Magic Quadrant for International Retail Core Banking

Gartner defines a "core banking system" as a back-end system that processes daily banking transactions and posts updates to accounts and other financial records. Core banking systems typically include deposit, loan and credit-processing capabilities, with interfaces to general-ledger systems and reporting tools. Gartner's Magic Quadrant for international retail core banking (IRCB) assesses vendors on the multicurrency products they offer in support of a bank's financial transaction management in the retail banking market. Gartner elected to keep the scope consistent with previous Magic Quadrant for IRCB research efforts and exclude Islamic banking vendors and solutions that didn't meet the criteria. Many Islamic banking solutions don't support standard retail banking capabilities.

Although the definition of a core banking system hasn't shifted dramatically throughout the years, changes abound in the software and hardware environments for back-office systems. Platforms — hardware and OSs — previously defined a market segment for a given core banking product (for example, HP 9000, Unisys ClearPath mainframe and IBM iSeries). However, core banking systems are becoming less platform- and database-dependent, creating overlapping market segments for the vendors and increased competitive conditions. This means more choices for banks. Simultaneously, OSs such as Unix are reaching into traditional mainframe banking segments through highly scalable systems — resulting in core banking systems that can be benchmarked to easily process more than 120 million accounts in a four- to five-hour period. As these hardware and OS boundaries blur, restrictive vendor market segmentation is dissipating.

As hardware and OSs rapidly transform, changes in traditional core banking functionality have reached a relative plateau, and have not been significant factors in the retail core replacement cycle. Instead, gaining access to customer information — a highly differentiating value for the business, but a significant challenge with product-centric core solutions — is definitely a driver for adopting open-architected core banking systems that are more easily integrated.

Other advantages of maturing middleware messaging architectures and the evolutionary path toward service-oriented architecture (SOA) and event-driven architecture (EDA) deployments are the opportunities that arise by unlocking the single-use logic buried in legacy line of business (LOB) solutions. For example, consumer and commercial loan business applications often share many overlapping pieces of functionality. Service-oriented development techniques are focusing on creating components of fine and coarse granularity that may be exposed as Web services over SOA. For instance, a common interest accrual component could be used across all front- and back-office applications, providing consistency and accuracy, while extending reusability. This avoids maintaining multiple and distinct sets of programs with the same functionality, which results in additional maintenance costs, resources and time.

These types of technology innovations are also simplifying the maintenance and support of banking products, while reducing the volatility commonly associated with the introduction of new products and services. Leading core banking vendors already are progressing quickly to achieve componentization of their back-office offerings. However, this first wave of component-based systems can be characterized as possessing more coarse-grained components — that is, groupings of unique functionality. These solutions will evolve to more fine-grained components during the next several years, enabling increased levels of business agility. Progressive vendors align to this strategy for two reasons. First, it's a market-differentiating capability for banks, which translates into sales for vendors. Second, this approach rationalizes overlapping functionality and enables innovation through easily accessed components.

Because changes in banking functionality haven't been market movers, many packaged core banking vendors have been afforded the opportunity to play catch-up with product functionalities that once served as differentiators in specialty, homegrown or highly customized solutions — especially in large bank markets. For example, in the past, loan syndication was a specialized functional capability, but now, many core banking vendors support at least basic capabilities in this area, such as a junior participant, but often not as a lead arranger.

The result of these market changes translates into a highly competitive vendor landscape for core banking solution renewal — a market that emphasizes business agility as an overarching priority, but also closely scrutinizes the capacity of vendors to deliver over the long term. Vendor viability, a decision point mostly overlooked in prior core banking renewal efforts, is now one of the more significant weightings in the decision matrix and in the product viability assessment that determines whether a product will survive an acquisition. Many vendors with growth or survival strategies aim to grow a stronger market presence through acquisition and, subsequently, migrating the resultant customer base to the most promising core banking system.

The significance and long-reaching effects of core banking solution renewal, and the relatively short tenure of bank CIOs, are forcing these core replacement decisions onto the laps of business leaders and boardroom members. The game is changing, and not everyone is comfortable with his or her new role, or perhaps knowledgeable enough to ask the right questions to avoid a poor choice. Successful banks will navigate the considerable risks associated with these replacement programs by keeping abreast of current technology trends and the state of the vendor landscape. This Magic Quadrant can assist CIOs by focusing on what matters most — the relevance of vendor and product attributes to the alignment of critical business strategies.

Source: Gartner (September 2012)

Vendor Strengths and Cautions

Avaloq

Avaloq, founded originally as a private banking vendor, has been in the core banking business for more than 25 years and is headquartered in Zurich, Switzerland. Avaloq's progressive entry into the retail banking space has resulted in 60 retail production bank clients. This vendor has deployed customers in Europe, the Middle East and Asia/Pacific. The Avaloq Banking System is mainly written in PL/SQL, supports Oracle Database, and runs on Linux (Oracle and Red Hat) plus the following Unix OSs: Oracle Solaris, IBM AIX and HP-UX.

