By Maria Bruno-Britz
Mention the term "core systems upgrade" to some U.S. bankers and they're liable to cover their ears and walk away. And with good reason. As antiquated as the guts of their IT infrastructures may be, for the most part, things have been working pretty nicely. So why go through the rigor and risk involved with a complete core systems upgrade?Because time is running out, says Jim Dempster, SVP and CTO with Milwaukee-based financial solutions provider Metavante. "There are 30-year-old systems out there, so bankers know they have to change, but they just haven't found the right solution yet to do this." However, Dempster claims, a joint venture between his company and Temenos, the Geneva, Switzerland-based core systems provider, will bring to market a core solution that will be more appealing to U.S. financial institutions.
Last week, the two companies announced an exclusive partnership in which the Temenos core banking solution (TCB) will be sold to American banks through Metavante's existing U.S. distribution network. The combination of Temenos' technology and Metavante's "in" with the U.S. banking market is potentially a winning combination, say both companies.
They contend that the core systems developed for use outside the U.S. tend to be more robust, especially around international capabilities such as language and currency. As a result, U.S. banks have been somewhat hampered in their expansion efforts beyond America's borders. The firms hope the joint solution will offer U.S. FIs with another alternative to what is already available to them. In addition, the combined Metavante/Temenos solution will provide banks with the ability to gradually evolve their old systems to the new platform-independent one, rather than require them to rip and replace everything. The Temenos system will be component-based, allowing banks to move single elements of their existing organization onto the new one, even running the new and old systems in parallel until migration is complete. "We're not selling rip and replace," says Alex Groenendyk, president of the Americas, Temenos Group. "That's not our value proposition. This new architecture is so granularly componentized that you can take parts of a solution and replace it over time." Metavante will take the TCB components and migrate it to its own solutions in a manner that will not actually force a conversion on clients, adds Groenendyk.
Could this be the shot in the arm U.S. banks need to finally take the plunge and refresh their core systems?
According to Christine Barry, research director with Aite Group, this could be the case. "A core system replacement is often the most expensive and risky IT initiative a bank can take on," she said in a statement. "As a result, most proceed with caution. Aite Group estimates, however, that approximately 17 percent of U.S. banks will reach a high level of urgency and should replace their core systems (meaning the outdated systems in place are now hindering their ability to launch products quickly, operate efficiently, tightly integrate with other solutions and, in essence, effectively compete) this year, yet only about 5 percent will do so. The strategic alliance formed between Metavante and Temenos, a European-based vendor, is likely to push this market forward by combining a cutting-edge next-generation solution with a strong U.S. brand like Metavante."
Jeanne Capachin, VP of the global banking group at Financial Insights, has seen more movement by FIs lately around core upgrades, primarily driven by fear of more-agile new entrants into their markets. "Over the last six months, the top 50 financial institutions have been looking at core banking and are seeing that they have to make a change. Core has been very taboo until this point. They're now seeing smaller institutions upgrade their core relatively easily. There's also nervousness about new entrants with modern core systems having an advantage. CEOs would love to start from scratch, but it's too overwhelming and too risky."
Columbus, Ga.-based Synovus will be one of Metavante's first service bureau clients to review the new joint offering, says Jeff Kennedy, director of information systems at the bank. "Many banks face challenges, such as integrating disparate information across platforms, becoming a true 24/7 environment, and delivering new solutions to the market place faster and more efficiently than the competition," he states. "As we continue to partner with Metavante we anticipate their alliance with Temenos to significantly help us in meeting these challenges." According to Kennedy, Synovus is particularly interested in the next generation customer information system (CIS). "We see an enhanced CIS as a key component in Synovus being able to maximize our customer's experience."
Overall, Financial Insights' Capachin thinks the deal makes sense. "I think this makes a lot of sense for both companies," she explains. "It fills a hole in Metavante's offering by giving them a core banking application to sell to large banks. For Temenos, this helps them break into the American market, which is very difficult for a foreign vendor. For banks, this will be another place for them to look beyond the newcomers and existing vendors. It's a new approach to the core systems problem."