechnologiesLtd Finacle

Misys Equation

Midas

NucleusSoftware FinnOne

PolarisSoftwareLabLtd IntellectSuite

SAPAG SAPTransactionalBankingSungard SystemAccessSymbols

TCSFinancialSolutions TCSBaNCS

Temenos T24

TEMENOSCoreBanking(TCB)

TietoEnatorCorporation CoreBankingSuite

T-SystemsEnterpriseServicesGmbH MBSbankingsuite;GEOS

Finally, it should be noted that answersto survey questions are quite depend-ent on the individual perception of thequestion and cannot be fairly com-pared on an individual level. Also, as a

result of habitual vendor optimism,system functionality on paper is notalways the same as system functionalityin a real setting.


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2.1 Core banking replacement

Definition: we define core bankingsystems as those applications respon-sible for processing and posting trans-actions in the domains of payments,

current and saving accounts, loansand securities (such as performingcurrent and deposit accounting, main-taining loan accounts, holding securi-ties positions, clearing payments).Todays solutions are capable of com-pleting these tasks in an integrated,browser-based environment acrossmultiple delivery channels. They con-stitute a mission-critical element inthe financial services industry.

Without core banking applications,

most banks would instantly come toa grinding halt.

Situation: replacing a core banking sys-tem is often compared with replacingthe engine of a Boeing 747 in mid-air.Experts consider core banking replace-ment to be the most complex, riskyand expensive IT project that any bankcan undertake. A core banking systemforms the backbone of a banks ITinfrastructure and contains records ofall customer transactions and the pro-

cessing of those transactions. A minorerror in this area can cause a banksentire system to crash, tarnishing itsreputation in the process.

Complex: technology is a key driverof change, and application vendorshave long been preaching the virtuesof flexible development, speed to mar-ket, real-time processing and a singleview of the customer across all linesof business. But, although many early

adopter banks in Europes middle tierhave already embraced this new tech-nology, it is surprising how many ofthe largest institutions are still battlingwith the self-imposed handicap of

old-fashioned, outmoded and inade-quate core systems.

Risks: but more than anything else,two factors stand in the way: the risk

and cost involved in carrying out acore banking replacement. The costsas well as the risks are high, but thebenefits are far greater. Financial insti-tutions that have already announcedplans to undertake such projects, willquickly reap the benefits and set anexample for others in the industry.They will benefit from greater efficien-cy, easier access to information, andthe ability to add new applicationswithout the fear of system crashes. As

financial institutions quickly realizethat their current, antiquated core sys-tems are no longer adequately meet-ing their needs, many are beginningto consider replacement. Memories offailed attempts continue to hauntmany in the industry, however, mak-ing progress slow (one of the largestbanks in the world spent around$ 1 billion in the 1990s and still didnot succeed!). Getting approval forprojects of this scale is also very diffi-cult because banks are currently try-

ing to cut costs.

Costs: the project budgets requiredfor software and service are huge: upto 250 million in extreme cases.Software and services costs forEuropean banks renewal initiatives,spread over at least ten years, will bein the 100 billion range. TheEuropean Central Bank estimates thatthere are about 6,700 credit institu-tions in Europe. These can be broken

down into to tier-one, -two and-three banks. That does not takeaccount of all kinds of national par-ticularities, see figure 3.

2 Trends in core banking

Trends in core banking

Almost all of the top retail banks in the world are still using old legacy systems

(originating in the 1960s/1970s) for core banking (in the home markets).

IT globalization appears to bethe most important transfor-

mation trend for the next

five years, with more than

90 percent of the banks we

interviewed willing to have

a common architecture and

modular application suite and

a ready-to-go approach to IT

implementation.


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each business line. But the DataquestInsight 2006 study by Gartner showsthat, in core banking, survey respon-dents in Europe identify it as a keyopportunity, contrary to the US mar-

ket, in which large banks in particularare still reluctant to proceed, oftenwaiting to implement new systems inglobal divisions before tackling domes-tic systems.In Australia, the big four started toselect and replace the old systems,and the same applies to Russia. Thereis a great deal of activity in the verylarge consumer markets of India andChina. India started a few years ago,while in China - especially in the last

few years - banks have been veryactively implementing modern sys-tems in their extremely fast-growingoperations. A large number of legacyreplacements are also being carriedout in the rest of the APAC region.

While the bulk of sales are still withintier-three and tier-four banks, thereare signs of larger, more strategic deci-sions now being taken higher up thepecking order, albeit by a still relative-ly small number of top-tier players.

Forrester believes (based on researchinto vendor deals in 2005 and 2006)that the number of global bankingplatform deals grew by at least 15 per-cent from 2005 to 2006.The major drivers in the sector forcore banking replacements are: the severity of regulatory require-

ments and penalties; the appeal of a component

approach (SOA - Service OrientedArchitecture - and BPM - Business

Process Management); a strong focus on architecture for

the industrialization of banking,infrastructure and multi-channelenablement;

2.2 The core banking market

The conclusion drawn in a Forresterresearch study in October 2005 wasthat banks are racing to renew their

banking platforms. 46 percent ofEuropean banks had already started torenew their application landscape; afurther 23 percent planned to do so.More than two-thirds of the 54 percentof banks that have not yet started theirrenewal initiative - about 37 percentof the total - state that they will start by2010 at the latest.

It is clear that the conclusion was cor-rect and that banks are indeed renew-ing their platforms. It can be seen from

the home markets and global roll outsthat the top-tier banks are now startingto replace. The smaller banks beganearlier. Capgeminis World RetailBanking Report 2007 endorses thisviewpoint: IT globalization appears tobe the most important transformationtrend for the next five years, with morethan 90 percent of the banks we inter-viewed willing to have a commonarchitecture and modular applicationsuite and a ready-to-go approach to

IT implementation.

Most of the top-tier banks in Europeare now busy replacing their legacysystems with a single global system in

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Figure 3: Project sizes

basedonForresterresearch

Tier Total assetsNo. of CreditInstitutions

Project sizes ( million)

Min. Typical Max.

1 Morethan400billion 20 0 110 200-20

2 100billionto400billion 40 40 0 10

Lessthan100billion 4,00 20 0


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Trends in core banking 11

availability of global resources totackle back-office systems;

industrialization and the shift totransaction banking for core bank-ing back-office systems;

new cross-border mergers andacquisitions wave in the Europeanfinancial services industry.

Beneath that there has been highgrowth in BPO and Outsourcing ingeneral and in the last few years, witha focus on deals of the Selective

Application Outsourcing (SAO) type,see figure 4 and 5.

2.3 The core banking clients

2.3.1Retail/consumerbankingThe most important issues in top-tierretail banks are volume handling andmass products. Being able to managelarge volumes of data is the mainchallenge for core banking software.Only recently, packaged solutionshave become available which haveovercome the technical challenges inreplacing the 30-year-old legacy solu-tions that are predominant in thehearts of the top-tier banks.

Retail banking represents the mostsignificant source of income for theglobal financial services industry. Thekey differentiator between marketleaders and poor performers will beprofitable growth rather than cost cut-ting to improve profits in the longrun. Capgeminis World RetailBanking Report 2008 shows that themature markets (North America,European Union - plus Norway and

Switzerland -, Japan and Australia)represent 75 percent of the world retailbanking market, which is valued at 1.3 trillion (in 2006). Following thenatural economic trend, the retail

Figure 4: Business trends from a vendor point of view

0%

Mobile banking

More stringent regulatory

environment

Core renewal

Continued focus on BPO

Consolidation

10% 20% 30% 40%

Figure 5: Technology trends from a vendor point of view

0%

Mobile technology

SOA

Web 2.0

BPM

Channels integration

SaaS

10% 20% 30% 40% 50% 60% 70%


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system is increasingly being chosenfor both wholesale and retail opera-tions. Another important trend is aglobal roll out of a centralized systemwith central data. The corporate

banks (and their clients) want anintegrated global view of the custom-er with the possibility for treasurydepartments to have transparentonline and daily insight to all accountsglobally.

