Core banking market worth $5.1 billion by end-2013.
Banks are increasingly looking toward modern solutions to overcome constraints in their existing environments. The degree of core banking adoption varies across geographies, with most developed countries having already gone through legacy transformations decades ago. In the new report, A Snapshot of the Global Core Banking Market, Celent discusses the market overview for core banking solutions in each of the regions covered (North America, Western Europe, Latin America, APAC, EEMEA) and provides market share estimates of the top vendors in each region. The estimates are classified into $20 billion asset banks. The report also looks at ASP vs. on-premise installations geographically, and overall market size.
North America popularised the use of core banking systems, and most of the core banking solutions present in the region are domestic and have established themselves firmly in the mature market. Many popular solutions are legacy solutions wrapped with modern architecture upgrades. Due to the regulatory environment within the US, that market remains fairly insular with regard to major global solutions. FIS and Fiserv hold the largest market share, with Jack Henry & Associates(JHA) also holding a sizable presence with banks of less than $20 billion in assets.
Western Europe has a competitive environment in which both domestic and global core banking vendors have a distributed presence. There is consolidation in this space as global vendors gain share and acquire domestic/local vendors. The large banks have disparate systems, with international subsidiaries typically running on different platforms. In addition, many nontraditional financial institutions are attracting innovative solutions in the region. Misys, FIS, and ERI constitute most of the market share in Western Europe.
In the developing regions of Asia-Pacific and Latin America, many large banks have already started core banking transformations in the last decade. The field is wide open for small and midsize banks and has seen high activity with new deals in the past three to four years. However, like many emerging geographies, many of the banks may have a hard time justifying the costs of a complete core migration. Within Asia-Pacific, Nucleus, Misys, and Oracle have the largest share of bank with less than $1 billion in assets, while Temenos, Oracle,FIS, and Infosys are the leaders with banks having more than $1 billion in assets.
Eastern European, Middle East Asian, and African banks have joined the core banking wave in the past few years and are currently the potential targets for most core banking vendors. Islamic banking is popular in the Middle East, Asia, and Africa and has seen high interest in the region. Temenos and Misys have the highest market share in this region, while Path Solutions, with their Islamic banking focus, also garners a noteworthy slice of the pie.
The Middle East and Africa markets continued to be regions of high core replacement activity. Many of the platforms, such as Path Solutions iMAL, come with Islamic banking functionality to support the banking operations in the predominantly Muslim countries. Large European banks establishing subsidiaries in the oil-rich regions of the Middle East have also been targets for global vendors. Africa has caught up with the rest of the world only recently. Most of the implementations have been legacy transformations and generally favour vendors that offer implementation support along with the core solution.
With noticeable variability in size of the deals, pricing, and functionalities being implemented around the world, it is a tough proposition to value the market. In this report, Celent tries to value the core banking market by considering the sum of project costs of core banking replacement projects for the top 500 banks (both maintenance costs and fresh implementation costs) and using that as a proxy since the large bank market forms the bulk of the total core banking market value. Celent has estimated the total core banking market size to be around $4.8 billion for the year 2011. The market is expected to grow to $5.1 billion by the end of 2013.
"Coming out of the economic crisis, banks scaled back their IT spending, but spending has started to rise," says Stephen Greer, Analyst with Celent's Banking group and coauthor of the report. "The total number of core deals from 2010 has decreased slightly, yet the overall deal sizes have increased, and the future is looking better for the core banking industry."
The pricing of a core banking deal is the most variable part of the equation and is usually adjusted through negotiations. In most cases, the price is based on the asset size of the bank. The maintenance fee grows as the bank grows. Celent estimated the average license fees based on input provided by various core banking vendors. It is tough to zero down on a single value because the pricing varies between developed and developing regions. However, the average license fee can be estimated to be about $20 million for a top 500 bank with maintenance fee, on average, 20% of the license fee.
Celent only considered the number of banks that use external software instead of proprietary software for the core market size estimation. Total implementation cost for a large bank is estimated to be $190-200 million to $200 per year.
2012 CPI Financial. All rights reserved.
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