European Banks Hampered by Reliance on Legacy Technology
Nearly two-thirds of IT decision makers in banks agree that the events of the past two years in the finance industry have increased the importance of core banking systems to the business, but 69% are still operating with a core banking infrastructure that is 11-30 years old, according to research by Callataÿ & Wouters, a provider of core banking and multi-channel distribution solutions. A further 11% admit that their systems are from the 1980s or before.
The research looks into how IT decision makers in banks across the UK, France and Germany are approaching their investment in core banking systems following the financial crisis.
As a result, 57% agree that ‘banks have had to adapt their business around legacy technology rather than using flexible technology which adapts to banks’ needs’, which in turn has led to reduced flexibility (89%) and increased costs (88%), according to the respondents. Current core banking systems are failing to support the business due to the siloed nature of systems (70%) and the absence of a direct link between systems and the bank’s business objectives (62%).
Given the growing importance of core banking systems to the business, 44% of respondents plan to increase spend on their systems over the next two years, despite the current economic climate. The most popular way of approaching investment is by business line (59%) with accounts, capital markets and payment and cards being the top priorities for investment. Increasing competitiveness is the main business driver for investing in core banking systems overall, followed by meeting regulatory initiatives and risk management.
In terms of country trends, core banking strategies and investments vary significantly between the UK, France and Germany. In France, banks are typically working with older systems with only 7% having conducted a major refresh of their core banking infrastructure in the last five years, compared to 54% in Germany and 14% in the UK. The French are also more likely to run all of their systems in-house (60% in France compared to 22% across Europe as a whole) and they plan to invest the least in their core banking over the coming years. One reason for this trend could be that most French banks surveyed have not undergone a merger and acquisition (M&A) recently (87%), compared to 48% of banks in Germany who have been involved in M&A activity and 36% in the UK.
Diederik Van Der Linden, Europe, Middle East and Africa (EMEA) strategy director, Callataÿ & Wouters, said: “Core banking systems are becoming ever more important for banks as they deal with the aftermath of the financial crisis which has brought increased competitiveness and regulation, a greater focus on risk management and a more demanding customer. Flexibility is seen as key to dealing with these challenges with nearly two-thirds of respondents planning to increase the flexibility of their core banking system over the next two years. In this changed environment, we expect to see Europe’s banks increasingly implementing flexible technology that can adapt to institutions’ needs rather than banks having to adapt their business around legacy technology which has characterised and hampered many institutions to date.”