2.3.3OthersThere are some other interesting devel-opments regarding core banking solu-tions: start-up of banking activities in new

(emerging) markets. Sometimes thisis carried out by existing banks fromother countries, sometimes by othercompanies. The internet is usuallyused as a delivery channel and busi-ness can be conducted using abank-in-a-box solution (less risk);

finance departments/subsidiaries ofcar companies often choose core

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banking solutions for their financeactivities;

retailers are also offering retail bank-ing for their consumers in order toimprove customer retention;

major corporates are developing in-house banking capabilities, often notonly for their own company, but alsofor the outside world.

2.4 The core banking domains

There are a lot of drivers for renewingthe systems, as listed in the tablebelow. The characteristics of the lega-cy systems and the new solutions aredetailed for each area, see figure 6.The general drivers are changing from

cost reduction to growth.

The paragraphs below describe thechanges and developments in eachbanking domain. This is especially rel-evant for the more Western economies.For the emerging markets, these trendscan be regarded as visions (with a lon-ger time horizon) because sales forces

Figure 6: Drivers for change

Area Legacy New solutions

Back-office Product-oriented Customer-oriented

Front-office Fragmented/Siloedchannels Integratedchannels

Services Sales/Efficiency-oriented Customersatisfaction-oriented

Sales Reactive Proactive

View(Risk) Local/Differentiated Global/Integrated

Operations Peroffice Enterprise-wide

Processing Batch,manymanualactions Online/Real-time,STP

Architecture Product/Process-driven Service/Event-driven

Budget Decentralizedbudgetdiscretion CentralizedbudgetdiscretionAlignment IT-driven Business-driven

Europe Many different countries One European Union

#Banks Manydifferent(small)banks MergersandAcquisitions

market should grow at 4 percent perannum to reach 1.9 trillion in2017, barring unforeseen changes.The expected CAGR in 2006-2017 inthe mature markets is 2.5 percent and

in the remainder 6.4 percent. As aconsequence, the relative financialpower of the mature markets willweaken compared to the main highgrowth markets such as India orChina, which are growing at morethan 8 percent per year. Mature mar-kets, which will still account for65 percent of total retail banking in2017, will nevertheless remain of keyimportance to large banks in the yearsahead.

The market has seen a tremendouslevel of consolidation, especially inEurope. Of the list of leading Europeanbanks from fifteen years ago, only threeremain! Core systems replacement hasrecently emerged as an issue. Banksfeel increasingly limited by the capa-bilities of their existing core bankingsystems. The Datamonitor report enti-tled European Core System Strategies(April 2007) summarizes the key sur-vey findings, which can be broadlycharacterized as follows: lack of flexibility is causing the most

pain in banks current core process-ing applications;

technology influencers are still domi-nated by cost considerations as thetotal cost of ownership becomesincreasingly important;

complexity of implementation is akey challenge for retail banks.

2.3.2Wholesale/corporatebankingThe core banking market for whole-

sale/corporate banking is not as largeand as fast-changing as the corebanking market for retail banking.However, some trends are interest-ing. One is that a single core banking


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The most important drivers are com-pliance with all kinds of requirements,often with specific business terms: many compliance initiatives, for

example KYC, FATF7, SEPA and

the PSD; infrastructure consolidation and

collaboration, for example EBA,TARGET2, EMV and SDD;

SWIFT is developing the ISO 20022standard, and standard corporatedata is likely to emerge with thedrive for STP;

emerging standards for theCredEuro and SDD are not easilyreconciled with domestic standards(for example use of SWIFT MT103,

paper or electronic signature andconsumer protection standards),and consistency in implementationhas yet to be achieved;

Pan-European structures haveemerged for cards (Visa & M/C) aswell as for high-value payments(TARGET2) and retail payments(EBA STEP2);

as consolidation towards emergingstandards for transport, messagingand security gains momentum.

2.4.2 SavingsAs in many other markets, the some-what old and long-established savingsmarket is undergoing major change.

Whereas previously banks could offera simple and straightforward savingsproduct differentiated only on thebasis of interest rate, now a dynamicand increasingly competitive market,combined with a more demandingcustomer, is forcing banks to reinventtheir savings product strategies.

Primarily, the financial legislation land-scape continues to change as manygovernments worldwide are revisinglaws to open up markets and meet the


use very basic products to fulfill thedemanding targets in such growingmarkets. Basic improvements to busi-ness processes with adequate platformsare still crucial in banking operations

in these countries. Business issues andlegal and regulatory requirements areforcing banks to maintain a large num-ber of manual control steps which areno longer required in Central and

Western European countries.

2.4.1 Payments&cashmanagementCompliance, in particular SEPA - butalso mergers and acquisitions - andcost reduction are the main drivers forrenewal of back-office systems. Leading

banks, which previously saw paymentsas a back-office issue, are now tendingto bring payments much more to theforefront. The processing of payments,domestic and cross-border, with clear-ing houses and correspondents butalso with strategic sourcing, is at thetop of the boards strategy agenda. Thereason is very well stated in the WorldPayments Report 2007 of Capgemini:SEPA will accelerate PaymentsIndustry Transformation. To be amongthe major players in SEPA, a bank will

need to process at least five billionpayments transactions a year.Successful banks will convert theirdelivery models into open architec-tures, which will enhance their prod-uct offerings and support their neededflexibility.

Banks are looking to develop a unifiedand integrated payments infrastructure,which would essentially blur distinc-tions between various payment types:

check, cash, debit, credit and e- andm-payments. Payments need to be seenas transparent both to the organizationand the consumer.


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current standards for integrity, trans-parency, and duty of care. While onthe one hand this is causing banks torevise their current products andhence increase cost and competition,

it is also creating opportunities forthem to create new (combined) sav-ings products. Also, because barriersto entry are being lowered, specializedniche players focused on a specificarea such as savings are rapidly gain-ing market share. In some cases theseniche players are subsidiaries of foreignbanks, but an increasing number ofbanks are creating or acquiring them.

Additionally, and in part thanks to

Al Gore, worldwide media attentionhas created a trend towards bankingwith ethical banks that differentiatein terms of corporate social responsi-bility. Durable savings products havetherefore shown strong, steady growth,and banks are rushing to bring sav-ings products to market to capitalizeon this trend.

Apart from the popular topic of dura-ble savings, combinations with securityinvestments, bonus interest, pension

savings, and mutual fund savings arestill common. And while the reductionin the number of branches is slowlycontinuing, preference for internet sav-ings accounts is steadily increasing andpeople are moving their cash aroundmore easily to different accounts.

All-in-all, leading banks are beingforced to increase their range of savingsproducts and place greater emphasison product development. Targeting

multiple, segmented parts of the mar-ket with a high number of savingsproducts seems necessary in order tocontend with the competition. In anincreasingly risk-averse market, the

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need for savings products is forcingbanks to cope with higher volumesover a wider product range andrequires a greater focus on product,process and system development and

adaptation.

2.4.3 LoansandmortgagesUntil recently, mortgage offers haveincluded a wide range of implicitfeatures, with no provision for thecustomer to decline them. The devel-opment of a price-driven market isleading mortgage providers to makethese features more explicit and optio-nal for the customer. In return forfewer features (and less flexibility), the

customer gets a lower rate.

