Core banking transformation in the US has been lagging behind other parts of the world. In fact, there are almost no US banks in the $35-$350 billion asset range that have undergone core transformation. As a result, the core banking systems of most major banks in the US are more than a decade old – and the heart of those systems may be up 30 years old.
Core banking is often neglected, as bank strategies focus on the newer and disruptive technologies of analytics, online and mobile banking, and on current issues around security and regulatory compliance.
Faced with a choice, no CIO will take on a project with a significant cost and a significant potential for disruption without very good reason. Core banking functions are not under threat, the argument goes, and, besides, the technology has worked for years and often decades.
This is a weakness as well as a strength. Core banking systems are often so old that there is nobody left in the bank who entirely understands the code base. Disruption to core functions is therefore a threat to uptime, and an unwanted distraction.
Banks need to be totally confident in their ability to deliver on the implicit promise of their core banking experience, so that they can focus on implementing new services and taking on new challengers from outside the banking space. And it is here that an updated core banking structure can make all the difference. The time to develop and deliver new mobile and online systems, when they do not need to be fed through a translation layer to interact with the core’s legacy systems, can be shrunk from years to months.
When one large bank SAP has been working with recently updated its core banking systems, it did not do so because its legacy systems were failing. Instead, the upgrade was intended to enable their banking systems to match their customer-centred ambitions, by enabling that bank to build, test and where appropriate widely deploy services at a speed that matches new entrants into the financial services market.
Core banking systems are the heart of the institution – and nobody wants to have heart surgery if it can be avoided. However, banks seeking to be fit enough to take on businesses without their technical overhead should definitely be thinking about how long their decades-old systems can continue, and what benefits could be obtained by not just repairing and replacing, but reorienting the entire core systems set to be faster, more adaptable and easier to integrate with new services.