Bob Giffords Director, EMEA Research & Consulting

1. Bob Giffords Director, EMEA Research & Consulting The State of European BankingKey IT Challenges in 2005IT Banking 2005Paris, Tuesday 15February 2005

2. Rightward shift: New Accession States have moved the centre of gravity eastwards Regional, European Focus: for economies of scale Record bank profits but competition is fierce & strong € slows growth Regulation fatigue Roll out of: IFRS, Basel II/ RBCD, Chip & PIN, SEPA, FSAP, etc. Europe in Transition 2005

3. 3 key European Themes Re-integrating the Enterprise Industrialising the Value Chain Global Top 10 Issues Automating Content Management Competitive marketplace still drives leaders

4. Re-integrating the Enterprise • Customer relationships fragmented • by multi-channel delivery & • diminishing share of wallet through competitive direct banking services • mobile customers are hard to serve • Governance is fragmented by silo based core banking systems, frequent mergers/ acquisitions, & new regulatory demands • Payments are fragmented by new types of e-money and alternative payment/ clearing networks • Securities processing is fragmented by multiple pools of liquidity, new derivative asset types, and real time arbitrage opportunities • IT Infrastructure is fragmented by variety of platforms, architectures, & standards

5. Outsourcing 20-30% In house value Creation 70-80% Outsourcing 70% In house value Creation 30% Industrialisation of the Value Chain Car / Airline Industry = Mature • Focus on core competencies • Many business models: Shared services, classic outsourcing, joint ventures • Business drives component IT/ e-services • Database driven supply chain management & deep integration • Factory + service mentality Financial Services = Not mature • Vertically integrated, in-house processes • Captive IT utilities for industry association or in-house IT • IT still fairly monolithic with legacy systems • Relationship management of internal resources and service contracts • Customer relationship focus

6. Automated Work Flows Paperless Office: Document Image XML / EDI Databases Documents Integration Active Documents: Wrapped in XML, XBRL etc. Automating Content Management

7. Future Outlook for Agile Bankers:Global Top 10 Issues 2005 • Dynamic IT & Infrastructure • Profitability & Performance Management • Regulatory Compliance & Risk Management • Developing new IT enabled Revenue Sources • Enterprise Payments • Security & Fraud Management • Integrated Multichannel Delivery Systems • Selective Sourcing • Core Banking Transformation • Intelligent Interaction Management

8. Variable Pricing Model 1 Dynamic IT & Infrastructure Flexible Sourcing Model Responsiveness to Market Business Strategy Automation and Execution End-to-End Design and Management Service-Oriented Architecture Standards-based Components Virtualised Resources End-to-End, Dynamic Management IT Operations Automation and Management Operational Efficiency

9. Comply Stakeholder Values Constrain Attract, retain 2 Profitability & Performance Management: Balanced Scorecards Invest & allocate risk capital Build & operate Human Capital Technology Finance & Business Processes Customers Generate profits Satisfy/ delight

10. ‘Spitzer Effect’ ‘Parmalat’ 3 Regulatory Compliance & Risk Management IAS / IFRS International Accounting Standards EU regulators SEPA, 42 FSAP initiatives, etc. Sarbanes-Oxley, Patriot Act Basel II FATF Money Laundering Major pressure on enterprise data infrastructure, analytic engines, and reporting tools/processes Compliance and regulations have top share of mind

11. 4 Developing new IT enabled Revenue Sources • From price sensitive commodities to value added differentiation • Fast time to market (weeks not months/ years) • Leveraging • advanced business intelligence, market research & profitability analysis • parameterised Product Factories • customer centric Fee Repositories • Focus on • Deep supply chain integration for corporates • Holistic private client services • No new killer apps

12. Banking Payment Methods Performance Management EBA RTGS CLS ACH Cheque Clearing Visa/MC ePayment Proc Advisory Call Center IVR ATM Kiosk Internet PFM PDA WAP Teller Shared Delivery Stack Investments Presentation Formatting Common Payment Services Gateway Management Operational Risk Business Logic Control ANALYTICS & KNOWLEDGE Connectivity Fraud Anti-Money Laundering Credit Risk Customer Profile/ Policy Performance Mgt Risk & Authorizations Authori- zations Document Image Alerts & Notifications Optimized Routing Liquidity Management Insurance PROCESS MANAGEMENT 5 Enterprise Payments Product Factory Third Party Services Credit Ratings Demographics Market Data Shared Delivery Stack Delivery Channels Source: Financial Insights

13. 6 Security & Fraud Management • Identity theft (Phishing), First Party Credit Fraud, Virus attacks, Denial of service, etc. all growing • Technology solutions, processes & policies all need to evolve with criminal skill levels • Enterprise level visibility & command & control • 2 Factor authentication & digital signatures • Forensic security tools and techniques are important for tracking

14. Core Systems Core Systems Core Systems Banking Core Systems Core Systems Core Systems Core Systems Core Systems Presentation Delivery Channels Core Systems Teller Advisory Call Center IVR ATM Kiosk Internet WAP PFM PDA Touch point performance management Web & Internet Connectivity Content Transactions Investments Business Rules Business Objects Connectivity Shared Delivery Infrastructure Messaging Customer Insurance Knowledge Knowledge Factories Back End Product Factory Systems Interaction 7 Integrated Multi-channel Delivery Systems Customer Centric Source: Financial Insights

15. 8 Selective Sourcing • Turn fixed into variable Costs & reduce them • Increase range of Skills on Demand • Transformation of the IT Infrastructure • Increase Service Levels 24x7 • Support Pan European / Global Operations • Moves to Selective Sourcing • ASPs for cards, payments, mortgages, fund management, web hosting, etc. • Leverage best practice and market knowledge • Offshoring for certain BPO • Insourcing to create economies of scale & revenue to fund in-house development

16. Core Systems Core Systems Core Systems Core Systems Core Systems Core Systems Core Systems Core Systems Core Systems Investments Insurance 9 Core Banking Transformation Banking Product Factory Systems • Web services will dominate here too • Business Process and Content Management are critical features • Component based application services with real time database updates must integrate with delivery channels, payments, governance & other services • Parameter driven product factory & customer based fee repositories

17. Business Intelligence Customer - Centric • History, Analytics • Pattern Recognition Sales & Service • Mgmt Reporting • Dynamic Marketing Collaboration Multi - Channel Delivery • Customer Data Preferences • Channel Integration • Data Access Customer • Authentication/Security • Case Management • Intelligent Routing Management • Account/Service • Audit & Delivery Management Logistics Business Process • Authentication • Service Enrollment • Event Definition • Exception Management • Straight - Through Processing 10 Intelligent Interaction Management

18. Essential Guidance • Think “Enterprise Architectures” • Think “eCollaboration” • Think “Data-driven Marketing” • Think “Factory Mentality” • Think “Performance tied to value proposition” • Think “Dynamic IT” And work progressively towards strategic goals

19. Questions Bob Giffords Director EMEA Research & Development Financial Insights IDC United Kingdom, British Standards House 389 Chiswick High Road London, W4 4AE bgiffords@financial-insights.com +44 208 987 7100