A second trend in the mortgage marketis the concentration in the intermedi-ary distribution channel, with resultingcomplications for the banking systems.

The third major trend in consumerfinance is a shift in the pricing strate-gy towards risk-based pricing. Thepersonal risk profile of a customerwill be the main factor for the price ofa product.

Finally, new legislation and regulationare having an impact on the productsoffered in the mortgage and consumerfinance domain.

All these trends require changes to thesupporting banking systems, such as: more transparent and understand-

able products due to national andinternational legislation and regula-tion;

break-up of the mortgage product

into elements that can be includedor excluded;

straight-through processing to meetthe demands of the concentrated


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buying power of intermediary orga-nizations;

reintroduction of the personal loan.Flexible credit lines have proved tobe too risky for some customers and

they want more controlled finance:the personal loan;

introduction of risk-based pricing.Each customer is offered a price inline with his personal risk profile;

new products such as tax-friendlybank savings, which enable banksto compete with insurance compa-nies in tax-friendly products.

2.4.4SecuritiesThere are a number of drivers of

change in the European securitiesmarket.

Regulatory changes, for example, willcome from multiple initiatives (market,local government and EU) towards anefficient cross-border securities clearingand settlement environment throughthe harmonization of: market rules and practices; regulatory, legal and tax differences.

The impact of the globalization of the

securities industry can also be seen inthe: creation of electronic trading plat-

forms (for example Turquoise andCHI-X);

increasing number of trading housestrading globally 24x7 requiringround-the-clock settlement;

consolidation of CSD and ICSDs; creation of BPO centers for securi-

ties operations activities; increase in multiple listings of secu-

rities; consolidation of stock exchanges

(Euronext-NYSE, et cetera); banks outsourcing their securities

operations activities; growing interest in Eastern

European securities markets.

Other drivers for change in the marketcan be found in the following initia-

tives: Target II Securities from the

European Central Bank. With thisinitiative the ECB creates a platformfor the cross-border and domesticsettlement of securities against cen-tral bank money (). The platformwill service the Central SecuritiesDepositories (CSDs) and will be runby the Eurosystem.

Euroclear groups single platform.With this initiative Euroclear Groupis consolidating the services pro-

vided by the group onto a singleplatform and harmonizing the vari-ous practices for settlement, custo-dy, payments, reference data andtax.




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This chapter gives an overview of thebiggest market players and the chang-ing landscape, illustrated by a show-case on mergers and acquisitions.

3.1 Banks worldwideThe six sections below are based onthe rankings presented in the 2007edition of The Banker magazinesrenowned top 1.000 World Banks(based on strength of tier-one capital).

3.1.1NorthAmericaTop-ranking banks in North America:1. Bank of America (USA)2. Citigroup (USA)5. JPMorgan Chase & Co (USA)

16. Wachovia Corporation (USA)18. Wells Fargo & Co (USA)

Although cracks are appearing inNorth American banking, US banksremained very profitable in 2006 and2007. However, Canadian banksshowed a higher return on their bank-ing capital than US banks.

3.1.2EuropeTop-ranking banks in Europe:3. HSBC (United Kingdom)

4. Crdit Agricole (France)8. The Royal Bank of Scotland

(United Kingdom)11. BNP Paribas (France)12. Barclays Bank (United Kingdom)13. HBOS (United Kingdom)17. UniCredit (Italy)19. Rabobank Group (Netherlands)20. ING Bank (Netherlands)

Compared to the banks in the UnitedStates, the growth in Europe has been

higher. Emerging Central and EasternEuropean banks differ from the largeestablished banks in Western Europe,although both sub-regions show the

same positive trend with regards toprofitability.

3.1.3AsiaTop-ranking banks in Asia:

6. Mitsubishi UFJ Financial Group(Japan)

7. ICBC (China)9. Bank of China (China)14. China Construction Bank

Corporation (China)15. Mizuho Financial Group (Japan)

The majority of banks in Asia are alsoshowing healthy growth in profita-bility. With two banks in the globaltop 10, China is leading in the region.

In parallel with the positive results inChina, other (new) successful banksare rapidly emerging in Asia. The bestof the rest is the Kookmin Bank inKorea (62).

3.1.4AustraliaTop-ranking banks in Australia:38. National Australia Bank59. ANZ Banking Group60. Commonwealth Bank Group71. Westpac Banking Corporation

While China and Japan are home tothe largest tier-one capital banks inthe APAC region, Australian banksremain rock-solid regional players.

3.1.5SouthAmericaTop-ranking banks in South America:54. Banco Ita Holding Financeira

(Brazil)64. Banco Bradesco (Brazil)73. Banco do Brasil (Brazil)

Banks in the South American regionshowed very positive profitability fig-ures in 2006 and 2007.

3 Global banking overview 2006 - 2007

1

In line with the current positive global economic environment, banks have

generally done well over the past year.


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3.1.6 AfricaThe top-ranking bank in Africa is:116. Standard Bank Group (South

Africa)

Whilst African banks have consider-ably less tier-one capital than the majorglobal players, developments in Africamatch up to the global trend in growthover the past year.

3.2 A changing landscape

Although very positive overall, thebanking landscape seems to be chang-ing rapidly. The mergers and acquisi-tion (M&A) and consolidation trend,both on a domestic and cross-border

level, is generally expected to continuein the near future. The M&A trend hasmaterialized in a number of interestingdeals completed in the last year, forexample: the acquisition of ABN AMRO Bank

by the consortium consisting of TheRoyal Bank of Scotland, Fortis Bankand Banco Santander;

the acquisition of LaSalle Bank byBank of America from ABN AMRO;

the acquisition of BNL by BNPParibas;

the acquisition of Capitalia byUniCredit in Italy;

the merger of Banca Intesa andSanpaolo IMI.

Interestingly, another trend is theinvestment of huge amounts of cash bynon-traditional, non-Western investorsin the financial services industry of the

Western world. The fourth quarter of2007 saw a number of investments byChinese and Middle Eastern entities in

European and North American finan-cial institutions, examples being: the Abu Dhabi Investment Authority

invested $ 7.5 billion in Citigroup,offering the largest US bank the

necessary capital in order to offsetbig losses from mortgages and otherinvestments;

Chinese insurer Ping An acquired4.3 percent of the share capital of

Fortis and appointed a member tothe Supervisory Board.

3.3 Showcase: ABN AMRO

acquisition

The changing landscape referred toearlier applies very much to theNetherlands. From 1991 to 2007,

ABN AMRO was one of the largestbanks in Europe and had operationsin about 63 countries around theworld. Originating in the Netherlands,

its history dated back to 1824. A con-sortium of three European banks, TheRoyal Bank of Scotland Group, Fortisand Banco Santander, announced onOctober 8, 2007, that an offer for86 percent of outstanding ABN AMROstock had been accepted, paving theway for the largest ever bank takeoverin history.

The dismantling of ABN AMRO hascommenced after many months ofuncertainty about its future. Events

started when in February 2007 TCIhedge fund asked the ABN AMROSupervisory Board to actively investi-gate a merger, acquisition or break-upof ABN AMRO, since, in its opinion,the market capitalization of ABN

AMRO did not reflect the value of theunderlying assets.In April 2007, ABN AMRO andBarclays announced the proposedacquisition of ABN AMRO by Barclays.The deal was valued at 67 billion

and included the sale of the LaSalleBank to Bank of America for 21 bil-lion. A few days after the joint announ-cement by Barclays and ABN AMRO,the consortium issued their indicative

Global banking overview 2006 - 2007 1

offer, which at that time was worthapproximately 72 billion.

