The survey of IT decision-makers at 64 European financial services companies found that three quarters still favour a large element of inhouse development as a means of marketplace differentiation.

While around five per cent of European financial services firms use only applications developed in-house, 31% focus on in-house development with a small share of off-the-shelf products added in. Nearly 40% of the firms surveyed favour an equal mix, while fewer than one in 10 has decided to move towards a complete suite of applications, such as a banking platform from a single vendor.

The research also found that 69% of firms prefer to run their insurance or banking platform in-house rather than outsourcing operations.

The study found a strong movement toward application renewal for the next five to six years, with banks wanting to get rid of 'patchwork applications'. In total, 86% of financial firms are either already renewing their applications or will start sometime before 2010.

Forrester says vendors need to capitalise on the renewal opportunity, but the research suggests that financial services ISVs are failing to market applications effectively to financial firms and need to review marketing strategies if they want to convince banks to move away from in-house development.

Jost Hoppermann, Forrester analyst and author of the report, says: "Currently, many banks and insurance companies are very well aware that they need to distinguish very clearly what they need to build in-house and what they can purchase off the shelf. The latter option is cheaper and faster, although unfortunately often less differentiating: Several application software vendors in financial services need to work on providing the right information to spur their clients to choose off-the-shelf software."