Banks Worldwide Plan to Overhaul Aging Core Banking Systems To Gain Competitive Advantage, According to Global Survey

Banks worldwide are growing increasingly dissatisfied with theiraging core banking systems and plan to update their core technologyarchitecture to remain competitive, according to a global surveysponsored by Accenture (NYSE: ACN) and SAP AG (NYSE: SAP). The resultsof the study were released today at Sibos 2005, the financialindustry's leading annual forum held in Copenhagen, Denmark.

Seventy percent of bank executives surveyed said flexibility wasthe biggest problem hindering the success of their core bankingsystems. Almost half of the bank executives surveyed also cited highmaintenance costs and lack of system integration as areas that wouldimpede their ability to remain competitive. To address these concerns,a significant number of banks surveyed are planning core bankingsystem replacements within the next five years--30 percent in Europe,more than 35 percent in Asia Pacific and more than 20 percent in NorthAmerica.

"Regardless of geography, core banking system maintenance is thealbatross in banks' IT departments," said Octavio Marenzi, CEO,Celent. "Fierce competitive dynamics and the necessity to keep pacewith new products and to strengthen customer relationships willmotivate banks to significantly rethink and revamp their ITarchitecture over the next decade."

SAP and Accenture entered into an alliance in the FinancialServices industry in 2003 and recently co-sponsored the study, titled"Redefining Core Banking," to examine the current status, impact andplans for transformation of core banking systems. The comprehensiveglobal study is one of the first to gather the views of high-levelbank business and information technology (IT) executives, as well asbranch-level employees, who are the primary users of core bankingsystems.

Nearly 1,500 bankers around the world participated in the study,with 43 of the top 100 banks represented. The survey included banks ofall sizes in Europe (40 percent), Asia Pacific (30 percent) and NorthAmerica (30 percent). For the purposes of the study, core banking wasdefined as the sum of all IT components allowing banks to manage basicfinancial products and services, including data on clients, depositaccounts, loans, mortgages, payment transactions and credit cards.

Core system issues resonate with branch employees. Throughout thebranch survey, this group identified the day-to-day issues they faceusing old systems that affect their customer interactions. Theseinclude:

-- Branch employees said they spend nearly 40 percent of their days working on customer-related back-office activities rather than on customer-facing activities. Branch employees in Asia Pacific indicated that they spend 48 percent of their time on back-office activities. In North American and European banks, employees also spend a significant amount of time on back-office activities: 36 percent and 34 percent, respectively.

-- Branch employees agreed that response time (38 percent) and integration of different applications (38 percent) ranked highest on the list of areas needing improvement. Response time was of particular concern in Europe (50 percent), while integration of different applications was the primary concern in Asia Pacific (41 percent) and North America (38 percent).

-- Fifty percent of branch employees agreed that frequent and unwanted delays were the most common processing issues. Other processing issues included inconsistent customer data and not understanding customer needs.

-- Views on the best ways to increase business with existing customers differed worldwide. Fifty-four percent of respondents from Asia Pacific said the way to increase business with existing customers was to better understand those customers' needs. By comparison, 55 percent of respondents in Europe and 41 percent in North America said they needed more time with the customer.

Global Need for Flexibility and Desire for Integration

Executives surveyed indicated two major reasons their systems areinflexible: old systems built on what they considered to be the wrongtechnology for future growth and systems that have been customizedover time, resulting in complex systems resistant to change andexpensive to maintain. With branch employees worldwide spending morethan 40 percent of their time on back-office activities, the surveyidentified not only problems of banking executives, but also thechallenges faced during the day-to-day activities of branch employees.

"This survey points to the need for leading banks to simplifytheir internal operations, equipping themselves with core systems thatuse flexible, robust, future-oriented IT architecture that isservice-oriented," said Jean-Marc Ollagnier, global managing partnerof Accenture's Financial Services Solutions group. "This componentapproach, replacing unnecessarily complex IT systems, can allow formore optimal IT alignment with the business-operating model and canallow for future flexibility in sourcing decisions."

Another significant finding of the survey was that businessexecutives and IT executives differed in their expectations of thevalue a core banking system needs to bring to a bank. Thirty-ninepercent of business executives want a system focused on productinnovation, while IT respondents primarily want a system that reducesexpenses (40 percent).