A precondition of the offer was thatABN AMRO would abandon its sale ofLaSalle Bank to Bank of America.

However, during the shareholdersmeeting on the following day a majori-ty of the shareholders voted in favor ofthe sale of LaSalle.In July 2007, Barclays raised its offerfor ABN AMRO to 67.5 billion. Itdid so after securing investments fromthe governments of China andSingapore. The offer remained belowthe offer made by the consortium inthe previous week. At the end of July2007, the ABN AMRO board withdrew

its support for the Barclays offer, whichwas lower than the offer by the groupled by RBS. The board stated that itcould no longer recommend the offerfrom a financial point of view.

At the beginning of October, Barclayswithdrew its bid for ABN AMRO and,with 86 percent of the shareholdersaccepting the consortium bid andFortis completing its financing, theconsortium was able to formalize itsoffer and take control of ABN AMRO.



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4.1 Introduction

This chapter provides an overview ofthe market for core banking systems.

We begin by providing a brief historyof the market. How was this market

shaped?

We continue with the developmentssince the previous version of this sur-vey, dating from 2006. What hap-pened in 2006 and 2007? What acqui-sitions and alliances took place?

Which partnerships broke up? Whowon the major deals and are there anynew challengers emerging?

Finally, we take a look into the future.

What are the trends in vendor solu-tions, functionally and technically?Where do we feel the market will go?

4.2 History of core banking

systems

The first core banking solutionsappeared in the 1970s in the UnitedStates. Most of them ran on main-frame computers and were designedby the banks themselves or by thirdparties in conjunction with the largeUS banks. Limitations to exporting

these systems outside the US werethat these were mainly single-currency-based as they were designed for theUS market only. In the 1980s, thesesolutions moved to all continents,mostly as a result of following themajor US banks such as Citibank.

During the 1970s, 1980s and most ofthe 1990s, packaged banking solutionsflourished in international operations.For domestic retail operations, howev-

er, most large banks preferred to staywith the systems they had developedin-house. Some brave top-tier institu-tions did try replacing the in-housesystems with package solutions cus-

tomized by top-tier banks, but theseefforts consistently failed.

In the 1980s, we saw package solu-tions coming from other parts of the

world, primarily Europe, Asia andAustralia. Vendors with a different butcomparable background also enteredthe arena, for example the private bank-ing solutions developed in countriessuch as Switzerland and Luxembourg.Because - due to the nature of theirbusiness - these were more customer-focused than the transaction-oriented,transaction-crunching engines avail-able before, they had a natural fit withthe customer centricity that was com-

ing increasingly into focus. Limitationsof these systems mainly had to do withthe ability to handle large volumes.

The 1990s saw new players emergingin India, benefiting from the openingup of the Indian economy, the avail-ability of English language skills, andthe huge pool of highly skilled engi-neers. i-flex solutions (and its legalpredecessor CITIL) can be consideredas the first successful software productcompany from India that managed to

sell outside the Indian subcontinent. Itwas followed by the likes of Infosysand Tata Consultancy Services (TCS) -companies that originally focused moreon providing off-shoring, consultingand outsourcing services but movedinto the software product business -and later by other product companiessuch as Polaris Labs and Nucleus.

At the end of the 1990s, new playersmade their entry. ERP giants such as

SAP and IBM started entering the mar-ket (following a strategy of organicgrowth and development and with apresence at the heart of the accountingdomain in many banks), followed a

1

4 Vendor solutions

When did core banking become a market for vendor solutions, and what

generations of solutions have there been?


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few years later by Oracle (through theacquisition of i-flex solutions andSiebel and aligning these to their tech-nology and application strategies).

In the overview in figure 7, the histo-ry of core banking solutions is givenin terms of decades, with details ofthe origination of core banking sys-tems.

4.3 Recent market developments

Increasingly, the core banking marketis hot, and since 2005 (our previousedition of this survey) the market hasseen a great deal of movement. A lot

of concentration has taken place, bymeans of mergers, acquisitions, strate-gic alliances and cooperation agree-ments, see figure 8. The followinggives an overview of the major devel-

Figure 7: Core banking solutions - history

Fidelity

Misys

Fiserv

TCS (TATA)

Sungard System Access

Accenture

T-Systems

Callatay & Wouters

Tietoenator

Temenos

Delta Informatique

SAP

I-Flex

Infosys

Nucleus

Polaris

1980s 1990s 2000s1970s

Source in the United States

First backoffice systems

Build in house, third party

Evolved to first packages

Take-overs/shake-out

Entrance new players

Replacing first systems

Failed to replace core

Move to all continents

Booming business

Follow banks oversea

Failed to replace core

Important sources India

Replacing core banking

Customer focus

Outsourcing

Equation

ICBS

Profile

Midas

SystematicsCorebanking

Bancs

Symbols

Alnova

Thaler

Core Banking Suite

T24

SAP Corebanking

Flexcube

Finacle

TCB

Delta Bank

Finnone

Intellect suite

Vendor solutions 1

opments in the core banking marketfrom 2006 onwards:

Fiserv completed the acquisition ofNetEconomy, the global provider of

technology solutions for anti-moneylaundering, fraud prevention, andcompliance, based in theNetherlands.



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Fiserv also acquired Checkfree, aprovider of financial electronic com-merce services and products includ-ing electronic bill payment andinternet banking.

Oracle completed the acquisition ofSiebel Systems (customer relation-ship management solution provider)and Hyperion (performance man-agement solution provider). It also

raised its stake in i-flex to over80 percent.

Oracle announced the formation ofits Financial Services GlobalBusiness Unit, which would providean integrated suite of standards-based, industry-specific applicationsfor banks, insurance companies andcapital market firms. The unit is ledby Rajesh Hukku, founder, formerCEO and now Chairman of theBoard of i-flex solutions.

i-flex solutions acquired Mantas, aUS provider of anti-money launder-ing and compliance technology.

SAP and Accenture ended their stra-tegic cooperation in the bankingdomain.

SAP acquired Business Objects. Thecompanies believe that customers

will gain significant business bene-fits through the combination ofnew, innovative offerings of enter-prise-wide business intelligencesolutions along with embedded ana-lytics in transactional applications.

SAP and Callata & Woutersannounced collaboration betweenthe companies to offer an end-to-end core banking solution for mid-size banks to build a business pro-cess platform, based on SAP soft-

ware and technology. interestingly, Misys also announced

a strategic alliance with SAP todeliver an integrated banking sys-tem based on its BankFusion tech-nology, which will run on the SapNetWeaver platform.

Tata Consultancy Services (TCS)consolidated its financial productsbusiness into a new StrategicBusiness Unit, TCS FinancialSolutions.

TCS also announced the completion

of the acquisition of its Switzerland-based partner TKS-Teknosoft (TKS),expanding its portfolio of bankingproducts and consolidating itsEuropean operations.

Temenos and Metavante haveentered into an agreement wherebyMetavante will distribute theTemenos CoreBanking platform inthe US. Temenos will retain royal-ties on license and maintenancefees, outsourcing fees and profes-

sional services revenues. Metavante,one of the three largest US banktechnology and payment-processingfirms, will have exclusive US accessto a co-developed global software

20

Figure 8: Vendors revenues

0%

> 10 billion Euro

1 - 9 billion Euro

100 - 999 million Euro

10 - 99 million Euro

10% 20% 30% 40% 50%


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platform for the US market that isbased on TCB.

T-Systems acquired MBS of Alldataand GEOS of SDS, but has not hith-erto sold it outside the German-

speaking market.

