Understanding the Technological Differences Between European and North American Banks

Quantum advances in communications and transportation have resulted in a convergence of social behavior and business practices. When you find McDonald's restaurants and cell phones in the most remote third-world countries, it often appears that we are swiftly headed towards a "One World Society."

But for companies that conduct foreign business it's important to know and understand the differences between regions, continents and countries. For multinational companies it's critical.

In banking, there are many similarities in deposit and lending services, branch operations and back office technology. But more important is understanding how the markets are different.

THE GEOGRAPHY EFFECT

Unlike their European counterparts, North American banks tend to dominate geographic regions. This creates oligopolies that reduce choice of banks and options for consumers. Larger North American banks would rather buy a market than capture it, and there is an ongoing strategy of acquisition and mergers. Part of this strategy is to use technology to deliver efficiency and provide economy of scale.

There is a much lower level of consolidation in Europe. European banks tend to use technology as a differentiator. Rather than simply "gobbling up" competition, they are continuously using new innovations in an effort to capture new business.

STATE OF TECHNOLOGY

Analyzing the state of technology often tends to be like handicapping a horse race, with observers trying to decide who is ahead and who is behind. In every situation, however, the state of technology is usually a reflection of the history and condition of the market.

North American banks are slower to adopt new technologies than European banks. Several elements influence this, including the fact that larger banks acquire smaller banks at a fairly rapid rate, making it difficult to integrate technology (and other banking systems) on a variety of levels.

There are also serious legacy issues. In mergers and acquisitions there are usually not many reusable components.

European banks deal with fewer legacy issues because of the common use of Java. This common platform makes for reusable components, easy upgrades, and facilitates integration.

PURCHASE DECISIONS

How banks purchase technology is radically different between Europe and North America. In a nutshell, a committee almost always makes North American decisions, while European decisions tend to be made by one decision-maker.

Americans tend to seek group buy-in of the purchase decision. A positive side to this is that those who are affected the most have a direct involvement in the decision. But this does have the effect of discouraging "thinking outside the box" and the risk-taking this involves. In addition, it fosters a lengthy buying cycle-six to nine months in most cases.

The single European decision-maker is, to a large degree, a result of culture. The size of banks tends to be smaller, too, which contributes to less deliberation time. The typical buying cycle tends to be about three months shorter than in North America.

The single decision-maker doesn't rely simply on his or her deliberations. There is a high degree of consultation within banks. There is also a heavy dependence on the technology provider and their sharing of responsibility for the performance of their technology.

TECHNOLOGY MARKETING

Here, at last, is one area where there is virtually no difference between the two markets. The European banker, whether sitting in his or her office alone or with associates, and the Technology Committee gathered in the conference room, will hear almost the same thing from their potential provider.

Both markets are faced with a common challenge: Technology is the only way for banks to achieve their business objectives. Banks know this and devote a considerable amount of their concern and resources to make the best business decisions possible.

Colin Piper is CEO of Eontec North America. Eontec provides reusable Java-based software components for banking applications. He can be reached at www.eontec.com.

This guest column, a regular feature in Bank Systems & Technology, allows industry executives and experts to discuss a key bank technology topic. If you would like to contribute, please send requests by e-mail to Steven Marlin, BS&T executive editor, at [email protected].