European banks will spend ¿50 billion on renewing their overall application landscape in the next seven years, according to Forrester Research (Nasdaq: FORR). Banks beginning their application landscape renewal initiatives by 2010 will invest a total of about ¿100 billion on related software and services over the lifetime of these projects. As a result, banking platform vendors, banking software ISVs, and IT services companies may enjoy more than ¿10 billion in revenues over the next couple of years.
Sixty-nine percent of European banks have either started to renew their overall application landscape or have concrete plans to do so. ¿The necessary project budgets for software and service are huge: up to ¿250 million in extreme cases,¿ stated Jost Hoppermann, Vice President, Financial Services at Forrester Research. ¿European banks are overwhelmingly moving toward application landscape renewal ¿ 46% have already started and a further 23% plan to do so.¿
Platform Renewal Can¿t Be Avoided, Though Careful Planning Can Contain Costs Somewhat
The cost for different firms varies strongly, ranging from ¿5 million for a relatively small bank to ¿250 million for a tier one bank. Although financial institutions are decreasing their IT spending, banking platform renewal is mandatory. Forrester believes that banks need to finance renewal out of existing budgets, so they will continue to try to reduce the proportion of IT budget eaten up by operational costs ¿ currently 71%.
Banks will also identify parts of the overall application landscape that can be renewed within application development and integration projects already being driven by regulatory or business requirements. Hoppermann: ¿Banks will need medium- to long-term planning to identify suitable chunks of the application landscape for renewal, align those chunks with ongoing initiatives, and prioritize them.¿
Vendors Have To Be Prepared With Their Own Vision
Forrester believes that banking platform renewal is also a big opportunity for vendors ¿ but they need to address a number of issues, including communicating about their products and managing banks¿ perceptions. ¿Vendors have to prove they can deliver their products in small chunks and have them interoperate with third-party applications,¿ said Hoppermann. ¿Without an all-encompassing approach that goes beyond selling a current account application, an integration of multiple back-end applications, and even a complete banking platform, vendors will not be in a position to take advantage of this multibillion-euro opportunity.¿
The report mentioned in this release, “Banking Platform Renewal: Sizing The Market”, is available to Forrester WholeView2¿ clients.