4.4 Recent developments in

package solutions

The core banking systems area isbecoming more and more mature,with packaged solutions increasinglyattaining a functional richness thatwas previously available only fromin-house legacy solutions. They arealso attaining a technical and organi-zational level that meets the business

expectations in terms of agility, timeto market and operational support.

Although the argument that corebanking functionality is fast becominga commodity is valid, the means tosupport banking functionality in theback-office is changing. Businessexpectations for rapid time to marketfor products, and the correspondingoperational support, are quickly out-stripping the capacity of developmentorganizations to facilitate change.

Most of this is due to trapped,line-of-business logic buried in appli-cation-specific legacy environments,says Gartners Don Free. The matura-tion of middleware messaging archi-tectures, the evolutionary path to serv-ices and event-driven constructs andnew development techniques, such asservice-oriented development, aresimplifying maintenance and supportof products while reducing volatilitycommonly associated with the intro-

duction of new products and services.Some core banking vendors arealready progressing quickly to achievecomponentization of their back-officeofferings.

FunctionalityOn the functional side, we have notseen any fundamental change in thefunctionality required from core bank-ing systems. This means that many

core banking system vendors havebeen able to bridge the functionalitygap between them and the leadingplatforms. Some vendors have beenable to improve the volume-processingcapabilities of their functionally broad-er or more advanced systems.

As a result, advanced functionality thatwas previously limited to private bank-ing clientele, for example, is now avail-able in core banking systems that areable to handle the volumes commonly

arising in the mass retail banking mar-ket.

TechnologyOn the technical side, we have seena move away from dependencies onhardware platforms and operating sys-tems. The vendor offerings conse-quently have access to a larger mar-ketplace. Conversely, it has givenbanks access to a much larger set ofvendors and solutions. Banks canoperate core banking systems on their

platform of preference. Some banksprefer to stay on their well-embeddedand reliable mainframe infrastructure.Others move to highly scalable com-modity platforms, freeing them from alock-in to an increasingly small set ofexpensive mainframe specialists.

Messaging,serviceorientationandarchitecture

With regard to business expectations,the expectations for rapid time to

market for products and the corre-sponding operational support arequickly outstripping the capacity ofdevelopment organizations to facilitatechange. This is leading to major devel-

Vendor solutions 21

Althoughtheargumentthatcore

bankingfunctionalityisfast

becomingacommodityisvalid,

themeanstosupportbanking

functionalityintheback-officeis

changing.Businessexpectations

forrapidtimetomarketfor

products,andthecorrespond-

ingoperationalsupport,are

quicklyoutstrippingthecapacity

ofdevelopmentorganizationsto

facilitatechange.Mostofthisis

duetotrapped,line-of-business

logicburiedinapplication-

specificlegacyenvironments.

Don Free

ResearchDirectorBanking

Gartner



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opments in the core banking area,namely messaging, service orientationand architecture. Messaging middle-ware has become a de facto standard.Service orientation and loose event-

based coupling have become part ofmainstream thinking. We have seenthe arrival of the first business processframeworks for banking. Businessprocess modeling and orchestration ison the rise. All this will give banks agreat deal of freedom. A bank can buythe services that are available on themarket from vendors, service-enableexisting legacy systems or create itsown services in areas where it feelsthis gives the bank an advantage in

the market. And it can outsourcewhen it feels that a service is not itscore competence! We have seen vend-ors coming up with strategies in thisarea in the last two years and we havealso seen the first resulting products.

4.5 Competitive landscape

As part of the survey, we asked theparticipating vendors to tell us whichvendors and solutions they considerto be their main competitors. The fol-lowing figure lists the answers to this

question, see figure 9.

4.6 Future of the market

In the past, there were a large num-ber of specialized solutions in themarket. Some were strong in accounthandling, others strong in wholesaleor retail lending and finally therewere separate financial accountingsolutions. All these packages hadtheir own, proprietary architecturalfootprints.

Nowadays there seems to be a movetowards alignment with the architec-ture stacks and frameworks of the ERPgiants SAP and Oracle in this market.

Figure 9: Identified competitors

Vendor What are your major competitors?

AccentureCallata & Wouters Temenos

i-flex solutions

Delta Informatique i-flex solutions

Fidelity (Corebank) i-flex solutions

TCS

Fidelity (Profile) i-flex solutions

Temenos

TCS

Fiserv

In-house development

Fidelity (Systematics) Fiserv

Metavante

CSC


Fiserv Infosys

i-flex solutions

Misys

Temenos

SAP

I-Flex Temenos

Infosys

Misys

SAP

Infosys Temenos

SAP

i-flex solutions

Misys Temenos

i-flex solutions

NucleusPolaris Temenos

i-flex solutions

SAP AG i-flex solutions

Temenos


SunGard i-flex solutions

Temenos

Path Solutions (Islamic Banking)

Misys

TCS

Infosys

TCS i-flex solutions

Temenos

Temenos Fidelity

Infosysi-flex solutions

TietoEnator

T-Systems Kordoba

Fiducia

22


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Alongside the core banking offerings ofthe ERP giants (or subsidiaries), mostindependent vendors are aligningthemselves to one of these platforms.

This should deliver the additional bene-fits promised in some of the initiativesof these ERP giants: embedded busi-ness intelligence, integrated customerrelationship management, integratedfinancial accounting and reporting andintegrated risk management, regulatorycompliance and fraud detection.

So far we have seen Misys andCallata & Wouters deciding on astrategic cooperation with SAP. i-flex

solutions obviously aligns itself to theOracle stack.

Fiserv has integrated business intelli-gence, customer relationship manage-ment, and integrated risk manage-ment, regulatory compliance, andfraud detection, which can be com-bined with financial accounting andreporting capabilities from within theFiserv group of companies.

Vendor solutions 2

Figure 10: Best of breed solutions

Domain Vendor Solution

Payments ACIWorldwideDovetailSystemsFundtechCBAClear2Pay

TietoEnator

ACIPaymentsFrameworkDovetailSystemsGlobalPayPlusIBASOPFGlobalPaymentsSolution

Lending FidelityMisysSS&CBAI

AFSNucleus

ACBSLoanIQLMSLoanSuiteComponentBanker

AFSLendingSolutionFinnOne

Securities T-SystemsADPDSTSS&CSungard

GeosGloss&TarotHiPortfolioDifferentsolutionsDifferentsolutions

The Indian pure players have so farchosen to remain agnostic in thisrespect and have come up with SOAand BPM stacks of their own.

4.7 Specialized best of breedsolutions

Besides the core banking solutions,there are also some very good special-ized solutions in specific domains.Figure 10 lists some of these in thedomains of Payments, Lending andSecurities.



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The four main stages are: Make or buy Selection Implementation Operation

In all this, architecture is one of thekey elements. Capgeminis Integrated

Architecture Framework (IAF) is ourapproach that addresses all the aspectsrequired by enterprise architecture inorder to integrate business and infor-mation technology change. In the nextsection, we give an overview of IAF,after which we continue with thestages as defined above.

5.1 Integrated ArchitectureFramework

The Integrated Architecture Frame-work (IAF) is Capgeminis approachthat addresses all the aspects required

by enterprise architecture in order tointegrate business and informationtechnology change.

IAF itself is a content framework that

defines the possible deliverables with-in an architecture engagement. Theframework is supported by referencearchitectures and patterns, whichserve as a solid foundation for fast andefficient elaboration of enterprise archi-tectures. Within engagements, thearchitect uses roadmaps to define howit is run and how the specific clientobjectives are met.

