FIRM: Citigroup

CAO/CIO: Don Callahan

LATEST INNOVATION: The first major North American bank to undertake core replacement

 

Citigroup Inc. is taking the plunge as the first major bank to replace an aging core system.

Large banks are loath to replace even the oldest core system, but observers say that updates are overdue because the technology of yesteryear cannot keep up with the demands of today.

"I was implementing these [older] core banking systems ... when probably most of the CIOs were in diapers," Bob Hunt, senior research director at TowerGroup Inc., said in a March presentation. "My concern is that by the time they replace them, I'm going to be in diapers."

Depending on how modern a bank's system is, the perks of updating their core system can include lower costs and shorter downtime, Hunt said. But even with those benefits having been proven in other countries, U.S. banks have shied from the prospect of undergoing a core upgrade. "I always say a core system lasts longer than most marriages," Hunt said. To drive the point home, he showed a slide listing things that bank CIOs he surveyed would rather do before replacing their core system-playing Russian Roulette with one bullet topped the list, followed by being an Obama rep at a Tea Party rally.

Despite the rarity of major core updates and the scope of the project, Citi's news arrived with little fanfare. It was disclosed casually by its vendor, Fidelity National Information Services Inc., on an earnings call in February and rarely mentioned thereafter by FIS and never directly addressed by Citi itself. The U.S. core replacement follows similar deployments of FIS' technology overseas.

"Citibank, which currently runs our core banking software in 30 countries around the world, has expanded its license and maintenance agreement to include its North American banking operations," Frank R. Martire, FIS's president and chief executive, said during the February call.

In Japan and Asia, where Citi has already overhauled its underlying technology, it was able to begin opening futuristic "smart" branches. The technology changes from the core project were so drastic that the company was able to actually expand the area of its branch lobbies by moving out older systems.

Citi said these changes have been effective overseas, and it plans a similar branch redesign in the United States, but the company stopped short of tying this project to any work being done on its core system.

Analysts say that Citi's smart-branch system would not necessarily require a core overhaul, but that it would be more durable on a newer system than the homegrown one Citi uses today.

Bart Narter, svp of Celent's banking group, said in February that Systematics, the core Citi is switching to, is more of a "tried and true" system than a modern one, but it's one that Citi and other banks have experience with. Because it is actively supported by a vendor, it will likely prove more reliable in the long-term, Narter says.

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