Global Core Banking: Steady But Unspectacular Growth

1. Global Core Banking: Steady But Unspectacular Growth November 19, 2013 Daniel W. Latimore, CFA Senior Vice President, Banking Stephen Greer, Analyst, Banking Group A recording of today's webinar and copy of the presentation will be available to Celent clients on our website athttp://reports.celent.com/login.asp

4. For today’s discussion • Market Overview and Key Trends 4 • Hosted vs. On-Premise 10 • Global Market Overview 14 • Regional Market Overview 17 • Core Banking Market Size 28

5. Market Overview and Key Trends Section 1

6. Introduction to Core MarketArchitectures are coming under increased scrutiny for agility, cost and simplicity Core architectures may finally start seeing significant activity; the discussion has certainly become more persistent • Agility requirements • Cost imperatives • Simplicity: Increased interest in “process orchestration” technologies to change customer experience without replacing core Banks increasingly willing to work within a partner ecosystem to deliver value to customers • Increasing use of on-demand computing • Selective outsourcing / partnerships to get more value out of existing assets • Specific contracting arrangements to achieve specific tasks requiring specialized expertise • Some have always been outsourced, at least partially, e.g., advertising, creative and legal • Some have more recently been outsourced, e.g., call centers • Some are now on the table: • Cloud • Marketing services • Analytics • Innovation

7. Market Drivers for Core Transformation Source: Celent

8. Most Core banking system solutions provide full or partial coverage for the key functions, segments and products found within a bank Generic Banking Architecture (simplified) Datamanagement Corporate banking platforms for retail use Retail-and business banking solutions Supportsystems Branches Call Centre Internet Mobile ATM HR Client/ Partner Cash Manage- ment Customer (relationship) management Business loans Mortgages Consumer loans Deposits Investments/advisory MaterialsMgmt. StructuredInvestments (Interfaces to) other systems/suppliers: Insurance, AM Products Finance/ Contract Account-based functions Collateral Management Current Account Office Commu-nication Payments Market Domestic Payments/International Payments DocumentMgmt. Other operations Securities Processing Bank control/MIS RiskManagement Market Market Accounting Sales Controlling RiskControlling External Reporting Credit Credit Financial Controlling Treasury Operational Operational Included in most CBS solutions Included in some CBS solutions Not directly covered by CBS solutions Source: Celent & Oliver Wyman

9. The Definition of Core is Changing “Componentization and advanced middleware are changing the nature of core banking.” Traditional Core Evolving Core Payments? Components The Cloud Big Data Digital Channels Deposits Loans

10. Macro market trends continue to shape the competitive landscape and influence banks’ decisions on core Source: Celent

11. Hosted vs. On-Premise Section 2

12. Hosted vs. On-Premise (1/2) Common concerns around hosting Global adoption North America Adoption Source: Celent analysis • Infrastructural problems. Telecommunications constraints can limit the effectiveness and reliability of a hosted model. As IT infrastructure improves around the globe, this should be mitigated • Some geographies simply don’t have a large enough financial services sector to make it reasonable for vendors to host in a data centre • Regulatory constraints. Country-specific regulatory measures may requires data be handled within borders • Misperceptions. Scalability concerns, developmental control, security risks, and data risks

13. Hosted vs. On-Premise (2/2) Benefits from hosting Global adoption European adoption Source: Celent analysis • Standardization of compliance: Ready made regulatory systems rolled out to the datacentre • Cost savings: Data centres can share resources and drive down costs by pooling services. Offsite deployment means the maintenance and hardware costs are taken on by the vendor, while the bank is freed from keeping on expensive IT professionals. • Better infrastructure (upgrades, scalability, etc.): Vendors will usually make sure there is sufficient bandwidth to support high traffic, and the focus on providing a hosted model means there’s an emphasis on hardware, availability, and automatic upgrading. • Focus on main business: Small banks with limited resources can focus more of their energy on bolstering their main business, which is banking.

14. Banks are willing to use cloud to reduce costs; security concerns often make bigger banks reluctant to cede control Bank willingness to adopt cloud • Cloud computing enables ubiquitous, convenient, on-demand network access to a shared pool of computing resources that can be rapidly provisioned and released with minimal management effort or service provider interaction • Service models • SaaS: Software as a Service • PaaS: Platform as a Service • IaaS: Infrastructure as a Service • Deployment models • Private Cloud • Community Cloud • Public Cloud • Hybrid Cloud • On/Off premise an important distinction Larger Banks Smaller Banks Source: National Institute of Standards and Technology; Celent Analysis

15. Global Market Overview Section 3

16. Global Market Share For Core Systems <$1 Billion in Assets $1-$20 Billion in Assets >$20 Billion in Assets

17. Regional Market Overview Section 4

18. North America Market Share For Core Systems <$1 Billion in Assets $1-$20 Billion in Assets >$20 Billion in Assets

19. CurrentMarketConditions in North America

20. Western Europe Market Share For Core Systems <$1 Billion in Assets $1-$20 Billion in Assets >$20 Billion in Assets

21. CurrentMarketConditions in Western Europe

22. Asia-Pacific Market Share For Core Systems <$1 Billion in Assets $1-$20 Billion in Assets >$20 Billion in Assets

23. CurrentMarketConditions in Asia-Pacific

24. Eastern Europe, Middle-East, and Africa Market Share For Core Systems <$1 Billion in Assets $1-$20 Billion in Assets >$20 Billion in Assets

25. CurrentMarketConditions in Eastern Europe, Middle East, and Africa

26. Latin America Market Share For Core Systems <$1 Billion in Assets $1-$20 Billion in Assets >$20 Billion in Assets

27. CurrentMarketConditions in Latin America

28. Core Banking Market Size Section 5

29. The Global Core market exhibits market-specific idiosyncrasies • Celent estimates today’s market to be $8.6 billion in revenue • Overall growth over the next four years should be 4.0% • Despite significant pressures, banks are a cautious lot • Few banks wish to be pioneers with a vendor new to their geography • Progressive transformation is now the preferred migration path • A few success stories in heritage geographies will unleash pent-up demand Core Revenue Globally

30. Scope and considerations for market sizing Price Structure Pricing Estimates Source: Celent & Vendors

31. Core revenue by region shows slight disparities in growth driven by regional demand Source: Celent & Vendors

32. Maintenance will a driver of core revenue growth despite standing at 41% of total revenue today Source: Celent & Vendors

33. Conclusion Global Observations

34. Thank You Daniel W. Latimore, CFA Senior Vice President, Banking dlatimore@celent.com Twitter: @danlatimore Stephen Greer Analyst, Banking sgreer@celent.com