Strengths

• Avaloq sponsors a Web-based user community that includes networking and has access to virtual meeting points, know-how information exchanges and marketplaces for items of value.
• Avaloq leverages an SOA and offers a comprehensive tool suite with Business Process Modeling Notation (BPMN) 2.0 support to provide easy implementation and future maintenance of the Avaloq Banking System.
• Avaloq provides business consulting services such as parameterization health checks, business process analysis, application landscape analysis, organizational analysis, and project and program reviews.
• Avaloq's acquisition of B-Source as an application service provider (ASP) and business process outsourcing (BPO) provider will broaden market relevance.

Caution

• Although the internal quality survey score has risen, no formal certification exists to assess quality methodologies.

BML Istisharat

Since 1972, BML Istisharat, headquartered in Lebanon, has developed and marketed software systems, including core banking, insurance and ERP. BML's Integrated Computerized Banking System (ICBS) major markets are Europe, the Middle East and Africa, with deployments in 60 retail banks. ICBS runs on Unix, Linux and Windows on Oracle Database, or IBM i on a DB2 database.

Strengths

• A next-generation release of ICBS is under way that is Java Platform, Enterprise Edition (Java EE)-based with service-oriented modeling. Back-office functionality is progressing through 2014.
• The BML customer experience is a strong part of the value proposition for ICBS clients.
• The operations quality methodologies support advanced performance indicators — Capability Maturity Model Integration (CMMI) assessment is being launched.

Cautions

• Although BML is a long-term player in the core banking market, it is a fairly small core banking vendor (approximately 100 staff) and highly dependent on an external sales force — many of which have partnerships with other core banking vendors.
• BML's ability to anticipate market requirements is not fully aligned with a process-oriented approach to guide product and service relevance with market demand.

Cobiscorp

Cobiscorp, headquartered in the Washington, D.C., metropolitan area, has targeted Latin America as its primary market. It has more than 70 core banking clients. Cobiscorp was first deployed at a bank site in 1993, and the latest version is written in Java and .NET. Cobiscorp runs over Unix (IBM, HP and Sun), Windows and Linux (x86) on Sybase or Microsoft SQL Server databases.

Strengths

• Cobiscorp development leverages the Rational Unified Process methodology — iterative and incremental development (IID) — through its own adaptation, Cobiscorp Unified Process.
• It can integrate with business process management tools through SOA, and also provides its own workflow to automate some business processes.
• Cobiscorp is pursuing quality assurance assessments to improve quality consistency and efficiency (for example, European Foundation for Quality Management and CMMI).

Caution

• Cobiscorp's ability to proactively discern market requirements using a process-driven methodology lags behind industry needs.

Diasoft (FA#)

Diasoft, headquartered in Moscow, Russia, has more than 106 bank clients in Russia. Its FA# product is developed with Java and runs over Windows, Linux or Unix (Sun Solaris) on a SQL or Sybase database. FA# is marketed to greenfield banks, small banks and midtier banks targeting low-cost platforms.

Strengths

• Diasoft FA# applications are developed on the principles of an SOA on Delphi/Transact SQL and Java EE platform.
• Gartner's financial viability rating for Diasoft in the assessed period was Positive (see "Understanding Gartner's Financial Ratings of IT Vendors").
• Customer support for FA# production clients was rated above average within the bank reference survey.

Caution

• Diasoft's ability to proactively discern market requirements using a process-driven methodology lags behind industry needs.

Diasoft (Flextera)

Diasoft, headquartered in Moscow, Russia, introduced its next-generation solution, Flextera, in 2010 and currently has three core banking clients in Eastern Europe. Flextera is developed with Java EE and runs over Windows, Linux and Unix on Oracle, SQL, Sybase and DB2.

Strengths

• Flextera supports more than 70 coarse-grained business components that are SOA-enabled.
• Gartner's financial viability rating for Diasoft in the assessed period was Positive (see "Understanding Gartner's Financial Ratings of IT Vendors").
• New business processes can be deployed with the use of a standardized developer toolkit and an extensive library of shareable system services and business artifacts.

Caution

• Diasoft's ability to proactively discern market requirements using a process-driven methodology lags behind industry needs.

FIS

FIS — launched in 1987 and headquartered in Jacksonville, Florida — has more than 200 bank clients. Its Profile product is written with a combination of Profile Scripting Language (PSL) and Java. This core system runs on Unix (IBM, Sun and HP), Linux (x86) and z/OS (IBM) on GT.M, DB2 or Oracle Database. The majority of Profile customers are deployed in Western Europe, with the remainder in North America, Latin America and Asia/Pacific.

Strengths

• FIS's strategic product Profile (v.7.4.2) — targeted to Tier 1 and Tier 2 global banks — is component-based. Although partially written in FIS's proprietary PSL scripting language, it has characteristics similar to Java (for example, classes, objects and properties). The PSL code base can be converted to Java (currently at about 50%) and be runtime-optimized based on configuration.
• Profile leverages a version of Xpress called Profile SOA — FIS's proprietary SOA integration layer based on Interactive Financial eXchange (IFX) XML — that contains services that are preintegrated with the Profile product line.
• Profile enables standard business process access through BPMN.
• FIS's acquisition of Capco (rebranded as FIS Management Consultancy Services) provides an extended level of services that map well with larger bank requirements for knowledgeable resources.

