European banks will spend €50bn on renewing their overall application infrastructures over the next seven years, analysts estimated today.
Forrester Research said that banks beginning their application renewal initiatives by 2010 will invest a total of about €100bn on related software and services over the lifetime of the projects.
As a result, banking platform vendors, banking software vendors, and IT services companies may enjoy more than €10bn in revenues over the next couple of years, the analyst firm predicted.
According to Forrester almost 70 per cent of European banks have either started to renew their overall application infrastructures or have concrete plans to do so.
"The necessary project budgets for software and services are huge: up to €250m in extreme cases," said Jost Hoppermann, vice president of financial services at Forrester.
"European banks are overwhelmingly moving towards application landscape renewal; 46 per cent have already started and a further 23 per cent plan to do so."
The cost for different firms was found to vary significantly, ranging from €5m for a relatively small bank to €250m for a tier-one financial institution. Although finance houses are decreasing their IT spending, banking platform renewal is mandatory.
Forrester believes that banks need to finance renewals out of existing budgets, and will continue to try to reduce the proportion of the IT budget eaten up by operational costs, currently 71 per cent.
The analyst firm noted that banks will also identify parts of the overall application infrastructures that can be renewed within application development and integration projects already being driven by regulatory or business requirements.
"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 prioritise them," said Hoppermann.
Forrester believes that banking platform renewal is also a big opportunity for vendors, but warned that they need to address a number of issues, including communicating about their products and managing banks' perceptions.
"Vendors have to prove that they can deliver their products in small chunks and have them interoperate with third-party applications," added 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."
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