As the retail banking boom continues, international retail core banking (IRCB) systems are increasingly the focus of banks searching for competitive advantages across multiple geographies. However, this market is in transition and has become progressively volatile as increasing numbers of banks renew their retail back-office systems. Apart from the accelerating number of core banking replacement decisions, the vendor consolidation trend characteristic of past years took a brief respite in 2007, but the technology evolution that promises to enhance business agility is gaining momentum. This Magic Quadrant assesses the suitability of core banking system providers and their product offerings to address the impact of these and other trends in the IRCB market.

Banks exploring a renewal of back-office systems are finding a changed vendor/product search process that departs significantly from past selection projects. Different sets of decision models and technologies are in play that determine the best fit for a bank.

An impending seismic shift in the retail banking market is threatening to render traditional, line-of-business (LOB) legacy applications as unwieldy weapons in the battle for consumers. Future, go-to-market strategies that chase migrating workers across the globe, pursue unbanked and underbanked populations, and accommodate digital native profiles require unconventional business approaches and technologies — this is the future of banking.

The face of banking decision makers is transitioning increasingly from senior IT leaders to business owners and board members, the core technologies are evolving to highly agile architectures and the implications for making the wrong decision will be lasting and could put banks at a competitive risk.

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/products, revealed their underlying product/service capabilities and affirmed their relevance to the changing conditions of the banking industry.

The evaluation began with 32 candidates for the IRCB Magic Quadrant for 2008 and resulted in a qualified group of 22 combinations of vendors and products that represent the major movers in the retail core banking system market. This final group submitted information ranging from long-term strategies through to product road maps. Additionally, Gartner conducted interviews with reference banks to resolve the placement of group finalists on the Magic Quadrant.

The general findings are that many core banking vendors have an elevated sense of urgency to keep ahead of the demand curve for these technology solutions; others have taken more measured and conservative steps, and still others are moving more tactically through this wave of renewal activity.

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 IRCB Magic Quadrant assesses vendors on the multicurrency products they offer in support of a bank's financial transaction management in the retail banking market.

Although the definition of core banking systems hasn't shifted dramatically throughout the years, changes abound in the software and hardware environments for back-office systems. Hardware platforms previously delineated "vendor turf" or target markets for a given core banking product (that is, mainframe and IBM iSeries). However, core banking systems are becoming less platform- and database-dependent, causing overlapping vendor offerings and increased competitive market conditions. This means more choices for banks. Simultaneously, operating systems like Unix are reaching into traditional mainframe banking segments through highly scalable systems — benchmarks that easily process more than 100 million accounts. As these hardware and operating system boundaries blur, competitive vendor market segmentation is dissipating.

As hardware and operating systems forge ahead, changes in core banking functionality have reached a relative plateau and have not been significant factors in the retail core replacement cycle. Gaining access to customer information — a challenge with product-centric core solutions — is definitely a driver for adopting open, easily integrated core banking systems.

The maturation of middleware messaging architectures, and the evolutionary path to services and event-driven constructs are leading to opportunities that will unlock the single-use logic in these LOB solutions. Development techniques, such as service-oriented development, are focusing on creating components of fine and coarse granularity that may be exposed to services. For example, a common interest accrual component is used across all front- and back-office applications to provide consistency and accuracy while extending reusability.

These types of technology innovations are simplifying the maintenance and support of products while reducing the volatility commonly associated with the introduction of new products and services. Some core banking vendors already are progressing quickly to achieve componentization of their back-office offerings.

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 homegrown or highly customized solutions — especially in large bank markets.

The result of these market changes translates to a highly competitive vendor landscape for core banking renewal. Vendor viability, a decision point mostly overlooked in prior core banking renewal efforts, is now one of the more significant weightings in a decision matrix. Vendor market volatility and end-user demands for broader-based functional alternatives to best-of-breed, LOB applications are driving unprecedented partnerships among former competitors (for example, SAP/Callatay & Wouters [C&W], Temenos Group/Metavante Banking Solutions).

The significance and long-reaching effects of core banking renewal now are associated more commonly with the business and boardroom than with the prior decision point of IT, whose most important question used to be, "What systems run on a mainframe?"

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 entrants. Vendor qualification for inclusion in the 2008 IRCB Magic Quadrant was centered on market-established players and some relatively new entrants that show potential.