Cost Issues

Not surprisingly, virtually half of the executive respondentscited cost as a major concern with their core banking systems. Thesurvey found that banks spend half of their entire IT budgets on coresystems. A large portion of this spending is for development work towrite new product functionality or system features into the coresystems. In the Asia-Pacific region, banks typically spend 70 percentof core systems budgets on maintaining their core systems.

"Banks worldwide need to 'future proof' their core systems to witha flexible environment that can help them adapt and respond to unseenfuture changes and advancements in the industry," said ThomasBalgheim, senior vice president of financial services, SAP AG. "Thebanking industry has entered the age of industrialization, similar tothe shift manufacturers have made in years past. The benefits gainedby modern core banking systems can help banks to save money, re-focustheir employees back on their customers and provide customers with theproducts and pricing that meet their needs."

Achieving System Renewal

A very high proportion of IT executives surveyed said theyconsidered a componentized, service-oriented architecture to be a keyfeature of their target IT states.

Although respondents provided a range of responses about theirintended target architecture, few have technology road maps in place.However, the majority of banks surveyed have strong opinions about howthey would move toward their target core banking systems. Forty-ninepercent of IT executives and 50 percent of business executives saidthey would move to their target systems by product line; the secondchoice of IT and business executives was by functional area (28percent and 29 percent respectively).

Survey Methodology

The survey was conducted by Celent, a research and consulting firmfocusing on the financial services industry, for executive interviewsin North America and Asia Pacific, and Novametrie, a European aresearch company specializing in financial services surveys, whichconducted the executive interviews in Europe and the branch interviewsin all regions. Accenture and SAP co-sponsored these two parallelworldwide surveys between March and July 2005 that examined thecurrent status, impact and transformation of core banking systems in17 countries. The European Financial Management and MarketingAssociation (EFMA) also served as an operating sponsor. The executivesurvey targeted 147 senior bank executives from 70 banks. Of these, 45percent were information technology executives and 55 percent wereline-of-business executives. The branch survey polled 1,300 branchmanagers and employees. The majority of the survey responses came fromthe top 100 banks worldwide.

Accenture and SAP Alliance

In September 2003, SAP and Accenture entered into an alliance forthe Financial Services industry, offering banks and insuranceproviders a more effective and lower risk way to help them transformand grow their business, through a dedicated joint development teamand sales channel, integrated solutions and services, innovativedelivery, and highly efficient implementation. With a 30-year historyand experience delivering innovative business solutions for more than1000 leading financial services institutions, Accenture and SAP worktogether to help insurers and banks achieve the vision of an openstandards-based architecture.

About Accenture

Accenture is a global management consulting, technology servicesand outsourcing company. Committed to delivering innovation, Accenturecollaborates with its clients to help them become high-performancebusinesses and governments. With deep industry and business processexpertise, broad global resources and a proven track record, Accenturecan mobilize the right people, skills and technologies to help clientsimprove their performance. With more than 115,000 people in 48countries, the company generated net revenues of US$13.67 billion forthe fiscal year ended Aug. 31, 2004. Its home page iswww.accenture.com.

SAP for Banking

SAP for Banking provides an integrated solution set to manageevery aspect of the front- and back-office banking environment--fromcore banking processes, high-volume transaction banking processes andcustomer relationship management to financial accounting, costcontrolling and profitability and risk analysis. With more than 550customers in 60 countries worldwide, SAP for Banking helps financialinstitutions expertly manage transactions and relationships, quicklyexploit market opportunities and easily tailor new products to thespecific needs of individual customers. (Additional information athttp://www.sap.com/banking/)

About SAP

SAP is the world's leading provider of business softwaresolutions*. Today, more than 28,200 customers in over 120 countriesrun more than 96,400 installations of SAP(R) software--from distinctsolutions addressing the needs of small and midsize enterprises tosuite solutions for global organizations. Powered by the SAPNetWeaver(R) platform to drive innovation and enable business change,mySAP(TM) Business Suite solutions are helping enterprises around theworld improve customer relationships, enhance partner collaborationand create efficiencies across their supply chains and businessoperations. SAP industry solutions support the unique businessprocesses of more than 25 industry segments, including high tech,retail, public sector and financial services. With subsidiaries inmore than 50 countries, the company is listed on several exchanges,including the Frankfurt stock exchange and NYSE under the symbol"SAP." (Additional information at http://www.sap.com)

(*) SAP defines business software solutions as comprisingenterprise resource planning and related software solutions such assupply chain management, customer relationship management, productlife-cycle management and supplier relationship management.

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