Before the recession, many financial services companies gradually moved away from individual application platforms, and fewer firms now have efforts under way than before the crisis.
Yet nearly three-quarters of survey respondents told Forrester that they personally consider a major application renewal necessary to ensure that their firm can cope with current and future business and technology needs.
The old-fashioned, in some cases decades-old, banking applications cannot stand up to a modern financial services firm's daily requirements. Tomorrow's platforms need to help firms quickly add a new channel or class of mobile devices, establish true cross-channel capability, and support new target geographies on short notice. Future platforms must also help firms change a financial services product or support an entirely new class of products while also supporting end-of-day processing in real time and coping with the latest regulatory requirements.
Our survey data highlights that:
1. New platforms must step up to major business change. Most surveyed firms must cope with large-scale, often continuous, business change. European financial services firms focus more on supporting business agility and flexibility. North American firms target managing changing markets, increasing market share, entering new markets, and better supporting competitive differentiation. Regardless, business flexibility and the related ability to cope with market change must be integral elements of any decision for or against a given architecture or off-the-shelf banking platform.
2. New platforms need to manage cost, support flexibility, and reduce time-to-market. Both North American and European regions show a strong focus on efficiency and cost management.
Firms also want forward-looking technology and architecture - as a tool for flexibility - to improve business process automation, help cope with regulatory changes, and provide real-time views into information.
Application delivery teams will need platforms to help streamline product cycle times to help address time-to-market and time-to-money drivers and help their firm get the right products to the right customers at the earliest possible moment.
3. European and North American firms have different drivers for application renewal. European firms express a higher priority for customer experience needs. North American firms identify the risk of aged technology and applications as well as the risk of a retiring workforce and shrinking talent pool. This last, more sesoteric business driver offers reasons to move away from the existing application landscape. However, even the latest application landscape in any firm cannot deal with these challenges entirely on its own; the retiring workforce challenge makes accompanying measures mandatory to avoid facing exactly the same problem when future platforms also come to the end of their useful lives.
Firms seek specific capabilities to support their drivers
Key focus areas for many enterprise-wide initiatives include running transactions more efficiently, getting an enterprise view on customers and other business parties, capturing better information about customers, and serving customers more effectively across more channels.
Most respondents recognise core banking as the initial focus area for application landscape renewal; core insurance applications topped the list of initial focal points for renewal for all six participating insurance firms. Modern core apps can more easily support business flexibility, control costs, improve time-to-market, and help firms avoid the risk of aged technology. When core banking includes front-end support, even the customer experience and related aspects will see improvement.
Some 43 per cent of survey participants place high priority on building the architecture and application infrastructure to support their application landscape renewal. Drivers such as increasing business flexibility, coping with market change, speeding time-to-market, and incorporating clearly forward-looking technology and architecture all contribute to firms' need for an architectural foundation that can provide the glue between the different bits and pieces of a multiyear transformation.
Between 25% and 38% of all survey respondents identify customer-oriented applications as a focal point for renewal: Respondents identify branch advisory and sales, analytics, central customer/party data management, customer relationship management, and Internet banking as focus areas for renewal to better serve customers. Overall, these focus areas support most drivers, including the need for forward-looking technology. Mobile banking, multichannel enablement, and regulatory compliance vary by region. European respondents show a stronger interest in multichannel enablement - and, one hopes, in cross-channel capability - than their North American counterparts. North American firms place greater focus on the mobile channel, while Europe shows a slower uptake of mobile.
Funding doesn't present an obstacle
With the crisis in mind, it comes somewhat as a surprise that many of the surveyed financial services firms have accepted the renewal mandate in spite of large, and in some cases even enormous, budget estimates. Still, budget projections Forrester made back in 2005 show that some firms may be underestimating their budgets. Today, firms may prefer not to spend large budgets, but they have accepted the fact that enduring competitiveness demands an application landscape renewal:
About half of the financial services companies expect a budget of €100m or less. Most of the firms in this group have total assets of €100bn and less. Ten North American companies in this group hope for smaller budgets, while European firms expect greater spending.
Less than a quarter of the financial services firms expect three-digit million-euro budgets. Overall, global financial services heavyweights with total assets of more than €400bn represent the majority within this group. While most members of this group believe their renewal budgets will be in the range of €100 to €150m, a few firms do have renewal budgets exceeding €350m. On average, North American firms expect larger budgets than their European peers in this group.
Many do not yet have a complete view on budgets and costs. About a third of survey participants could not offer a budget estimate. This could either mean that these respondents have not yet been involved in budget estimates or that a budget estimate for the entire renewal initiative is not yet available. However, European banks participating in the survey are slightly more advanced on the renewal timeline than their North American counterparts, and considerably more respondents from North American banks "don't know" yet. More European firms have budget estimates available, and many expect large renewal budgets.
European firms have slightly lower budget estimates this year than in Forrester's 2007 survey. Thus, many if not most financial services firms will likely have to adjust their renewal budgets upward during the different stages of their application landscape renewal. Business executives would be well advised not to expect IT organisations to fully deliver these large-scale projects without any increase of the IT budget or with a shrinking one.
This is an excerpt from the Forrester Research report Financial services firms again seek to renew their application landsca pe(November 2010) by Jost Hoppermann, vice-president and principal analyst at Forrester Research where he serves application development and delivery professionals, particularly around financial services. Read Hopperman's blog here .