Cautions

• Support for an Oracle Database is an option (one customer is in production) and is generally available in Profile release 7.0. Support for IBM DB2 is now available (no customer is in production). However, the majority of customers use FIS's GT.M database option.
• Exposure of Profile's functional content via the Xpress SOA interface is mostly limited to the services required by a self-service channel. However, 100% of the application data and business logic can be accessed via the fine-grained Java API, JDBC driver and approximately 200 remote procedure calls.

ICS Financial Systems

ICS Financial Systems (ICSFS) is headquartered in London, England. Generally available in 1992, its Banks product is primarily deployed in the Middle East and Africa. However, of the more than 60 ICSFS customers, there are only a few production banks in Europe. ICS Banks is written in Java and runs on Unix and Linux on Oracle Database.

Strengths

• Since 1978, ICSFS has been active in multiple vertical industries, including financial services, which is a strong part of the value proposition to support the ICS Banks product line.
• ICS Banks leverages SOA to provide a high degree of abstraction between the core system and third-party solutions.
• ICSFS has an aggressive pricing policy and revises prices quarterly because of an expense percentage that is low relative to the total revenue.
• ICSFS maintains on-site product support for every major region of operation, including Saudi Arabia, Sudan, Lebanon, Palestine, Iraq, Oman, Libya, United Arab Emirates, England and West Africa.

Cautions

• ICSFS's market understanding is less mature, with fewer resources to uncover industry trends.
• Database support is limited. Oracle is the only database choice.

Infosys

Since 2000, Infosys, which is headquartered in Bangalore, India, has steadily built a core banking customer base that now exceeds 220 core banking references. Although more than half of the Finacle customer base is found within the Asia/Pacific region, Infosys has progressively expanded to a broader, global presence across six continents. The Finacle core product line is coded with C/C++ and Java, and is offered on Unix/Oracle and Linux/DB2 (z/OS).

Strengths

• Infosys' ability to formulate effective product strategies and marketing initiatives is underpinned by a process-driven market understanding from diverse resources.
• Infosys is one of a handful of core banking vendors that has faced large bank transformational programs and is building Finacle Solution Delivery Platform to better address the complexity of the entire life cycle.
• Infosys improves partner project readiness and execution through a partner enablement program.
• Finacle's flexibility and extensibility are enhanced and accessed through GUI-based tools that support business logic (Finacle Scripting Studio), business process (Finacle InFlux/Process Execution Analysis and Simulation), business rules (Finacle Rules Interface), user interface (Finacle Custom Studio), management information system reports (Finacle Report Designer) and interfaces (Finacle Integration Mapping).

Caution

• Although bank references rated Finacle's implementation experience positively in consecutive years, this year's rating dropped below previous levels.

InfrasoftTech

InfrasoftTech is headquartered in Mumbai, India. Its OMNIEnterprise product was launched in 2003, and its primary markets are South Asian Association for Regional Cooperation (SAARC) countries and Africa. InfrasoftTech has more than 100 core banking clients. OMNIEnterprise is based on Java and runs over Windows, Unix and Linux, and on Oracle, DB2, SQL Server and MySQL databases.

Strengths

• InfrasoftTech provides a diversity of client services, such as delivery models that include software as a service or hosted services.
• InfrasoftTech's quality methodologies within operations are well-developed. The vendor earned a Capability Maturity Model Integrated (CMMI) Level 5 (v.1.3) rating.
• OMNIEnterprise's architecture and technical infrastructure (OS and database) and capability are ranked favorably by customers.

Caution

• InfrasoftTech's marketing and sales network is not as extensive as those of peer competitors.

Misys (BankFusion Equation)

Misys is headquartered in London, England. Its BankFusion Equation product is a combined software offering of Equation, BankFusion Platform and BankFusion Shared Applications. Misys has 17 production customers in Europe, Asia/Pacific, Africa and the Middle East. BankFusion Equation is written in Java (BankFusion Platform and Shared Applications) and RPG (Equation). It runs over IBM iSeries (OS/400) on the DB2 database for Equation and AIX for BankFusion components.

Strengths

• The Equation stand-alone core banking system (no longer marketed) has more than 250 customers and has seen increased migration to BankFusion Equation (currently 36 contracted customers) in the past year.
• BankFusion Equation is a solution built and deployed on the BankFusion Platform, where all business services can be exposed as Web services. All existing Equation functionality has been exposed to the BankFusion Platform, and its APIs are available as Web services.
• The BankFusion Equation Service Composer allows the creation of new services and the combining of multiple APIs, and it defines specific screen flows.

Caution

• Misys' ability to proactively discern market requirements using a process-driven methodology lags behind industry leaders.

Misys (BankFusion Universal Banking)

Misys is headquartered in London, England. It launched BankFusion Universal Banking in 2008, and has 15 contracted customers in North America, Latin America, Western Europe, Africa and the Middle East. BankFusion Universal Banking is written in Java and runs over Unix (HP and IBM) and Microsoft Windows Server on DB2, Oracle and SQL Server databases.

