But banks don't always have the transactional view of their data required to achieve this transparency, Dempster continues. "The foundational technology is not about having a better DDA [demand deposit account] system," he says. "It's what you can wrap around the DDA system to supercharge it with relationship-based pricing, transaction capital, risk management and segmentation pricing."
Infosys' Makhija adds that as scrutiny intensifies around requirements such as the Unfair & Deceptive Acts or Practices (UDAP) rules, core upgrades that enable increased transparency into customer relationships will become even more critical. "That is why banks will need a unified view of the relationship at the branch level where they'll have full product information available," he says, noting that channel integration will play a major role in this area for the large banks. "You need audit trails too. This all adds up to transparency." For these reasons, Makhija continues, Infosys' bank clients are looking to embed appropriate regulatory processes into their cores.
Of course such transparency is rooted in data integration. "You need to integrate disparate systems so that it's transparent to the user where the data comes from, who owns it," says the data integration executive. "You don't need to write a lot of new code -- just use a standard delivery method, such as Web services," she recommends, adding that her bank used a solution from San Mateo, Calif.-based Composite Software for its data integration project. She says the response from end users to having more and higher-quality data at their fingertips has been very positive.
Oracle's Russo says he expects to see more spending on creating a "single-instance infrastructure" for all regulatory reporting. "You can't immediately replace the entire core infrastructure," he comments. "You want to create stand-alone data marts where you focus on having one instance of all the information and connect that with the core so you can measure the data." This, he notes, is where Oracle plans to invest.
Operating in Crisis Mode
While U.S. banks are investing in ways to extend their legacy cores, banks outside the United States are trending toward outright core replacement, according to David Hovenden, a partner in A.T. Kearney's Sydney office. "It's a tale of two cities in some regards," he says. "Outside the U.S. I'm seeing a lot of activity [around core replacements]."
Hovenden says the trend is especially evident in southeast Asia, where he has seen proposals from two major banks for core replacements, and Australia, where two of the big four banks are in the throes of core replacements. He points out that banks in those regions weren't slammed as hard by the subprime mortgage situation. While not at liberty to divulge any names, Hovenden says, "The programs have been reconfirmed post-crisis."
It's not that banks in the U.S. don't recognize the value of full core upgrades, Hovenden notes. Rather, the uncertainty around which banks will survive is creating a fear of commitment.
"Banks are looking at things more selectively, and that makes sense," Hovenden says. "There is going to be investment -- it's not a 'Do nothing' scenario. You have to do something, but with intent. Be smart about it."
The financial crisis has forced banks to reprioritize, adds TowerGroup's Hunt. "It has everything to do with risk and compliance and having more resources devoted to those things going forward," he says.
And for banks undergoing crisis-related mergers, or institutions that have accepted government bailout money, the pressure on their cores is even greater. "Acquisition integration is putting even more stress on existing cores," says Steve Reiter, a senior executive with Accenture's banking practice.
Adds Jim Adamczyk, global process architecture lead for Accenture, "The core systems are strained to begin with and now they're being pushed harder in the M&A integration."