Overhaulin Banks It Costs

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M A R C H 2010

b u s i n e s s

t e c h n o l o g y

o f f i c e

Overhauling banks’ IT systems

Core banking systems dating from the 1970s are compromising bank performance. However, updating them is becoming less costly and risky.

Marcus Heidmann

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Core banking systems (CBS) underpin nearly every major banking process. Think of them as the information technology that runs a bank’s central nervous system—the software and infrastructure that links services to business units, customers, and backoffice functions. These systems not only drive the banks’ day-to-day operations but also serve as the core IT platform for new capabilities and growth. Yet many banks are saddled with underperforming systems and outdated architectures that barely support key processes, at a time when institutions face renewed pressure to tamp down costs and adjust to volatile conditions in a turbulent financial system. The case for transformation In recent years, banks have tried to hot-wire aging systems to improve their performance, but that’s becoming an uphill struggle. For many banks, replacing these systems may well be the best way to reduce complexity and support business growth. Until recently, such replacements gave many CIOs pause, since the magnitude of the change translated into high costs and high risks. But the processes and tools for CBS replacements have improved considerably, and research shows that banks that have rebuilt the CBS in part or in full have achieved measurable performance improvements over their peers. Banks are struggling with outdated technology Core banking refers to a bank’s basic functions, such as gathering deposits, making loans, and managing corporate cash. CBS—the systems that support this core—emerged with the introduction of mainframe-based transaction processing, in the 1970s. These systems allowed banks to coordinate their operations centrally, creating a dependable if rigid platform designed to handle large volumes of...