Strengths

• Misys has improved customer satisfaction year over year, measured through relationship and transactional surveys.
• BankFusion Workbench tools, including the Product Composer, provide added graphical dimension to the product factory model. This feature makes it easier and faster for banks to visualize and make changes to their business processes.
• BankFusion Universal Banking is an SOA solution built and deployed on the BankFusion platform, where all business services can be exposed as Web services.

Caution

• Depending on the bank's size and product complexity, BankFusion Universal Banking may not map well to existing functionality within a bank. Some capabilities have yet to be built, such as sophisticated cash management features.

Open Solutions

Open Solutions, which is headquartered in Glastonbury, Connecticut, has been in the core banking market since 1992. Open Solutions' DNA product is the successor to The Complete Banking Solution (for banks) and The Complete Credit Union Solution (for credit unions). Although North America is the primary market for Open Solutions' more than 500 financial institutions, bank deployments extend to Southeast Asia and the Caribbean. DNA is written in C# and runs over Unix, Linux and Windows, using Oracle Database.

Strengths

• Open Solutions supports an integration layer via SOA, including multiple component paradigms, such as .NET.
• It is the first core banking vendor to take the big step forward into the world of open development. The DNAappstore is a community for DNA core users to market and leverage innovation from credit unions, banks, partners and independent consultants.
• Open Solutions provides extensive consulting services for customers, including business continuity planning, risk assessment, performance metric tracking, training and proficiency testing.
• It provides innovative customer support through its Client Care group, including autoescalation, a product-knowledgeable specialist and four assigned specialists/analysts for each client.

Caution

• Database support is limited, with Oracle as the only database choice.

Oracle

Oracle Financial Services Software, which is headquartered in Bangalore, India, was created under Citicorp's ownership in the mid-1990s. Oracle's Flexcube Universal Banking Solution (UBS) (v.11.x) is truly a global solution with production banks in 125 countries across six continents. Flexcube UBS has more than 200 bank clients and is written in Java. It runs over Unix, Linux and Windows on an Oracle Database (10g and 11g).

Strengths

• Advances in process orchestration leveraging Business Process Execution Language (BPEL) are an important strategic path for this product line as back-office componentization becomes a reality. Oracle plans to expand on the inventory of more than 630 preanalyzed, generic banking processes and more than 200 IT processes within the Oracle Industry Reference Model.
• Oracle's Flexcube Integration Lab enables a bank's IT team to experience the live benefits of SOA enablement. Banks that are now renewing the core processing applications can test and experience the flexibility and ease of integration for an SOA deployment.
• Flexcube UBS has exposed functionalities with more than 2,500 services within its SOA repository.

Cautions

• Source code is not provided, and customers must rely on Oracle for direct customization for most requirements. Data table definitions also are not supplied. However, Oracle provides an extensibility layer that supports user customization and tooling that insulates bank customization (usually at the display level) from release changes.
• Database support is limited, with Oracle as the only database choice. However, an in-memory columnar database option is available through Oracle Exadata.

Polaris FT

Launched in 2005, Polaris FT's Intellect Global Universal Banking M180 (Intellect) has more than 130 customers across North America, Europe, the Middle East, Africa, Asia/Pacific and Oceania. More than half the customer base resides in Asia/Pacific. Intellect (v.12.0) is written in Java and runs over Unix (IBM, Sun and HP) and Linux (z/OS) on Oracle and DB2 databases.

Strengths

• Intellect is a service-enabled, component-based core banking system.
• Polaris provides advanced service programs, such as progressive modernization of legacy environments, that help reduce risk in more complex, transformational core banking replacement programs.
• Polaris' Accelerated Implementation Methodology, which reduces program duration, is being extended to large banks.
• Polaris was reassessed in 2010 and scored a CMMI Level 5 certification — offering highly repeatable, continuous-improvement processes.

Caution

• Although multiple resources and channels are used to discern market understanding, process-oriented methodologies associated with this approach are not as evolved.

SAP

SAP is headquartered in Walldorf, Germany. Launched in 1995, SAP's Transactional Banking (v.8.0) has more than 61 banking clients across 30 countries in Europe, North America, Latin America, Africa, the Middle East and Asia/Pacific. Transactional Banking is written in Advanced Business Application Programming and Java, and it runs over Unix (IBM, HP and Sun), Linux (x86 and z/OS), Windows and IBM i.

Strengths

• SAP derives its market understanding through diverse channels, including direct customer and partner interactions, institutionalized customer groups — such as the Banking Industry Architecture Network (BIAN) — user groups, and participation in industry groups and standards bodies.
• Quality assurance methodologies permeate the operations organization to monitor process adherence and performance.
• Transactional Banking maps to industry trends toward open-architecture, component-based core banking systems.

Caution

• Feedback from some SAP core system deployments suggests that limited availability of product/business experts can cause program delays.

