Core Processing Providers See Shift to Outsourcing

Most banks have come to favor outsourcing over licensing their core systems within the past year or so, seemingly in reaction to the credit crisis, sources said at the BAI Retail Delivery show.

"About 60 percent of our [5,400] clients are on service bureau now, versus probably a 50:50 split a year ago," said Mickey Goldwasser, vice president of marketing and communication with Open Solutions (OSI) of Glastonbury, CT. "And the trend now, more and more, is going to be towards service bureaus."

David Dervish, market development director, with Fiserv, the industry's dominant core banking provider out of Brookfield, Wis. said Fiserv's business was skewed towards outsourcing, even before the latest iteration of the crisis. Fiserv has more than 6,000 financial institution clients worldwide.

Dervish estimated that about 60 percent of Fiserv's clients now use outsourcing, noting "At small banks especially, the market trend is more towards outsourcing."

Moreover, he said, "The deal flow is 60 percent to 70 percent outsourced. There was a trend even through 2007 for a lot more service bureau or outsourced business than on-premise, with a few exceptions," Dervish said.

The severely worsened crisis since mid-September won't be reflected for a while in outsourcing numbers, he added, explaining that there is always a lag while customers extricate themselves from existing arrangements.

He agreed that historically outsourcing tends to be favored in hard economic times as a way to save money upfront and pay by degrees rather than in one big licensing fee. Those, on top of the increasing complexity of technology and the increasing burden of regulatory compliance are motivations to outsource, Dervish said.

However, he said, "There are so many creative ways to do licensing [agreements]. Generally you can still spread the payments."

Fiserv announced a mobile banking and payments capability, integrated with its core banking, at the Bank Adminisration Institute's annual retail banking show.

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