The global core banking market was worth around $4.8 billion last year and is expected to grow to $5.1 billion by the end of 2013, according to research house Celent.
With North American and Western European institutions already having core systems in place, most spending comes from Asia Pacific, Latin America and Eastern Europe, the Middle East and Africa.
Celent estimates that around $2 billion of the $4.8 billion spent globally on core systems in 2011 came from Asia Pacific, double the amount handed out in Western Europe and North America.
Because of the US regulatory environment, the North American market is dominated by local technology vendors FIS and Fiserv, with Jack Henry & Associates picking up business among smaller banks.
In Western Europe the picture is more diverse, with large banks deploying disparate systems and international subsidiaries typically running on diverse platforms, meaning local and international vendors are competing for business, with Misys, FIS and ERI leading the way.
In the more lucrative Asia Pacific and Latin America regions, many large banks have already started core platform overhauls in the last decade, but the field is wide open for small and mid-size institutions, says Celent. In Asia Nucleus, Misys and Oracle dominate the market for banks with less than $1 billion in assets, while Temenos, Oracle, FIS and Infosys are the leaders with the larger firms.
Temenos and Misys have cornered the market in Eastern European, Middle East Asian, and African banks, although Path Solutions has secured a slice of the pie thanks to its Islamic banking focus.
Celent also detects an increasing willingness to look at hosted implementations as a viable way to run core systems, especially at small banks that lack the economies of scale to justify an on-premise platform or mainframe installation.
While ASP systems have been popular among smaller North American banks for some time, there has been resistance in developing countries over concerns with telecommunications infrastructure. However, this is now changing, says the report, with banks in emerging markets more confident of their ability to use the money-saving platforms in centralised hosted environments.
Although big banks are still unwilling to use ASP, they have have "shown interest in going for core transformation," says Celent and this is expected to lead to growth in the market.
This belief that tier one players are preparing to overhaul their systems was a major factor in Temenos's recent, now abandoned, plan to merge with rival Misys.
Ben Robinson, director, strategic planning, Temenos, told Finextra in February that by consolidating, the companies could move beyond their traditional client base of tier three and four banks and better target tier one and two players now preparing to take the inevitable, cost-saving steps to packaged software.
Stephen Greer, analyst, banking group, Celent, says: "Coming out of the economic crisis, banks scaled back their IT spending, but spending has started to rise. The total number of core deals from 2010 has decreased slightly, yet the overall deal sizes have increased, and the future is looking better for the core banking industry."