Sopra Banking (Delta-Bank)

Through Sopra Group's acquisition of Delta Informatique, the group has been active since 1981. Sopra Banking Software — the newly formed software group headquartered in Paris, France — encompasses the Evolan, Thaler and Delta-Bank product groups, and will be marketed as Sopra Banking Suite. Sopra Banking Suite/Delta-Bank is deployed in more than 150 banks, primarily in Africa, but also, to a smaller extent, across Europe and in Asia/Pacific. Sopra Banking Suite/Delta-Bank is written in Java and Genero running in Unix, Linux or Windows, and is hardware-independent.

Strengths

• Sopra Banking Suite/Delta-Bank's primary sales targets are French-speaking or Francophone markets, but it has expanded beyond these traditional markets into English-speaking regions.
• In addition to standard professional services, such as project management and product training, Sopra Banking Suite/Delta-Bank offers database (Informix and Oracle) and OS (Unix and Windows) training.
• Sopra Banking Suite/Delta-Bank is gaining significant strategic maturity through Sopra Banking Software's centralized management of Evolan, Thaler and Delta.

Caution

• Banks hoping to self-develop modifications may be hindered from the lack of Genero (a fourth-generation database query language) skill sets.

Sopra Banking (Thaler)

Sopra Group's latest acquisition of Callatay & Wouters (April 2012) adds a veteran to its software holdings company, Sopra Banking Software. Headquartered in Paris, France, this newly formed group encompasses the Evolan, Delta and Thaler product groups and will be marketed as Sopra Banking Suite. Since 1983, the former Callatay & Wouters has delivered technology solutions to the financial services market. Sopra Banking Suite/Thaler (v.3) is the latest release developed with COBOL, C and Java that runs over Unix, Linux and z/OS over Oracle or DB2 databases. This core banking system has almost 40 bank clients in Western and Southern Europe, Africa, Oceania, and Southeast Asia.

Strengths

• Sopra Banking Suite/Thaler possesses almost 10,000 services and 300 modules, exposing broad access to functionality for internal and external purposes.
• Through Sopra Banking Suite/Thaler, Sopra Banking Software is ahead of the implementation quality demand curve by extending product and process knowledge to its partner ecosystem through certification programs. Certification includes knowledge testing and field assessment.
• Through Sopra Banking Suite/Thaler, Sopra Banking Software actively participates in industry groups, such as BIAN, and has been able to leverage these standards organizations to improve development and deployment processes. For example, as part of the Sopra Banking Suite/Thaler Enterprise Architecture, the Banking Business Reference model provides a more transparent approach to discuss product capabilities from a business process perspective.

Caution

• Although multiple resources and channels are used to discern market understanding, process-oriented methodologies associated with this approach are not as evolved.

Tata Consultancy Services

Tata Consultancy Services (TCS) is headquartered in Mumbai, India. Its TCS BaNCS product, introduced in 1986, possesses more than 220 bank clients across North America, Europe, the Middle East, Latin America, Oceania and Asia/Pacific. More than half the customer base resides in Asia/Pacific. TCS BaNCS is written in Java and COBOL, and runs over Unix (IBM, HP and Sun), z/OS, Linux (z/OS) and Windows on Oracle, DB2 and SQL Server databases.

Strengths

• Complementing TCS's financial viability rating of Positive, its product strategy and advanced architecture model enable product change at the pace of business. Feedback from customer engagements suggests that TCS's extensive services bandwidth, methodologies and people are differentiators for large or complex bank replacement programs. However, banks of other sizes should also benefit from these company traits.
• TCS's ability to offer extensive BPO capabilities (Citigroup acquisition) and the capacity to broaden market relevance through an ASP sourcing model position the BaNCS product division ahead of the demand curve.

Caution

• TCS's ability to proactively discern market requirements using a process-driven methodology lags behind industry leaders.

Temenos Group

Temenos Group is headquartered in London, England. Its T24 (r.12) product was originally launched in 2003 to replace Globus. T24 is deployed across 110 countries in more than 500 banks. T24 runs over Unix (HP, IBM and Sun), Linux and Windows on Oracle, DB2, Microsoft SQL Server and its proprietary jBase databases.

Strengths

• T24's sales and execution, in conjunction with its market responsiveness and track record, continue to hold Temenos in a leadership role.
• In the past year, Temenos has made significant investments in the service side of the business and in supporting methodologies to accommodate the use of partners.
• Enhanced use of the managed consultancy group to identify business process requirements earlier in the decision cycle or implementation phase should reduce program risk in downstream activities.
• Given the breadth of T24 functionality, strategic componentized development efforts should pay off in shorter and higher-quality implementation cycles.

Caution

• Mounting industry requirements for consistent, quality software are driving leading vendors down the path of software certification. Although the Chennai-based Temenos Application Management Services group has achieved CMMI Level 3 certification, the remaining development team is undergoing an assessment scheduled to be complete by mid-2013.

Vendors Added or Dropped

We review and adjust our inclusion criteria for Magic Quadrants and MarketScopes as markets change. As a result of these adjustments, the mix of vendors in any Magic Quadrant or MarketScope may change over time. A vendor appearing in a Magic Quadrant or MarketScope one year and not the next does not necessarily indicate that we have changed our opinion of that vendor. This may be a reflection of a change in the market and, therefore, changed evaluation criteria, or a change of focus by a vendor.