Therefore, there is a separation in IAF

between the content and the approachwithin an architecture engagement.The major structure of IAF can beoutlined as follows in figure 11.

5 Package-based solutions

Figure 11: IAF - Integrated Architecture Framework

Artifacts & views Artifacts & views Artifacts & viewsPhysical

WITH WHAT?Artifacts & views

BusinessTechnology

infrastructureInformation Information systems

Security

Contextual WHY?

Governance

Artifacts & views

Artifacts & views

Artifacts & views

Artifacts & views

Artifacts & views

Artifacts & views

Artifacts & viewsConceptual

WHAT?

LogicalHOW?Artifacts & views

24

For the successful implementation of package-based solutions, you can

distinguish four main stages.


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IAF addresses four architecture aspectareas: Business (B), Information (I),Information Systems (IS), and Techno-logy Infrastructure (TI). An aspect arealooks at one system from a specific

standpoint. The topics addressed ineach of the aspect areas may differ,but there are strong interdependenciesbetween each of the aspect areas.Ideally, all aspect areas must be incor-porated in the architecture design toensure its usability as a single system;omitting any of the aspect areas intro-duces additional risk.

Developments in business and tech-nology often require special attention

to the architecture design. Within IAFthis is translated into two specializedviews: governance and security. Bothspecialized views emphasize the quali-ty aspect of the architecture and areselected parts of the aspect areas.

IAF recognizes four levels of abstrac-tion: contextual, conceptual, logical,and physical. The first, contextual, isfor answering the why question andto provide context information andkey principles that support the value

proposition for the architecture to bedeveloped.

The benefits of using IAF include: The architecture is defined by and

justified in terms of business needs.There is a direct link between thebusiness and its supporting IT. IAFis a key prerequisite for business-ITalignment.

The architecture is maintainable,thus maximizing the original invest-

ment by the business. It can be usedas a basis for capacity planning andcontrol.

IAF ensures completeness of thedesign.

IAF reduces the risk of losingrequirements between the phases.

IAF provides an approach for Enter-prise Application Integration (EAI).

IAF has proven consistency with the

latest software delivery methods suchas the Rational Unified Process (RUP).

5.2 Stage 1: Make or buy

A major consideration for banks with

a demand for system replacement iswhether to build it in-house or buy anoff-the-shelf package. Most large bankshave until recently preferred the in-house route, on the basis that corebanking systems are responsible forthe most critical tasks of bank opera-tions and require complete and ulti-mate control by the bank. Therefore,they did not want to rely on vendorsolutions for managing accounts andprocessing transactions.

A bank has several options for its corebanking systems, with the most appro-priate option being based on its driversand the relative effect on its KPIs:

Donothingbutcontinuethenor-malmaintenanceonthecurrentsystem(s).For the old legacy systems thismeans that maintenance costs andrisks will increase significantly astime passes, so another decision will

normally have to be made in thenext few years.

Developanewsystemin-house. Although cost and risk may well rulethis out, this is still the biggest com-

Make or buy Selection Implementation Operation

Package-based solutions 2

Making a clear and strategic

choice in this phase is essentialbefore entering the package

selection phase.



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petitor, mostly because of the influ-ence of the IT department, and fromthe end-user perspective the numberof changes will be limited. If thisalternative is chosen, risks can be

mitigated by opting for approachesbased on service-oriented architec-ture or model-driven architecture.

Procureapackagedsolution. The challenge of this option is tofind a packaged solution that is suit-ably scalable and that will integrateinto the banks technical environ-ment. Plug-and-play packaged solu-tions provide flexibility in productdevelopment and deployment and

enable lower cost developmentthrough buying commoditized devel-opment services from third-partysuppliers. Changes in the currentprocesses are unavoidable in order tobenefit from the strengths of a pack-aged solution. Choosing a packagedsolution makes it possible to takeadvantage of functionalities devel-oped for other banks. This makes itpossible to benefit from these func-tionalities within short timeframes.

Outsourcetheservice. The challenges of this option are tointegrate with and manage such aservice. Outsourcing can offer waysto defray capital costs and reducerisk. Outsourcing can be based onthe companys own solution or a(new) package. The size of the bankis likely to influence which option ispreferable. Alignment between ownand outsourced processes is essen-tial and they are managed via serv-

ice level agreements.

Making a clear and strategic choice inthis phase is essential before enteringthe package selection phase.

5.3 Stage 2: Selection

5.3.1MethodologyCapgeminis well-proven system selec-tion methodology has been appliedfor leading customers in the financialservices industry around the worldand has minimized the risks involvedin system selection. Selecting the rightsystem can make an enormous differ-ence in terms of market offerings and

process efficiency.

In this section, we give a brief over-view of Capgeminis system selectionmethodology, see figure 12.


Figure 12: Delivery selection method

Start up

Milestone

Time

Phase 1

Phase 2

Phase 3

Phase 4

Phase 5

Phase 6

Define short list

Evaluate

Validate(optional)

Approved project plan

Approved long list

Approved short list

Preliminary choice

Validated package

Implementation

Confirm andfinalise preferred

solutionGo/no go

Focus & direct

2


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It has been developed and continu-ously refined over a number of yearsas a refinement and adaptation of gen-eral system selection methodologiesfor the specific needs of the bank and

other financial service institutions.The package selection method is usedto select a software package that bestmatches the business needs of the cli-ent. The method supports and objec-tifies decision making with respect tosoftware selection and consists ofseven streams and five phases.

The starting point of the method is abusiness requirement to automate abusiness functionality by using a stan-

dard software package. Standard soft-ware is defined as a software packagethat is supplied by a software vendorand has 80 percent of the requiredfunctionality out of the box. A stan-dard software package may be highlyparameterized. Therefore, a large set-up may be necessary to achieve the80 percent of productive functionality.The method can be used to select oneor a combination of software packages.

The selection method is used to devise

objective criteria so that the decisionprocess is rationalized. Besides sup-porting the decision making process,the package selection method pre-pares the organization for the imple-mentation of the software package.

A properly executed package selectioncan save a lot of time during imple-mentation of the package!

Start-upThe purpose of the start-up effort is to

ensure that sufficient resources areavailable to the project, so that a clearplan with deadlines is in place, themembers of the project team areaware of their responsibilities, and

that there is sound management buy-in to the project.

Focus and directThe focus and direct phase scopes the

package selection project, answeringthe questions as to why the businesswill start the project, what goals thebusiness will attain, what approachwill be used by the project to attain thegoals and what the limits of operationof the project are. While the start-upphase has a strong focus on preparingthe - organizational - conditions forconducting the project appropriately,the package selection project starts inearnest with the focus and direct

phase. The focus is business-oriented,or one might say content-oriented.

Define shortlistIn this phase the project team tries todeliver a shortlist of three to fivepackages which most closely matchthe current and future requirementsspecified by the organization. After along list of packages has been drawnup, with the aid of the Capgeminipackages database, a Request forInformation (RFI) is sent to these

vendors. Based on the answers to theRFI, a shortlist is drawn up which willserve as the basis for the remainder ofthe selection process.

EvaluateThis phase provides the package eval-uation process. During this packageselection phase, the project team willconduct a thorough review and analy-sis of several potential short-listedsoftware tools which meet the clients

business requirements and enable thedesired business processes. This phaseends with one preferred potential soft-ware tool which meets the clientsbusiness requirements.




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port in the future. It is essential toselect a system that not only supportsthe current situation, but also allowsthe organization to respond to futuremarket demands and change its value

proposition and customer experienceaccordingly.

