August 02, 2011

After three decades of in-house core processing supremacy, it was quite clear that the method of choice is now outsourcing. Even though the switch began in 2006, it developed into a crescendo (60,70,65,77,80) in 2010 as 80 percent of all new core systems signings in the U.S. were of the outsource method.

And what do you think was the factor behind this dramatic time-to-change choice? Well, it wasn't vendor pricing or vendor-anything; it wasn't cloud computing; it wasn't the Internet; it had nothing to do with innovation; staffing wasn't an issue; data security threats don't move bankers; even mobile banking can't take credit as it has for being the topic of the most news items last year. The credit goes to the biggest external influence in banking -- your friendly government regulations.

Yes, new regulations touched IT directly and it was sort of another "bailout" for bankers to turn the whole ball of IT wax over to their supportive vendor than to try to manage these new burdens.

Please recognize that new sales (307 in 2010), whichever way they shift, do not change a large base (15,219) right away. So the current base is still leaning towards in-house -- 56 percent of all FIs are in-house and 44 percent outsource. Also, there's a bit of the devil in the details. In the top tier (110 commercial banks, 20 S&Ls and 5 credit unions), not even a powerful government will change how these banks do their thing. Here, the CIO is king and therefore 87 percent run their own kingdom. Is it likely that a CIO will ever give up his seven-figure salary to become just a contract administrator?