Added

New entrants to the 2012 IRCB Magic Quadrant include:

• Diasoft (FA#)
• Diasoft (Flextera)

Dropped

Vendors dropped from the 2012 IRCB Magic Quadrant due to not meeting the current inclusion criteria are:

• Fiserv (Signature): This is the first time Fiserv has not participated in Gartner's IRCB Magic Quadrant research effort, and reflects a transitional shift of its international core banking strategy.
• Neptune Software (Equinox).
• SAB Ingenierie Informatique (SAB AT).

Note: Delta Informatique and Callatay & Wouters were acquired in the past year and appear under Sopra Banking in this research.

The evaluation began with 36 product candidates for the 2012 Magic Quadrant for IRCB, and resulted in a qualified group of 19 vendor/product offerings that represent the major movers in the retail core banking system market. This final group submitted information ranging from long-term strategies to product road maps. Additionally, Gartner conducted interviews with nearly 40 reference banks that encompassed all vendor/product participants, except ICSFS, InfrasoftTech, Open Solutions and TCS. This assists in resolving the placement of group finalists on the Magic Quadrant.

The general finding is that many core banking vendors have an elevated sense of urgency to keep ahead of the demand curve for banks' technology requirements. Some have taken more measured and conservative steps to retool their core banking systems, while others are moving more tactically through this wave of renewal activity. Regional and global vendor consolidation is a factor in the competitive balance of the IRCB market; however, it is still a splintered market served by traditional vendors and some relatively new offerings, such as Diasoft's Flextera and Misys' BankFusion Universal Banking.

Changes From Last Year

Vendor qualifications for inclusion in this year's Magic Quadrant for IRCB were adjusted slightly to reflect narrower participation levels in the core banking replacement market. The requirement for newly contracted customers increased from three to four.

Inclusion

To be included in this year's IRCB Magic Quadrant, a vendor had to demonstrate market traction and momentum by meeting the following criteria:

• Vendors must have at least 35 production customers for IRCB functionality across vendor core banking offerings (as defined in the IRCB product capability section).
• Vendors that possess at least 35 customers for other retail core banking products meet the production customer criteria for new products that have yet to sustain this threshold number of customers. Diasoft's Flextera meets the criteria in this way.
• The vendor must have at least four newly contracted customers for IRCB functionality during the past four rolling quarters.

IRCB Product Capabilities

A vendor had to support multilingual and multicurrency capabilities, plus IRCB functionality, for at least six of these seven disciplines:

• Current accounts
• Savings
• Fixed-term deposits
• Consumer loans
• Commercial loans
• Mortgage loans
• General ledger

Exclusion

Many core banking vendors were invited to participate in the initial screening process, but some were not selected because of insufficient product market qualifications in the Magic Quadrant qualification process.

These vendors/products lacked the minimum number of new-name clients:

• Accenture (Alnova Financial Solutions)
• BMA (BankRite Global)
• CSC (Celeriti)
• CSC (Hogan Systems)
• ERI (Olympic)
• FIS (Systematics)
• FIS (K-Core24)
• FIS (eCAS2)
• Fiserv (Signature)
• Harland Financial Solutions (Phoenix)
• Infopro (Integrated Computerised Banking Account [ICBA])
• Intrasoft (Profits)
• Neptune (Rubikon)
• SAB Ingenierie (SAB AT)
• SunGard (Ambit Corporate Banking)
• Sword Apak (Aurius)

These vendors/products lacked the minimum number of retail banking clients in a production environment:

• BMA (BankRite Global)
• CSC (Celeriti)
• CSC (Hogan Systems)
• ERI (Olympic)
• FIS (K-Core24)
• FIS (eCAS2)
• Harland Financial Solutions (Phoenix)
• Intrasoft (Profits)
• Neptune (Rubikon)
• SunGard (Ambit Corporate Banking)
• Sword Apak (Aurius)

These vendors/products lacked the capacity to support multilanguage:

• BMA (BankRite Global)
• FIS (eCAS2)
• Sword Apak (Aurius)

These vendors/products lacked the capacity to support multicurrency:

• BMA (BankRite Global)
• Harland Financial Solutions (Phoenix)

Evaluation Criteria

Ability to Execute

The evaluation criteria for this axis focus on traction in the market and how the vendor/product is positioned to sustain support for near-term banking market requirements and commitments.

This Magic Quadrant emphasizes the following criteria as high, which means that these criteria have increased importance for banks that are selecting core banking systems:

• Product/Service: This element of a vendor's Ability to Execute is highly concentrated on:
  • The capabilities and road map of the product
  • The technical aspect, which includes architecture, component orientation and real-time capacity of the system
  • The professional services offered in association with the product
• Overall Viability (Business Unit, Financial, Strategy and Organization): This element corresponds to the heightened importance of vendor stability and the likelihood of sustained or increased investment in the product line.
• Customer Experience: This element includes a focus on customer interactions linked to SLAs and implementation experiences. In addition, reference interviews were conducted, or information was derived from Gartner clients within the past rolling four quarters.
• Operations: This area of evaluation centers on how the vendor/product organization is equipped to provide infrastructure mechanisms or resources for the consistent attainment of business goals, including:
  • Program/project management structures and initiatives
  • Maintenance and major-release practices
  • Quality initiatives

Source: Gartner (September 2012)

Completeness of Vision

The evaluation criteria for this axis are based on the effectiveness of vendor/product strategies that link them to the market.