Inclusion

There were 32 initial combinations of software vendors and products for the IRCB Magic Quadrant; 22 finalists were selected for inclusion. The selection criteria served to identify vendor products that possessed sufficient market traction, supported basic retail functionality and international support, and provided evidence of short-term viability.

To be included in the 2008 IRCB Magic Quadrant, a vendor had to demonstrate:

• Market traction and momentum
  • A vendor had to have at least 35 production customers for IRCB functionality.
• IRCB product capabilities
  • A vendor had to support multilingual and multicurrency capabilities plus IRCB functionality for at least six of these seven modules:
    • Current accounts
    • Savings
    • Fixed-term deposits
    • Consumer loans
    • Commercial loans
    • Mortgage loans
    • General ledger
• Short-term viability
  • A vendor must have sufficient professional services or partners to fulfill current and future customer demands during the next 12 months.

Exclusion

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

The vendor/product combinations that did not meet the inclusion criteria were:

• Allshare (Quaestor)
• CSC (Hogan Systems)
• Financial Objects (activebank Retail)
• Gora (Omega)
• Metavante Banking Solutions (Bankway)
• Misys (BankFusion)
• Nucleus Software Exports (FinnOne)
• Polaris Software Lab (Intellisuite)
• SlaterLabs (Etude)
• TriSyn Group (Infopoint)

New entrants to the 2008 IRCB include:

• C&W (Thaler)
• Harland Financial Solutions (Phoenix)
• Open Solutions (The Complete Banking Solution [TCBS])
• SunGard/System Access (Symbols)

No vendors were dropped from the prior IRCB Magic Quadrant research effort.

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

This Magic Quadrant emphasizes these criteria as "high," which associates increased importance for banks that are selecting core banking systems:

Product/Service

This element of the 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, Organization)

This element corresponds to the heightened importance of vendor stability and the likelihood of sustained/increased investment in the product line.

Customer Experience

This element includes focus on customer interactions linked to service-level agreements and implementation experiences. In addition, reference interviews were conducted with more than 45 banks that encompassed all vendor/product participants except one, Fidelity National Information Services (FNIS) Corebank J.

Operations

This area of evaluation centers on how the vendor/product organization is equipped to provide infrastructure mechanisms/resources for consistent attainment of business goals, including:

• Program/project management structures/initiatives
• Maintenance and major release practices
• Quality initiatives

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

This research emphasizes these criteria as "high," which associates increased importance for banks selecting core banking systems:

Market Understanding

This element of completeness of vision is centered on the ability of the vendor to respond to anticipated and unanticipated market requirements. This demonstrates how closely connected the vendor is to the banking industry.

Marketing 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.

This quadrant is occupied by vendors that possess a strong banking market understanding, and most have a measurable strategy for disaggregating core banking software functionality into component-based constructs. Most vendors exhibit highly developed and certified development and delivery of quality methodologies or are executing on a strategic road map to attain certification. Most vendors in this quadrant have extensive marketing delivery and sales channels. Some higher-rated vendors share conspicuous operational organization approaches to key performance indicators and show a clear willingness to own and be accountable for a successful customer experience.

Vendors in this quadrant exhibit progressive process methodologies for innovation, with an emphasis on architectural enhancements designed to improve business agility. These vendors show active commitments to ongoing banking industry standards and the corresponding evolution of their product architectures. Maintaining a strong commitment to the implementation and customer support experience is evident; although strategic sales and marketing approaches lag behind some leaders, vendors in the Challengers quadrant are evolutionary.

The vast majority of vendors in the Visionaries quadrant are moving toward advanced architectures and demonstrate market understanding in their alignment to support business agility, although some are early in their efforts and haven't yet executed extensively in their respective target markets. Wholesale quality initiatives that could provide more-consistent development and delivery results are not as well-developed as those in the Leaders quadrant. For most visionary vendors, marketing execution is not consistent across selected geographies, which is slowing growth.

Niche players are vendors with mixed profiles. About half of these vendors lack effective product road maps to migrate legacy applications to component-based software systems. For these vendors/products, deep and mature functionality provides market relevance and mapping to LOB capabilities. Enterprises can expect standard to above-average levels of customer support and implementation from these systems. Some vendors in this quadrant may not make the transition to compete effectively with products that are evolving toward advanced architecture models to leverage service-oriented and event-driven architectures.

