This applications market sizing report is based on the SCORES analysis of the top 10 apps vendors in the banking and financial services vertical as they help lenders and money managers navigate the choppy waters of global economic recovery. It also examines the implicat ions of the transformat ion of the financial services vertical for the apps market as lenders in emerging markets are boosting their spending on process automation in order to capitalize on growing popularity of mobile and ATM banking.
On the top line, the applications market for banking and financial services vertical is expected to recover in 2010 following one of the worst recessions that hit lenders and securities firms. Vendors that cater to banks and financial services organizations in Asia Pacific, Eastern Europe and Latin America are expected to post higher than average growth rates in the forecast period because of the following reasons:
As deposits continue to grow because of increased savings, banks in emerging markets will start investing more in new applications for everything from mobile payments to customer information management. At the same time they will gravitate toward delivering additional services such as ATM banking, while driving greater efficiency in channel and wealth management. From the technology utilization perspective, banks in many parts of Lat in America and Asia Pacific will be particularly attractive for applications vendors.
Banks in North America and Western Europe, on the other hand, will place greater emphasis on system upgrades, legacy replacements and compliance solutions. That’s where structural changes will take place as consolidation among banks in developed countries such as Germany, Japan and the United States usher in wholesale replacements of their front to back office systems. With government support and improved balance sheets, many of these major banks have emerged from the recession in better shape than ever ushering a new era of expansion.
The bottom line is that banks and financial services companies, which make up the largest group of applications buyers, will see new technologies from portfolio management to social media as the catalyst for them to achieve full visibility into their interactions with customers that ultimately lead to improved profitability.
The market for applications for banking and financial services vertical shrank 3% in 2009 as the recession took its toll on a long list of venerable institutions from Bear Stearns to Merrill Lynch.
Major applications vendors that relied on banking and financial services as their core vertical either saw flat or declining sales because of reduced transactions and piles of bad debts among their customers leading to little or reduced IT investments. In other cases, banks such as Lehman Brothers simply went under, depleting recurring revenue streams for a long list of apps vendors.
However banks are expected to recover in 2010 following massive infusion of capital into the global financial systems by governments and the European Central Bank. In recent quarters some banks have seen drastic improvement to their balance sheets, paving the way for sustainable growth in the coming years.
At the same time, banks in emerging markets are awash in capital, thus requiring them to lend more liberally and expand into new markets such as mobile and rural banking, all of which will result in greater use of advanced applications to track transactions and customer interactions.
Implications Of The Great Recession of 2008-2009
Although a number of banks were portrayed as the emblem of greed and incompetency in the depths of the recession, many financial institutions have emerged from the crisis with their reputation largely intact because of their core strengths in such areas as community banking and risk management.
Many more have decided to invest more in new applications like core banking and customer relationship management because of their track record and continuous support from customers and in some cases state-owned entities.
What it means is that banking and financial services will continue to represent one of the biggest vertical market opportunities for a rising number of applications vendors as recovery begins to reshape the global financial system.
To be sure, the worst may not be over for banks in Western Europe. Recently four lenders in Spain were forced to merge because of their worsening financial conditions. Such rescue efforts could turn out to be a good thing for applications vendors as across-the-board system replacements will bound to happen following massive consolidation.
Another trend is for applications vendors to extend banks’ capabilities in mobile and ATM banking in emerging markets such as China and India, which could usher in expanded use of advanced payment and transaction processing and value-added offerings for multi-channel customer relationship management.
Banks and financial services organizations will turn to off-the-shelf applications to improve their dealings with customers, while gaining control over such processes as cash and treasury management, along with compliance and risk management.
On the regional front, banks in Asia Pacific and Latin America and the Middle East and Africa are expected to show higher than average growth rates when it comes to applications spending because of their sound financial conditions. That’s a sharp contrast from a few years back when local and regional banks in emerging countries were wrestling with such issues as currency devaluation in many parts of Asia. In those days, full-scale use of applications for branch automation, anti-money laundering or hedge accounting was fairly limited. That is changing quickly with above average economic growth in emerging markets, along with the proliferation of mobile phones and ATM machines, all of which have led to systematic expansion of banking services to those that previously were barely touched by lenders and investment managers.
Vendors such as Misys, Oracle, SAP, and Temenos are expected to benefit the most from such trends because of their already healthy presence in many emerging markets.
In terms of the customer size segmentation, smaller banks are expected to represent a bigger opportunity for applications vendors as many of those that survive the recession will be in a good position to gain market share through greater use of applications.
Vendors that cater to global banks with more than $10-billion in assets are likely to see average to moderate growth as these mega financial institutions are still sorting out their bulging portfolios. It’s likely that a more economic and sensible way of leveraging the latest and affordable technologies from on-demand and cloud computing to business process outsourcing will resonate with these customers, whose mantra may have shifted from being the operators of financial supermarkets to the purveyors of narrower banking services.
Top 10 Applications Vendors In Vertical
The following table lists the 2009 shares of the top 10 applications vendors in the banking and financial services vertical and their 2008 to 2009 applications revenues(license, maintenance and subscription) from the vertical.
|Vendor||2009 Share(%)||2009 Applications Revenues From Banking & Financial Services($M)||2008 Applications Revenues From Banking & Financial Services($M)|
|Fidelity National Financial||7.2%||581||528|
Vendors To Watch
Apps vendors that are worth watching in the banking and financial services vertical include Group Asseco, Murex, Sophis, all of which have done well in 2009 because of their specific capabilities in treasury and risk management, along with their growing success in selling into emerging countries.
As they reorganize themselves for better differentiation, product extension and country-level leadership, the rebranding of Fiserv, the evolution of Fidelity Information Services and the acquisition of Viveo by Temenos pose new threats for Oracle, SunGard and other major banking apps vendors in moves that could alter the competitive landscape in the coming quarters.
On the upside growing evidence of a sustainable economic recovery will bode well for apps vendors that cater to banks and financial services companies as front and back office applications are considered the linchpin for these customers to strengthen their operations in hopes of generating more bank fees through the use of better analytics and customer insights.
On the downside the lingering effects of the recession and staggering amounts of bad loans held by banks in industrialized countries will cloud the market outlook as financial institutions need to do a better job managing risks, something that even the most advanced algorithms and technologies employed by these reputable institutions have failed them during the credit crisis. The return to manual intervention appears to have become common business practice among banks when dealing with their customers, rendering the value of end to end automation questionable at best.
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Banking & Financial Services Market Report 2009-2014