German finance giant Deutsche Bank is setting up an joint innovation venture with IBM, Microsoft and Indian IT services firm HCL Technologies to improve its digital credentials.
According to the Wall street Journal, the bank is planning to set up labs in Berlin, London and Palo Alto.
The report states that the bank, Germany’s biggest, is aware of threats to its business from companies such as Apple and PayPal in the payments market. Banks in the UK increasingly consider companies such as Google, Apple and Facebook as their biggest competitive threat. This trend is seeing banks look for partnerships in the IT industry, including joint ventures and investments in start-ups.
A recent survey sponsored carried out by Ovum questioned 65 senior executives at banks in Europe. It revealed that most recognise their existing core IT systems – which are often decades old – are holding them back. It said 79% of the banks said the complexity of IT and a shortage of the right in-house skills make it difficult to replace legacy core banking systems.
Earlier this year Deutsche Bank said it will invest €200m in digitising its customer-facing operations.
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Large banks traditionally use large in-house IT teams to develop IT, but things are changing as a result of the pace of change, such as the digitisation of business.
A senior source at a European investment bank told Computer Weekly the company is open to joint ventures and wants to work with start-ups on innovation. “We are open to joint ventures. We need to start innovating with technology and work with suppliers,” said the source.
“If it is not something that gives us competitive advantage we can use suppliers and even share services with other banks."
The inclusion of Indian supplier HCL in the arrangement is evidence of the maturity of offshore suppliers, said Peter Schumacher, CEO at management consultancy Value Leadership Group. “This underscores that the Indian players now have a seat at the innovation table.”
The investment comes on top of a €1bn project at Deutsche Bank to replace legacy IT systems, the Magellan project, which it hopes to complete in 2015. It is built on SAP BankingServices and Grid Computing. It includes the entire IT infrastructure as well as all the clearing and settlement processes of the Private & Business Clients (PBC) division in Germany.