• Consolidating seamless strengths of business consulting services and product capabilities, Accenture has built an enduring business unit viability.
• Accenture leverages a centralized marketing and sales network (client account teams) to effectively propose solutions that combine service and product.
• Customers consistently and positively reference the overall implementation experience and, specifically, the implementation program and project management.
• The transition from implementation phase to live production provides continuous customer support that was prevalent during interviews with references in the banking industry.

• Although Accenture delivers an effective combination of banking product and service, high levels of customization — not uncommon with Alnova implementations — are contrary to the evolving trend of banking requirements to reduce IT maintenance spending.

• A differentiating strength for C&W is its market-responsiveness speed and track record for customers, including mainframe deployment, prepaid cards and regulatory compliance.
• Extensive and effective process-oriented sales life cycle management promotes a consistent customer experience from presales through live production.
• Customer interviews show evidence of effective partnership approaches to the implementation experience, including penalty/reward contractual clauses.
• C&W's development partnership with SAP provides customers with access to the NetWeaver product and a path to SAP's Business Process Platform, thus leveraging Thaler and SAP banking services.

• C&W's strategy for market understanding and associated process-oriented methodology is on an evolutionary track.

• Fiserv Comprehensive Banking System (CBS) Worldwide has reorganized, centralized and enhanced its market understanding with the deployment of a Global Solutions Strategy group.
• Fiserv's path to process innovation leverages Rational Unified Process — an IBM process methodology — to analyze strategic ideas and develop business cases for potential investment.
• Highly effective customer support ranks Fiserv International Comprehensive Banking System (ICBS) as a significant contributor to bank satisfaction in production environments.
• Fiserv has extensive relationships with multiple banking industry groups to gain closer alignment with industry trends and practices.

• Although Fiserv has extended an additional Linux product offering (IBM Advanced Interactive Executive, or IBM AIX) beyond its primary product based on the IBM iSeries, the vendor's competitive landscape is tending toward platform- and database-neutral solutions.

• Bank implementation experiences and customer support with Core24 were consistent and highly rated.
• Core24 product capability is aligned well with German market requirements.
• Core24 consulting services are extensive and range from strategic, process-centric services to performance measurement and analyses.
• FNIS deploys a common development and investment methodology across all product lines encompassing a process-oriented market understanding (setting the context) and investment decision processes.

• Although marketed to Central European countries, the customer base is primarily small-to-midsize German banks.

• The COBOL-based Corebank product capability for the Skandinavisk Data Center, a bank-owned cooperative in Copenhagen, Denmark, aligns well with Danish market requirements.
• FNIS deploys a common development and investment methodology across all product lines encompassing a process-oriented market understanding (setting the context) and investment decision processes.
• Corebank leverages the Financial Services Data Model (FSDM), part of IBM's Information FrameWork (IFW).
• FNIS actively participates in several industry associations, such as Interactive Financial eXchange Forum.

• Support for the COBOL-based Corebank is targeted narrowly to the Danish small or midsize software-as-a-service market.

• FNIS deploys a common development and investment methodology across all product lines encompassing a process-oriented market understanding (setting the context) and investment decision processes.
• Corebank leverages the FSDM, which is part of IBM's IFW.
• Corebank's Product Build relates well to industry business trends for faster product deployment through reusability.
• Corebank's technical architecture is component-based and services-enabled.

• Corebank's sales and marketing execution are on an evolutionary track.

• FNIS deploys a common development and investment methodology across all product lines encompassing a process-oriented market understanding (setting the context) and investment decision processes.
• FNIS's strategic product — targeted to Tier 1 and Tier 2 global banks — is component-based. Although written in a proprietary language (Profile Scripting Language), it has similar characteristics to Java (for example, classes, objects and properties); the code base can be converted to Java.
• Profile has broad distribution (more than 192 banks) over multiple regions.
• The customer support experience for production customers is highly rated.

• Although support for an Oracle database option is generally available in Profile release 7.0 and support for IBM DB2 is planned for 2008 availability, the vast majority of customers use FNIS's GT.M database option.