This research emphasizes the following criteria as high, which means that these criteria have increased importance for banks selecting core banking systems:

• Market Understanding: This element of a vendor's Completeness of Vision is centered on the ability of the vendor to respond to anticipated and unanticipated market requirements, and the process that supports it. This demonstrates how closely connected the vendor is to the banking industry.
• Offering (Product) Strategy: This element corresponds to the organizational effectiveness of the development and delivery capabilities of the vendor/product group — consistency and quality are key attributes.
• Vertical/Industry Strategy: This area of the evaluation associates banking industry commitment to initiatives such as participation in standards organizations and other industry groups. The area also focuses on unique hiring practices, training and other means to maintain close industry relevance.
• Geographic Strategy: Apart from the standard content for this criterion, this element focuses on the ability of the vendor to extend direct and indirect resources to deploy its core systems. Fundamentally, as many vendors drive to expand market presence, this criterion assesses how effectively they can leverage limited resources and partners to provide implementation consistency across the stated target markets.

Source: Gartner (September 2012)

Quadrant Descriptions

Leaders

This quadrant is occupied by vendors that demonstrate strong development methodologies, and all these vendors have a measurable strategy for disaggregating core banking software functionality into component-based constructs. Many vendors possess methodologies for quality assurance or are executing on a strategic road map to attain certification. Most vendors maintain a strong banking market understanding through methodical processes, and have extensive marketing delivery and sales channels. Although there are many well-balanced vendors/products in this quadrant, some are in transition and possess evolving products, process maturity or both.

Challengers

The vendors in this quadrant demonstrate an emphasis on architectural product enhancements designed to improve business agility. A strong commitment to the product offering is evident, although the ability to respond to anticipated and unanticipated market conditions (using a process methodology) lag behind most of the Leaders. Especially significant in this quadrant are players that have the potential to be breakthrough performers and, in some cases, are just a few steps away from achieving notoriety.

Visionaries

Almost all vendors in the Visionaries quadrant are moving toward advanced architectures at uneven rates of acceleration. Most of these vendors have an advanced approach to market understanding — they anticipate banking industry trends — and are commonly governed through process-based methodologies. However, some vendors struggle with operations maturity when compared to the Leaders.

Niche Players

Niche Players are vendors with mixed profiles, but banks can expect above-average levels of customer support and implementation from most of these vendors. The majority of these vendors have an evolving SOA strategy. Most of these vendors lag behind the others because of their inability to effectively anticipate bank market industry trends through repeatable processes.

In many ways, the current assessment period for the retail core banking market mirrors the challenges of the prior year. Although uncertainty lingers about the relative health of the banking industry amid concerns over threats of currency destabilization, debt crisis and double-dip recession, bank CEOs are steadfastly shifting from postrecessionary caution to a posture of growth (see "CEO Survey 2012: Financial Services CEO Agenda"). As banks reassess their capacity to support this shift in business focus, it's clear that technology is in the crosshairs to serve as the catalyst for growth.

It's also clear through market analysis that geography and bank segmentation play a role in defining a bank's velocity when executing its business growth strategy with enabling technologies, such as component-based core banking. Whether this uneven adoption takes the shape of energized banks in emerging markets seeking traction, while other markets retract, or whether banks feeling the heat of increased competition from a variety of financial service providers are drivers for change, the consensus expectation is that technology is the "big fix" to outperform their competitors.

For many banks, their increased scrutiny of foundational technologies is uncovering legacy core systems with more problems than benefits. These core systems act as obstacles to business growth. Still, CIOs know that simply swapping one core system for another is not the answer. This technology strategy must provide measured value and be masterfully executed, with a clear focus on how any change will improve and enable business processes that create growth. And bank CEOs and boards of directors know there's no perfect time to upgrade back-office technology that is critical and core to bank operations.

But it's not just banks that are in the midst of change. The supply side of the banking market is also in flux. Vendor consolidation continues as competition grows fiercer (for example, Sopra and Delta Informatique, Sopra and Callatay & Wouters, and Misys' change of ownership), and new entrants to the retail core banking market include both novices and subsector veterans. Significantly, those vendors that haven't already stepped on the accelerator for architectural advancement (such as SOA and component-based architecture) place their products and organizations increasingly at risk of becoming obsolete.