An important aspect is the choice ofan integrated system or a best of breedinfrastructure. Smaller institutions willoften have a preference for integratedsystems. A well-chosen system pro-vides all the necessary functionality,causes not too much trouble withinterfacing and innovation, and issupported by the vendor. Large andsophisticated banks, however, will opt

for a best of breed infrastructure. Nosingle system totally covers theirrequirements, so they have to choosespecific software components for spe-cific functionalities.

A solid architectural basis is key inthese cases. These infrastructures intro-duce the need for a middleware com-ponent. This is vital, since it reducesthe interfacing issues to a minimumand guarantees flexibility in a complexenvironment, see figure 13.

2

ValidateIn the validate phase, the packagesolution will be tested in full practice.The provider will have to install thesystem in a clients test environment.

The reason for doing this is to elimi-nate the final uncertainties.In the previous phase, a short valida-tion of the package is included as partof the package selection. This shortvalidation may be a proof of conceptin which specific functionality is test-ed. This test is included to ensure thatthe package can be parameterized orextended to support the requiredfunctionality. This short test is notused to test all functions of the pack-

age. The validate phase is included forthe checking of all functions. To startthis phase, the client signs a letter ofintent. In this letter of intent hedeclares that he will purchase thepackage subject to a positive valida-tion in this phase.

This validation phase is optional. Inmost situations, all the informationgathered in combination with a shortproof of concept in the evaluationphase will be sufficient to reach a

decision.

Confirm and finalize the preferredsolutionThe objective of this phase is to getthe final sign-off of the package selec-tion project. With this sign-off the cli-ent agrees to the solution as advisedby the project team.

5.3.2IntegratedorbestofbreedThe selection of a core banking sys-

tem is a strategic decision with long-term implications. The future businessvision needs to be established in orderto determine what business setting thenew banking system will have to sup-

The selection of a core banking

system is a strategic decision

with long-term implications.

Figure 13: Best of breed or integrated solution

Best of breed(multiple systems)

Integrated solution(one system)

Pros A dv an ce d fu nc ti ona li ty N o in te rfa ce s in t he t ran sa ct ion f lo w

Switchingpartsofthesystemsarchitecturegiveslowercosts

Makesreportingeasieracrossthetransactionflow

Lessdependenceononevendor Easiermaintenanceofdatabases

ConsImplementationandmaintenanceiscomplicated

Doesnotcoverallfunctionalityrequirements

Multipledatabasesoftencauseinconsistentdata Specializedsystemsoutsidetransactionflowmightbeinevitable

Overallhighercostsforlicenses Replacingthecompletesystemarchitectureresultsinhighercosts

Vendorshavetocooperateduringimplementation


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5.3.3 SelectioncriteriaSystem selection does not mean choos-ing a system with the most extensivefunctionality. It is a dynamic processin which different selection criteria

must be matched with existing andfuture business processes and systemarchitectures. There should be a matchbetween the business processes, thesystem and the organization.

The system selection process must bedriven primarily from a business per-spective, rather than being treated as achoice between change and improve-ment of the current state. Any emo-tional bias towards an existing solu-

tion will introduce hidden variablesthat influence the decision.

VendorSelecting a core banking solutionshould not be a tactical, point-driven,decision making effort. It is entirelystrategic and vital to the long-termhealth of the bank. The viability of avendor is therefore a crucial elementin the search for a replacement sys-tem. Analyze a vendors viability, not

just in terms of financial stability, but

also by scrutinizing technical compe-tence, development capability, qualityof support, marketing and sales reach,alliances and partnerships, and man-agement performance.

Support and ServicesPart of selecting the right vendor ishaving a good understanding of thesupport and services a vendor pro-vides during the implementation proj-ect and once the solution is in produc-

tion. What is the release and upgradestrategy? How are new requirementsincorporated in the solution? Whattypes of consultants are available dur-ing the implementation project?

Implementation and migrationOne of the most compelling areas of abanks analysis lies in the implementa-tion practice of the vendor. Failure toperform due diligence regarding ven-

dor project management capabilitieshas the potential to drive implementa-tion costs exponentially and dispiritbank staff.

It is vital to talk with a vendors cus-tomers to gain real world experienc-es. Vendors will have their targetedlist of references for use in the salescycle. It is important to talk withbanks that have similar profiles - howthey use the system and matching

scale - to gain a more balanced per-spective. However, be aware that thebanks on these lists often receive pref-erential treatment from the vendor.

Functional aspectsFunctionality is the most important cri-terion in the system selection process.

When evaluating a systems functional-ity in relation to the needs of thebanks business, it is imperative to con-sider not only the current needs andfunctionality, but also future needs, as

well as the vendors policy towardsupgrades, changes, and additions.Functional aspects vary between finan-cial institutions with different strategiesand different commercial activities.

Technical aspectsThe organizations existing technicalinfrastructure and capabilities limitthe choices. Adding new componentsto an existing technical architecturecan substantially influence operational

and maintenance costs. Technical pre-conditions for the selection process,based on IT and business principles,can be defined in the terms as shownin figure 14.




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Business valueReturn on investment (ROI) is animportant criterion, but does not solelydefine the true value of IT investments.

A more practical measure is the busi-

ness value of IT that takes ROI intoconsideration as well as other impor-tant factors, such as strategic alignment,architecture, risk, and business processimpact.

SecurityThe assessment of a solution in termsof its fit with the banks internal secu-rity standards helps to prevent a lot ofdiscussion during the implementationproject. By involving the departments

responsible for the security aspects,any gaps can be properly identified.These gaps can either be filled by thevendor in its next release, or resolvedby specific activities during the imple-mentation project.

5.4 Stage 3: Implementation

5.4.1MethodologyTo implement the package on a solidbasis, the best option is to use a struc-tured approach based on best practices.Capgemini offers an implementationmethod and a multi-site implementa-tion framework, which can also becombined.

RAPID

The Redesign through ApplicationPackage Iterative Development(RAPID) method resides between theextremes of just implementing a pack-

age using current state processes andblank sheet innovation.

This method is intended to be usedon projects where a significant degreeof redesign around core/strategic pro-

cesses is desired, with a package serv-ing as a primary enabler of that effort.At this point, the package has alreadybeen selected. The method includescomprehensive guidance to deal withthe organization design and changemanagement issues inherent in apackage-based engagement.

RAPID strives to accelerate the speedto value by focusing the redesigneffort on those processes that willyield the greatest value to the organi-zation while adopting the packageprocesses in non-core/strategic areas.The business case serves as thebenchmark by which value is mea-sured. Key project decisions shouldbe evaluated based on their quantita-

tive benefit versus qualitative opin-ions on what is critical to the organi-zation.

Figure 14: Principles

Business principles IT principles

Multi-language Scalability

Multi-channel Technicalplatform,hardware,operating system

Multi-brand(whitelabeling) Serviceandmessagearchitecture

Flexibilitytoproductchanges Flexibilitytotechnologychanges

0

To implement the package on

a solid basis, the best option is

to use a structured approach

based on best practices.



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RAPID draws on leading practices,innovative deliverables, and lessonslearned from our most successful ERPprojects to improve quality and accel-erate results. There are several

Capgemini differentiators that havebeen included in RAPID to ensure thesolution provides speed, value, andquality. Some of the major areas arenoted below: Accelerated Workshops: the method

recommends the use of AcceleratedWorkshops to improve the speedand quality of the project. These ses-sions provide a major differentiatoras compared to all our competitors,and can accelerate the time to the

first go live. This unique approachdramatically accelerates the project,compressing months of work intodays of intensely focused effort.