• FNIS deploys a common development and investment methodology across all product lines encompassing a process-oriented market understanding (setting the context) and investment decision processes.
• Systematics has deep functional capabilities, especially in the Advanced Loan System (ALS) module, gained through long-term market deployment.
• Systematics exposes functionality through services in the Xpress integration product.
• Systematics has broad international distribution and has deep penetration in Asia/Pacific.

• Although Systematics is a viable core banking system, platform-restrictive solutions (mainframe only) will have limited market potential as competitive, platform-neutral solutions become more-prevalent.

• Through International Turnkey Systems (ITS) — Harland's primary international distributor and strategic development partner — project management processes align with Project Management Body of Knowledge standards from the Project Management Institute. ITS is certified as Level 5 under the Capability Maturity Model Integration (CMMI).
• Through Harland's distributors, ITS and Data Action, the vendor has on-the-ground perspectives of market requirements in targeted markets.
• Phoenix supports Islamic finance functionality to effectively address the needs in this market segment.

• Although Harland directly manages the U.S. and Caribbean, it also provides high-level guidance — functionally and architecturally — and Phoenix base software to independent companies for other regions (that is, Data Action [Australia] and ITS [Middle East and South Asia]).These organizations largely administer the Phoenix brand through services, self-developed customization and delivery.

• Through process-oriented methodologies, Infosys Technologies uses varied input sources, such as primary research, industry experts and consulting organizations, to build and validate short- and long-term business plans.
• Starting with established product principles, Infosys deploys effective buy, build and alliance processes to translate market requirements into technology solutions.
• From contract sign-off to implementation and subsequent live productions, Infosys leverages a life cycle engagement process model to enhance and provide a consistent customer experience.
• Quality methodologies permeate the operations organization to monitor process adherence and performance.

• Infosys is renowned for IT services — especially in the financial services market — but only recently has the company begun delivering the mine of talent that prospective banks perceive as high-value services in the Finacle division.

• Establishing process-oriented approaches to market understanding is leveraging Misys's banking domain knowledge and promises to improve its market position.
• Bankmaster is mature and has deep functionality with geographically broad support.
• Results from customer interviews show increased satisfaction from live production customers.

• Bankmaster's market relevance to growth banks pursuing open-architected, services-based solutions is limited by the proprietary product architecture; a migration path to the BankFusion product, currently in pilot, is expected to be the long-term strategy.

• Distinctive business development process methodologies are improving short-term sales efforts and are positioning Misys well for future penetration of selected markets.
• Results from customer interviews show increased satisfaction from live production customers.
• Misys has strong, emerging-market understanding and possesses deep functionality in Equation — Islamic Banking or regional expertise such as Russia and the Commonwealth of Independent States — to cater to customer demands.

• Although some instances of long-term problem resolution are reported, Equation customer responsiveness has improved, and problem escalation processes are effective. Ongoing quality process improvements appear to be having a positive effect.

• Open Solutions is replicating customer interaction programs, such as the CEO Forum, from its traditional North American markets to emerging markets.
• Open Solutions provides extensive consulting services for customers, including business continuity planning, risk assessment, performance metric tracking and training proficiency testing.
• Open Solutions provides innovative customer support through its Client Care group, including auto-escalation, a product knowledge base and four assigned specialists/analysts for each client.

• Resolving initial functional requirement gaps and/or capabilities from acquisitions or new markets can be a challenging aspect of Open Solutions' growth.

• Advances in process orchestration leveraging Business Process Execution Language (BPEL) is an important strategic path for this product line as back-office componentization becomes a reality.
• Market understanding is a strong value proposition as i-flex anticipates market requirements through process-oriented methodologies.
• i-flex leverages CMMI Level 5 for software development and a project methodology (i-prime), which also serves as a knowledge management repository for subsequent implementations.

• Source code is not provided, and customers must rely on i-flex for direct customization; data table definitions also are not supplied.

• Market understanding is a strong value proposition as Oracle i-flex Universal Banking Solution (UBS) anticipates market requirements through process-oriented methodologies.
• i-flex leverages CMMI (Level 5) for software development and a project methodology (i-prime), which also serves as a knowledge management repository for subsequent implementations.
• Advances in process orchestration leveraging BPEL is an important strategic path for this product line as back-office componentization becomes a reality.

• Source code is not provided, and customers must rely on i-flex for direct customization; data table definitions also are not supplied.