So, the material question for banks is, "How and where do we start this process of business change?" Banks need to first reassess their IT readiness for this season of growth. If their core banking capability to support the business or IT comes up short, then they need to tread carefully through the maze of vendors and products — the impact, time and cost to banks are high. This is especially relevant in 2012, as the vendor landscape shifts and familiar products lose viability, while new entrants vie for market share. As banks search for a competitive edge, strategic decision criteria and the available technologies will determine the best vendor and product fit. Successful banks will navigate the considerable risks associated with these replacement programs through maintaining good governance, keeping abreast of current technology trends and being knowledgeable about the state of the vendor landscape.

Targeted Research

This Magic Quadrant assesses the suitability of core banking system providers and their product offerings to address the impact of these trends on the IRCB market. Gartner has evaluated the competitive landscape of core banking vendors that service the future of the international retail banking market. This evaluation has uncovered the leading strategies of these vendors and products, revealed their underlying product/service capabilities, and affirmed their relevance to the changing conditions of the banking industry.

Vendor Landscape and Quadrant Movements

Although the number of contractual commitments for core banking replacement diminished during the past year, bank interest in this topic has not abated and is, in fact, increasing. Based on client inquiries and face-to-face interactions, banks' business strategies haven't changed much year-over-year with growth, retention and efficiency highlighting the agenda. If current market conditions persist or improve during the coming year, count on pent-up demand to serve as a catalyst for increased numbers of business case justification efforts for core banking replacement.

Vendor consolidation and volatility continue, represented in this Magic Quadrant with Sopra's acquisition of Delta Informatique (Delta-Bank) and Callatay & Wouters (Thaler) in the past year. Competing bids also resulted in the ownership change at Misys (Vista Equities), which highlights private equity firms' beliefs that the core banking market has players with undervalued assets. Don't be surprised if similar acquisitions occur within the next two years. Other market players — such as IT service providers — are questioning whether to enhance their role as core banking partners and transition to owners of core banking assets. The margins for large bank or Tier 1 core banking deployments are tempting, and owning the entire value chain is enticing.

2012 Market Movers

• Component-based, SOA-compliant core systems: The technology evolution to SOA-compliant, component-based core solutions that promise to enhance business agility is gaining momentum. As vendors acquire, build or migrate core systems to component-based, SOA-compliant solutions, this repository approach will drive increased interest in industry service-level standardization. Vendors will offer a repository of components, rather than packages and modules. Components can be assembled into applications in the standard way (the "factory default") or assembled in a slightly different way to create unique applications for the bank. This is consistent with overall industry trends to SOA adoption within financial services, predominantly SOA and SOA combined with EDA.
• Beyond componentization: Although this architectural approach has been a progressive product goal over the past few years, five of the vendor Leaders are aggressively developing component-based architecture and taking it to the next level — the core banking app store. Exposing core systems functionality for community innovation is the first step along a path influenced by an established trend for the consumerization of IT (see "Creating Strategy in Financial Services"). Open Solutions was first to market with a core banking app store, but others are following fiercely. Apps are smaller than applications. See "Banking Meets Open Development Platforms" for a detailed explanation of the differences.
• Deployment reality check: CIOs are frustrated with the high development and maintenance spending of custom integration that doesn't provide any direct value to end customers. Gartner has been on top of the trend that's driving the banking industry to provide broader standards for banking SOA. A consortium of banks, vendors and service providers has aligned to form working groups to industrialize SOA. The BIAN is expanding membership and deliverables toward integration standardization (see "The Benefits and Drawbacks of BIAN Membership").

Banking Business Power, Drivers and Decision Makers

Core banking renewal has historically been viewed as a high-cost and high-risk undertaking that few banks execute, unless they have no other choice. This perspective is beginning to change. Rather than slowing renewal activity, the financial crisis served to accelerate it.

Although renewal is still high-cost and high-risk, it is also potentially high-reward, because it enables higher agility and efficiency in ways that are transformational for the bank, such as providing faster time to market for new products (days versus months) and accommodating business process change. Transformation that enables banks to reinvent the way they service customers, embed operational efficiency and provide business change — without the requisite long waiting periods — is foundational change. Many banks are viewing this time period as an opportunity to gain traction in their respective markets and sustain lasting competitive advantage.

As banks increasingly turn to core system replacement to drive change, they should expect a correspondingly higher rate of implementation problems. Simply put, more banks implementing more core systems with limited vendor resources translate to a lack of experienced project teams to get the job done successfully. To a level not experienced in recent memory, core banking vendors will be more dependent on their system integration (SI) partners to act as extensions of their bandwidth. As core banking vendors add SI partners to their networks, concerns about training and certification will drive banks to exercise more due diligence during the core banking selection process. Gartner assesses this capability within the operations criterion for each of the vendors in this Magic Quadrant.

Traditional LOB legacy applications, and the vendors that support them, are increasingly proving to be unwieldy weapons in the battle for consumers. Future go-to-market strategies that require a different approach to banking — such as chasing migrating workers across the globe, pursuing unbanked and underbanked populations, and accommodating general consumer trends of mobility and personalization — require new business approaches and technologies.

The face of banking technology decision makers has transitioned from senior IT leaders to business owners and board members. These decision makers need to understand this market. Core technologies are evolving to highly agile architectures, and the implications for making the wrong decision will be lasting and could put banks at competitive risk.