I don't believe it's news anymore when I tell you core system sales have tapered off in the past ten years. But here's proof. In the year 2000, 7.3% of the FI population acquired a new core system. In 2009, the rate was approximately 2%. Going forward, it may stay at 2% or it may continue to decline, but it won't increase.That isn't surprising because of two considerations. (1) Bank tech vendors have done a superb job of keeping their core systems up-to-date, and (2) most bankers fear a core conversion the way they fear another banking meltdown.
So what are vendors doing to maintain a robust revenue growth trend? Some of them are acquiring companies. All of them are selling ancillary applications. Either remedy may not be the perfect solution, but in the case of ancillary, it is providing bankers with a higher degree of efficiency than the essential functions of core.
Here is a list of what I call ancillary applications:
Asset Liability Management Profitability Solutions Platform Solutions Check Imaging and Processing Solutions Internet-based Solutions EFT Credit Card Solutions Document Imaging Solutions Voice Response Solutions Mortgage-Related Solutions Insurance Applications Securities Industry Solutions Customer Relationship Management Solutions Treasury Services & Cash Management Solutions Data Warehouse Solutions Compliance Solutions Fraud Detection & Prevention Data Security Electronic Bill Presentment & Payments Solutions Trust Accounting Solutions Risk Management Solutions Business Intelligence Solutions Remote Deposit Solutions Mobile Banking Solutions Deposit Accounts Reclassification Automated Data Maintenance Budgeting, Financial Statements, Board Reports Output Processing Web Hosting Construction Loan Management Return Item Control System Vehicle Loan and Leasing Data Conversion Analytical and Direct Marketing Solutions Ancillary Internal Accounting Applications Health Savings Accounts Collections System Disaster Recovery and Business Continuity Payroll Services IP Telephony Deposit Insurance Coverage beyond the $250k FDIC limit Remittance Processing
There are 39 independent companies in my report Automation in Banking - 2010 that supply one or more ancillary applications. In addition, there are several core companies that supply almost every ancillary in the above list. That means the marketplace is ready for even the most IT-gluttonous bank CIOs. If there's a problem with this picture, it's the CFO. If I were a bank CFO, I would figure out which ancillary applications my bank doesn't have. Then I would ask the CIO to explain why we were missing pieces of the total IT pie. The result should be two lists - the haves and the have nots. The have not list may be perfectly legitimate, but then I would want to spend the next two months understanding why we don't have the have nots. As CFO, it's quite likely that I would find some kind of correlation between some of what's on the have not list and some of my financial reports that show we are losing our shirts.
CFOs should be more than bean counters. They should be analysts. Find what's wrong. Solve the problems. Any CFO who is comforted by not spending and keeping IT skinny is missing the primary advantage of a cost benefit analysis. If it's done honestly, spending money could in fact be earning money for the bank.