IBM sees Tier 2 banking deals holding up in UK/Europe

(By Anthony Miller) I’m in Bucharest courtesy of IBM and have just spent time with one of their banking industry leaders. Coming just a couple of days before IBM reports 3Q08 numbers they were of course not giving away any detail. But in general terms it appears that so far this year as a whole sales and implementations of core banking systems in UK/European Tier 2 banks had not as yet been affected by the financial markets melt-down and in IBM’s view these banks were less likely to suffer than their larger peers. The rationale for this optimism is that unlike Tier 1 banks, the Tier 2’s have put little investment into their core systems for many years and some have reached a crunch point where they can no longer keep up with more recent products from the larger banks, such as offset mortgages. Wholesale replacement by a packaged core banking system is seen as the only viable option.

What was even more interesting was to see which core banking software players IBM was primarily partnering with in our locale. Besides SAP, which is clearly backing IBM as well as its original banking system partner Accenture, it’s the Indians, notably iflex – now majority owned by Oracle – and increasingly, Finacle, Infosys’ core banking product. IBM also partners with Switzerland-based Temenos, but ‘our very own’ Misys didn’t rate a mention. IBM’s relationship with Infosys is a little paradoxical on both sides. No doubt Infosys would dearly love to ‘prime’ any Finacle sale, but recognises that many western banks are – as yet – disinclined to put all their eggs in one basket. IBM, on the other hand, risks introducing the best run Indian offshore player into key banking accounts. Ain’t ‘co-optition’ grand!

The story at UK Tier 1 banks is pretty grim, with IT spending hit harshly. The imperative to cut IT costs further will limit investment to ‘transformational’ services around hardware and software consolidation that can guarantee quick pay-back as these banks to try to get closer to the operational cost structure of the likes of Spain's Santander. Mind you, this begs the question about the extent to which the UK Government will want to influence IT investment for those banks in which it will have stakes. Some may find this thought a scary prospect!