The impact of the ARZ deal on the SITS market figures for Austria
PAC recently updated its software & IT services market figures by verticals for Austria (exclusively considering non-captive revenues, i.e. external revenues). One development is worthy of mention: the acquisition of Allgemeines Rechenzentrum GmbH, short ARZ, by Accenture is expected to have a significant impact on the development of IT services for the banking industry. For 2022 and 2023, this deal will result in substantial growth. Overall, PAC expects average growth of 17% in IT spending by this vertical. In more detail, application management and infrastructure outsourcing services will increase substantially, and we expect momentum in infrastructure support services & project services. For example, infrastructure outsourcing services will increase from €85 million in 2021 to €164 million in 2023 (both in current prices), an annual rate of approximately 40%.
ARZ, which mainly specializes in software development and hosting for the banking sector, was previously a captive provider, owned by various Austrian banks, such as Volksbanken and Hypos, and smaller institutions, such as Bank Austria-owned Schoellerbank. With this acquisition, IT services provider Accenture took over about 630 employees based in the offices in Innsbruck and Vienna. Overall, this transformation outsourcing unit is meant to strengthen Accenture’s cloud-based Platform-as-a-Service offering dedicated to the banking sector across Europe. For Austria, this is a good fit as banking is one of Accenture Austria’s focus verticals. Moreover, ARZ mainly serves Austrian banks and their branches in Central and Eastern Europe (CEE), which will strengthen Accenture Austria's position in Austria and CEE.
In addition, this acquisition is in line with a recent trend in the Austrian banking sector, which is a well-developed and highly diversified market. In the past, the Austrian banking industry has traditionally maintained large internal IT operations and has often preferred custom software over standard software solutions. Today, banks aim to become more agile as market requirements are changing rapidly, forcing them to consolidate and standardize their diversified application landscapes and their legacy infrastructures, which have grown over many years. Regulatory requirements continue to be tightened, and banks often rely on external support to be able to meet them. This particularly impacts larger traditional banks that either have many branches in Central, Eastern, and Southeastern Europe (CESEE) or are contemplating geographic expansion into this area.
Cloud usage is still low among Austrian banks (especially compared with other verticals). However, the general attitude toward the use of cloud computing has changed due to the Covid-19 pandemic, which made remote work somewhat unavoidable, for instance. Although the regulatory framework - which was often cited as a reason for banks' reluctance - has not changed, banks are increasingly open to cloud usage in many different business areas. Cloud adoption rates are expected to increase very soon in CRM, office automation, talent management, customer experience, omni-channel, and artificial intelligence.
Nevertheless, the banking sector in Austria continues to be a challenging competitive environment for software vendors and IT service providers. This is mainly because all major banks have IT subsidiaries, meaning that a significant market share is captive. Examples include Raiffeisen Informatik for Raiffeisen banks and UniCredit Business Integration Solutions (UBIS) for Bank Austria. In July 2021, IT Solutions Austria (former SPARDAT) and Erste Group IT International merged and now operate as Erste Digital, the captive IT services provider of one of the largest Austrian banks, Erste Bank. Banks in Austria prefer to be in control of and monitor their software and IT infrastructures. This dates back to when no standardized software solutions were available that covered internal business processes.
Despite the most challenging competition for suppliers coming from internal IT departments, there is also fierce competition in the external market, which has led to a diverse vendor landscape. The remaining SITS market in the banking sector is dominated by leading American players such as IBM, Microsoft (mainly due to Office 365), HP Enterprise, Oracle, and Accenture. However, other players are also relevant, including local players from Austria (e.g., CPB SOFTWARE, Software Daten Services), German-speaking companies from the neighboring country (SAP, T-Systems), and European players (Capgemini, Atos). These have carried out numerous projects for leading financial institutions in Austria.
According to Österreichische Nationalbank (OeNB), roughly 3,464 financial institutions and the Raiffeisen banks form the largest group, comprising about 1,700 head offices and branches. Then there are joint-stock banks & bankers and the savings banks, each with around 900 head offices and departments. The other banking groups together account for approximately 600 head offices and branches. The Czech Republic is the most important overseas market (Standard & Poor’s).