News release

Fabienne Scholz Ernst & Young Media Relations Tel.: +41 (0) 58 286 34 10 fabienne.scholz@ch.ey.com

Ernst & Young IT in Swiss Private Banking 2013

Insufficient use made of opportunities for innovation in IT

Many banks use their resources mainly for the maintenance of their IT systems. A newlypublished study by Ernst & Young, IT in Swiss Private Banking 2013, shows that the strategic development of IT systems is being neglected. Banks are not sufficiently leveraging IT innovation to renew their business models and thus missing out on competitive advantage through technology. The survey also highlights disparities in earnings within banks: IT staffs earn only 65 percent of the average salary paid at the same bank.

ZURICH, 14 MAY 2013 With banks facing growing pressure on their IT systems regarding data security, confidentiality and compliance with regulations, Ernst & Young has analyzed the core banking systems currently used to run the banks' core IT processes in its IT in Swiss Private Banking study. The survey revealed that two thirds of banks use standard software in their core banking systems. 17 percent use solutions developed in-house and an equal proportion uses software components from external sources that were adapted to their own requirements. Standard solutions are used by 50 percent of large banks, 60 percent of medium-sized banks and 78 percent of small banks. Most smaller banks have no choice but to use standard solutions. The costs and work involved in developing their own system is beyond what they can achieve with their IT staff. But many medium-sized and large banks also shy away of the considerable initial costs of developing in-house solutions, says Robert Rmmler, Senior Manager in Advisory Financial Services at Ernst & Young Switzerland.

No cost savings with standard software Opting for standard solutions cannot, however, be explained in full by cost considerations alone. Banks using standard software in their core banking systems spend around 15 percent of their total operational expense on IT, with license fees accounting for much of that figure. For banks using core banking systems they've developed by themselves, expenditure on IT only accounts for some 11 percent. We were surprised by the fact that medium-sized and large banks opt for standard solutions despite the higher cost. It may be that they find the additional cost acceptable because they want their IT landscape to be less complex. If you decide not to invest in your own development work, you tie up fewer staff and can concentrate on more-value-adding investments, says Robert Rmmler.

The limits of outsourcing Of the banks surveyed, 61 percent manage their core banking systems themselves; 11 percent outsource their IT, while 28 percent outsource whole business processes to third-party service providers. But the study shows that outsourcing does not automatically lead to lower costs. The banks that outsource the operation of their core banking systems spend around 15 percent of their total outgoings on it. Where individual business processes are outsourced, the costs add up to around 15.3 percent, while in-house management of the IT system works out cheapest at around 14.6 percent.

Low salaries for IT staff On average, IT workers make up 9 percent of a bank's total staff. With 12 percent, the proportion of IT staff is highest in banks that develop their core banking systems themselves. Banks using standard solutions have only around 7 percent of their employees working in IT. The survey also highlights marked disparities in earnings within the banks, with IT workers earning on average 65 percent of the average salary at the same bank. The discrepancy in earnings is extraordinary, especially when you consider the increasing importance of IT in the private banking business. Banks wanting to stand out from competition thanks to their IT services need to consider whether such differences in salary are still justified, says Andreas Toggwyler, Partner in IT Advisory Financial Services at Ernst & Young Switzerland.

Focus on compliance and data security According to the study, banks use much of their IT resources for maintaining their systems, with day-to-day operations accounting for 73 percent of IT costs and the remaining 27 percent spent on adapting the systems. Banks that develop their own core banking solutions spend the most -

some 36 percent - on adapting them when necessary. Future IT expenditure is planned for compliance and data security measures; an overwhelming majority of the IT managers questioned (96 percent) are planning to spend their IT budget for 2013 primarily on meeting regulatory requirements, while 87 percent of them cite improved data security as another priority. No more than 4 percent of the respondents are planning to focus on social media.

Focusing business models on the future Banks are concentrating on complying with regulations and on keeping their data secure. You can't help noticing that they hardly express any further aspirations. What that means is that they're not using innovations in IT to create new capacities and make their clients happier by developing new products and services. They're missing the opportunity to use IT services - be it in e-banking or other services - to enhance their profiles and generate new revenue. In the long term, though, it's not enough to just keep the systems ticking over and IT costs under control. If you understand and see IT as a business driver, you can improve the data on which all your business decisions are based and do something to help adapt your business model to the future, says Andreas Toggwyler.

Information on the study This study of IT in Swiss Private Banking 2013 is based on a survey conducted by Ernst & Young in the second half of 2012, with questions answered by the IT managers of 24 banks, 16 of which were private banks, 4 universal banks, and 4 with a broad mix of clients and products (hybrid business model). Of those taking part in the survey, 46 percent were small banks (with less than CHF 5 billion in assets under management), 29 percent medium-sized banks (assets between CHF 5 and 15 billion) and 25 percent were large banks (with assets between CHF 15 and 100 billion). All of them are based in Switzerland or do most of their business here. This is the first time this survey has been carried out in this form, with most of the questioning taking place during face-to-face interviews.

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