• SAP derives its market understanding through direct customer and partner interactions, institutionalized customer groups (such as the Industry Value Network for Banking, which is in the process of becoming an independent organization) and participation in industry groups and standards bodies.
• SAP's ecosystem strategy combines base Transactional Banking components with certified partner products, including outbound partnerships, to cover requirements gaps in the SAP offering.
• Innovation is enabled through worldwide SAP Research Centers and by the corporate venturing group, SAP Inspire. These groups are focused on midterm to long-term technologies and business strategies.
• SAP's foundational product, NetWeaver, is a key deliverable with Transactional Banking. In addition to its role as an integration broker, this product provides capabilities such as collaboration, multichannel integration, knowledge management and source of master data management.

• Although sales execution and effectiveness are accelerating, many prospective large banks that maintain a risk-averse profile are waiting for more large-scale proof points prior to engaging SAP Transactional Banking.

• Silverlake Axis Integrated Banking Solution (SIBS) has leveraged its local market focus and has been able to serve diverse market requirements, such as microlending and Islamic banking.
• Product road maps outline a path for component orientation to expose services and the adoption of an event-driven architecture. Silverlake provides two approaches to software upgrades — global and customer-specific.
• SIBS also offers customer-specific software releases that provide differentiating customization for banks seeking a competitive advantage.
• Silverlake provides customization and consulting services beyond traditional implementation program management and outsourcing as a sourcing option.

• Expansion external to familiar Asia/Pacific markets has met with some challenges in requirements gathering and implementation.

• SunGard (see Note 1) deploys a distinct, process-oriented methodology for market understanding that encompasses interactive inputs from sources such as its Customer Advisory Board.
• The Symbols marketing strategy provides targeted and coordinated messaging based on multiple sources, such as primary research and inputs from market understanding.
• Symbols' underlying architecture reveals an advanced services and business-component-based approach that supports business process orchestration.
• Ongoing customer support in a live production environment is rated highly by reference banks.

• Although SunGard provides implementation touchpoints outside the project management function (that is, executive management and the project steering committee) that enhance governance, delays in implementation sometimes result from deficiencies in the requirement-gathering process.

• The TCS strategic product business unit — TCS Financial Solutions — has demonstrated considerable product development execution in building a service-oriented, component-based core banking solution that is competing effectively with leaders in the core banking market.
• TCS conveys appreciable credibility to TCS BaNCS product futures and corresponding viability.
• TCS's services experience in large bank environments aligns well with TCS Financial Solutions' system integration requirements.

• As TCS Financial Solutions gains traction in the core banking market, significant coordination efforts between the product development and delivery organizations will be required to leverage reusable product functionality.

• Through T24's broad distribution across multiple regions (more than 400 clients), market understanding is a strong value proposition.
• T24's sales and execution, in conjunction with its market responsiveness and track record, has forged a leadership role in the industry.
• Temenos is on an evolutionary path to becoming more capable in the professional services arena, with several initiatives under way to grow this business.

• Implementation challenges have been increasingly mitigated through resource centralization and increased governance; recent announcements of CMMI certification should further increase quality.

• Temenos CoreBanking (TCB) has strong product functionality, with an underlying component-based architecture.
• TCB is typically mainframe-oriented, but it's possible to deliver different code bases through the use of a common source — AppBuilder from BluePhoenix Solutions — and to use this tool to deliver COBOL mainframe, COBOL on Unix, and Java on Unix and Microsoft.
• TCB provides consistent data use and models through IBM's FSDM in the IFW.

• In partnership with core banking provider Metavante, major releases to enable service-oriented architecture are due out in 2008 to 2009.

• TietoEnator's Core Banking Solution (CBS) client base is mainly in the Nordic region but targets markets in the U.K., Germany, Italy, Portugal, Spain and the Belgium, Netherlands and Luxembourg region for midtier and large banks.
• Although TietoEnator follows CMMI at a corporate level, the CBS development group adheres to continuous product improvement, which is similar to CMMI.
• TietoEnator leverages a direct sales approach to selected markets unified by a centralized global sales organization and is very active in acquisitions to quickly add capacity vs. a build-it-yourself approach.

• Business development strategies to expand beyond traditional markets are challenging in the near term.