Development Centers: we stronglyurge all projects to utilize our off-shore Delivery and DevelopmentCenters to accelerate our time to deliv-ery. Using offshore centers also pro-vides a reduced cost for the project.

Project Management Method: ourproject management method is acomplete end-to-end project man-

agement method. Within RAPID, allactivities that have been identifiedas project management activities are


linked directly with the projectmanagement method, see figure 15.

To conclude, through RAPID,Capgemini offers the following key

benefits in implementing packagedsolutions: RAPID is a comprehensive and well-

tested route map covering all aspectsof a large package implementation,where the package is seen as anenabler of business change.

The main characteristic of RAPID isits business-oriented approachtowards large-scale IT projects,ensuring that business goals areused as a yardstick of success

throughout the engagement. RAPID integrates people, processes,

and technology aspects within itsmain phases of solution definition,solution development, and imple-mentation.

RAPID ensures process innovationand improvement and reducesdelivery time and risk.

MIRThe objective of a Multi-siteImplementation and Roll out (MIR)

initiative is to enable an organizationto adopt a consistent approach to itsbusiness processes, by delivering realbusiness benefits through the con-trolled implementation of a commonenterprise system to multiple locationswithin a business sphere of influence.

The Multi-site Implementation andRoll out framework is used when apackage or a specific solution needs tobe implemented at a number of sites

(international or otherwise) within anorganization. MIR is Capgeminis serv-ice offering to manage such large-scaleprograms, regardless of the type ofsystem implemented.

Figure 15: The Capgemini methodology for a package implementation

Project management

Build-to-run transition

Project

initiation

Solution

definition

Solution

development

Implemen-

tation

Post-

Implemen-

tationsupport

RAPID



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MIR is specially developed for a rollout of a solution at multiple locations(branches, countries, regions), seefigure 16.

The specific objectives of the MIRframework are to: provide a flexible delivery structure

which can be easily tailored to suitany specific client situation;

help in delivering integrated services; lower risk of failure; provide a platform for operating

units to share and leverage bestpractices to support the framework.

An important part of this method is apilot in one location and, afterimprovement, a roll out to the otherlocations.Implementation features to define aMIR initiative include: Multi-site implementation: not nec-

essarily international, but ten ormore sites at different levels fromupper global or coordination levelto local or users site level.

Business changes will be involved:they are not necessarily a businessprocess re-design initiative, but aremore than the traditional/simplealignments to allow the use of a

new IT solution. Implementation of an IT solution

within the involved organization:this generally includes more thanone company or legal entity, andcan even be extended to suppliersor contractors involved in the cli-ents organization.

Need for an extended support struc-ture at multi-site level: this includesnot only the traditional IT supportand maintenance organization, but

also all human resources to beinvolved at the different levels fromglobal project office level to localimplementation site.

Need for customization at the vari-ous levels involved: this couldinvolve customization and adapta-tion from a corporate or coordina-tion level to different localized ver-sions at the users site level. This alsoincludes the needs related to config-uration management of the IT solu-tion, as well as its version manage-

ment, and can also lead to a furtherapplication management effort.

Training needs at various levels: thisis not to be limited to the new sys-tem training at IT level, but shouldinclude all types of education andtraining needs allowing harmoniousoperation with the new organiza-tion. Training should be extendedto cover new organization and busi-ness processes. Training is necessaryin the different steps of a program

and includes the training for theproject teams, implementers, train-ers, end-users, et cetera.

Change management in the broadestsense: this should include all aspects

Figure 16: The Capgemini methodology for a roll out at multiple (local/global)

locations

Business

IT

Support

Management

BusinessVision

SolutionDesign

ProgrammeReadiness

CoreSolution

Pilot

Deployment

Improvement

2


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related to how to manage the chang-es in the organization at the variouslevels. This includes the levels fromGlobal to Site, business-relatedaspects (such as organization, human

resources, business processes, etcetera), as well as IT-related aspects(change requests for the core solu-tion, version and configuration man-agement, application management, etcetera), and support aspects.

5.5 Stage 4: Operation

After the implementation, the actualoperation starts. At the beginning,employees and management have veryhigh expectations of the newly chosensolution. But these can easily be dam-aged. Production problems will occurand requirements will change overtime. It relies on a well-thought-outmaintenance phase and support byboth supplier and internal experts.

Various options for maintenance areavailable. You can decide independent-ly on both the way in which the main-tenance entity is organized and thelocation of this entity. Both elementscan be combined in all kinds of ways.

5.5.1Organization

In-house departmentIT infrastructure, release management,testing and customer support are

managed within the company. Thisrequires the availability of employeeswith first-line technical and functionalexpertise in the package. The suppliercan provide second-line support. This

option is preferred if the applicationincorporates many tailor-made solu-tions and interfaces.

Outsourcing

In this option, the bank delegates theactivities to a third-party entity thatspecializes in that operation. Theactivities can range from pure hard-ware operations to complete businessprocesses. There are some specializedforms of outsourcing companies:Application outsourcing

- Software as a Service (SaaS). Theservice provider manages and dis-tributes software-based services

and solutions to customers over anetwork. There are differenttypes of SaaS constructions,depending on the responsibilitiesof each party.

Process outsourcing- Shared Service Center (SSC). A

shared service center is a profes-sional organization, executingspecific business functions for(internal) clients. The same func-tions are executed as in the firstoption, but now they are shared

with one or more other depart-ments. The main objectives arecost efficiency through economiesof scale and improving quality.Shared service centers areaccountable for the services sup-plied. The main disadvantage isthe dependency on the other par-ties.

- Transaction Bank. A specializedcompany for processing specificoperations (for example payments

or securities processing) from abank. Key words are automation(replacement of labor-intensivework), standardization (elimina-tion of complexity costs), and

Package-based solutions

Production problems will occurand requirements will change

over time. It relies on a well-

thought-out maintenance phase

and support by both supplier

and internal experts.




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economies of scale (better lever-age of fixed cost and R&D cost).These are the same activities/pro-cesses in each financial institu-tion. The Transaction Bank is

often a joint venture between anIT company and a number of par-ticipating banks.

- Business Process Outsourcing(BPO). BPO is the contracting outof a specific business task to atrue third-party service provider.

5.5.2 Location

Near shoreNear shore moves operations or jobs

from internal production to an exter-nal entity in a nearby region of theworld.

OnshoreOnshore moves operations or jobsfrom internal production to an exter-nal entity within the same country.

Offshore (Far shore)Offshore moves operations or jobsfrom internal production to an externalentity in another region of the world.

On-siteOn-site leaves part of the service with-in the client facilities.

Rightshore

Rightshore is a Capgemini operatingapproach that leverages global deliv-ery in order to place processes, servic-es, and/or functions in the best loca-tion, that is, a blend of capabilitiesonshore (delivery on-site or within the

same country), near shore (deliveryfrom nearby regions), and/or offshore(delivery from different continents),tailored and coordinated to meet spe-cific business goals.

Figure 17: The organization for an implemented package solution

Business ProcessOutsourcing

In Housedepartment

Outsourcing

SSCShared Service Center

TransactionBank

SaaS,Software as a Service

Control,Stake

High

Low

EfficiencyLow High

Figure 18: The location for a package solution

Offshore

Rightshore

Onshore

Near shore

ComplexityRisk

High

Low

Customer Interaction/IntimacyLow High

On-site

4


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We have worked closely with theworlds most prominent and success-ful financial institutions and have totalworldwide revenues of more than$ 1 billion in financial services.

Because of the acquisition of Kanbayin 2007, Capgemini had the strongestpresence in India of the top-threeconsultancy companies i

Documents

Core Banking Systems Survey 2008 1