SINGAPOREAN banks are focusing on bolstering operational efficiency within the organisation, as well as risk management, and improving the overall customer experience in order to retain and grow their customer base, a new study by Financial Insights shows.
These moves are part of an overall change in core banking strategies of these banks, according to Financial Insights' Abhishek Kumar.
Financial Insights, an IDC group company, tracks the technology issues facing the financial services industry. Mr Kumar, a senior research analyst with the firm, told BizIT that Singaporean banks are following the same strategies as other banks in the mature markets of the Asia-Pacific region excluding Japan (APEJ), such as Hong Kong and Australia.
'These financial institutions are considering alternative approaches to core banking deployment and moving away from the usual 'rip and replace' method,' Mr Kumar noted.
He added that due to its flexibility and quick time-to-market capabilities, the 'platform approach' is an increasingly popular method being considered by financial institutions. 'This approach is where banks rely on an in-house IT platform provider to design and implement a core platform architecture while incorporating selected vendor components.'
Financial Insights defines core banking as the central system for managing accounts and products, deposits, and loans across a bank.
He added that in the largest institutions, the core system processes the debits and credits for deposit and loan account transactions and is augmented by point solutions.
In the mid-market segment, the core system also typically includes channel systems for the call centre, Internet banking and ATM (automated teller machines), business intelligence and CRM (customer relationship management).
Core systems for the smallest financial institutions provide all systems and technology necessary to run the business as well as features such as accounting, fraud management, compliance and systems architecture, Mr Kumar added.
He noted that both in Singapore as well as the rest of APEJ, there has been an overall decrease in the number of core banking deals as compared to a couple of years ago.
'However, this is an indicator towards the growing maturity of the market. Core banking is still a high-profile strategic undertaking by financial institutions, and with a large number of deals having taken place over the past few years, there is much more clarity on the appropriate methodology different banks should adopt for their core banking implementations,' he noted.
Mr Kumar observed that despite the slight increase in the number of core banking deals for 2008 over 2007, Financial Insights believes that this number will not increase in 2009 primarily because of the effects of the economic crisis.
'This year will, in all likelihood, see a decrease in the number of deals as Asian financial institutions focus on conserving costs and resources and are hesitant to sign off on large-scale, long-term investments.'
The analyst noted that the question arises whether this maturity on the part of the banks will result in a move away from 'big bang' core banking implementations to other deployment methodologies, such as SOA-enabled (Service Oriented Architecture) core banking migrations.
For example, 'SAP's CBA deal in Australia is a possible game changer in these terms,' he said. 'Other Australian banks are now quickly establishing their core banking strategies in response to CBA's relatively well-received core banking approach. It is expected that in 2009 and beyond, SOA-enabled core migrations will grow. However, it must be remembered that SOA is only one type of migration to modern core banking.'
He added that banks are no longer rushing the vendor selection and solution deployment process.
Formal analysis and due diligence are replacing the previously instinctive decision-making process. Previously, financial institutions had more reactive motivation to implement core upgrades, Mr Kumar noted.
'Concerns such as scalability and long product-to-market timelines of legacy systems led banks to rush the decision to replace legacy infrastructure. There is a rethink about their IT infrastructure and in the current environment, the financial sector is taking a much more strategic approach to core banking solutions driven by the need to cut costs and increase operational efficiencies.'
The modern Asian financial institution now takes a more long-term IT strategy perspective, taking into account business goals and how the technology can support these goals, the analyst noted.
With many of the major financial institutions completing their core banking implementations, the next step appears to be augmenting these systems through modules and other satellite solutions.
Mr Kumar noted that in addition to this, a recent survey of 133 major financial institutions in the region indicated that about 29 per cent of the banks are planning to increase IT spending and 45 per cent do not plan to make any changes in their IT spend numbers. 'Thus, overall, there is no decrease in a bank's drive to make technology upgrades just more caution in making investments.'
Mr Kumar said vendor strategies do not seem to have significantly changed in the current crisis environment, indicating that the majority of vendors are confident enough that their current business strategies are sufficient.
'Vendors continue to ensure that they remain flexible in terms of pricing and service levels to accommodate struggling financial institutions to develop enduring partnerships,' he added.
