What Matters Most in Core Systems Vendors -- Experience or Modern Architecture?

For bank IT companies, the boundaries between U.S. core systems vendors and those based in other countries represent more than a physical separator in the pursuit of customers

There's a great divide in the space occupied by bank IT companies -- U.S.-based (but that also sell to non-U.S.-based banks) and all others. The lineup for core system vendors worldwide includes:

On the U.S. side: Computer Sciences Corp., FIS, Fiserv, Harland Financial Solutions, SunGard Financial Systems

Everywhere else: 3i Infotech (India), Accenture (Ireland), Infosys (India), Misys (UK), Nucleus Software (India), Olympic ERI Bancaire (Switzerland), Oracle Financial Services Software (India; included in this group rather than U.S. because the manufacturing and IP are are primarily India-based), Path Solutions (Kuwait), Polaris Software (India), SAP (Germany), Tata Consultancy Services (India), TEMENOS (Switzerland)

To say that only geography plays a role in the separation of the two groups of vendors is, in my opinion, naive. The inability of each group to break into the other's turf is more complicated than distance. Here are some personal observations and opinions.

U.S. vendors have been in the banking game for about 45 years. The others discovered banking about 20 years ago. This difference resulted in a huge disparity with respect to technology. Architecturally, the U.S. systems are now referred to in negative terms as legacy systems. The newcomers did the obvious, and designed their systems under the architectures of the day, namely, client/server, open to third-party ancillary applications, real-time processing, use of modern programming languages, liberal operating systems (I call it liberal because open implies 100 percent) that release applications from the bondage of dictator-type host computers, and database management systems that make information retrieval a cinch for any bank employee.

After reading the above account, one might think the U.S. vendors lost the game. Au contraire, mes amis. There are additional complications. In the U.S. there's one set of rules (federal) with 50 subsets (state laws). That means that a banker in California might find a feature contributed by a banker in Maine quite appealing, so 45-year-old systems provide broad and deep functionality that an adolescent system might react to with a "Duh." Do I need more proof for this statement than to use Citi's decision to implement (for North America) FIS's Systematics core system in 2009? Systematics was created in Little Rock in 1968, and it is a system that I have recommended to several clients during my 38 years in the game. What FIS, Fiserv and Jack Henry (not included in the list at the beginning of this article because it focuses on the U.S. banking market), the main providers of legacy systems, offer today is comprehensive functionality that has evolved for four decades, as these vendors listened to and adopted enhancements to satisfy the needs of approximately 11,000 financial institutions.

This dichotomy is a strong reason for the success of each group of vendors, but it still serves as one of the great walls separating both groups. U.S. vendors begin their sales pitch from third base and ask, "Which features and functions do you want from the thousands of choices we have built into the system during the past 45 years?" The others begin from the batter's box and say, "We have the infrastructure, and we can build a system for 'Trazakastan,' as well as any of the other 191 countries in the world."

The U.S. market still favors legacy systems. Even though there are five modern architecture systems offered by U.S. vendors, the installed base of those core systems represents only about 10 percent. Clearly, U.S. bankers are still choosing functionality over architecture.

A reasonable deduction here is that U.S. vendors have the benefit of enormous banking experience. The newcomers have the benefit of modern architecture. In an attempt to bolster my opinions with evidence, I look for proof. When Metavante was an independent provider, it struck a deal with TEMENOS to produce a hybrid core system -- the best of what Metavante had (functionality) with the best of TEMENOS (architecture). But a system that could have been the perfect solution to the dichotomy situation gave way to business considerations when FIS acquired Metavante. End of that dream.

A vendor's branch office does not constitute cultural integration. I don't believe the cultural barriers for each group have been taken down, and thus, reaching a point of understanding, trust and confidence during the sales process is extremely difficult for each group.

This past week a bank tech company in Kuwait entered the arena of Automation in Banking -- 2011. To say I was hugely impressed with the process, might sound as if they paid me a "royal" fee. Nothing of the kind. Their submission was intellectually impressive in its substance. It appeared, in terms of banking applications, more inclusive than many of the 434 applications solutions in the report. Perhaps one day the pond will be reduced to a puddle.