The industry has been talking about the need for institutions to replace core banking systems for years. In 2003, Celent forecast that the world’s 100 largest institutions would spend more than $14 billion on such projects within two years. Some did, but the pain that ensued and the mixed results were enough to dampen the enthusiasm of most. Simply put, it was just easier to cope with existing core banking systems.
Five years later, core banking replacement is again on the lips of many CIOs. Yet some would argue little has changed since 2003. Most players concede that such a move is desirable and considered more strategic today than in years past. So why don’t more banks take up the cause? It’s still a painful—and expensive—process, with no guarantees.
A recent survey conducted by Capgemini on core banking systems found that almost all of the top retail banks globally are still using legacy systems for core banking. These applications are responsible for processing and posting institutions’ most vital transactions. The replacement of such a system, the authors contend, represents the “most complex, risky and expensive IT project an institution can undertake.”
Still, the payoff can far exceed the risks associated with replacement projects, particularly if one factors in the greater efficiency, access to information and ability to add applications.
The biggest drivers of core banking replacement will be increasing competition among banks in North America and decreasing IT budgets, according to SAP’s Falk Rieker, vp of banking solutions for the Americas. “It’s standardize to the inside and differentiate to the outside. This will allow banks to respond to market trends.”
Some institutions that already have swapped out their core banking systems are meeting with favorable results. Egyptian American Bank increased its profitability by 32 percent, according to Celent analyst Bart Narter, while more than doubling its back-office efficiency and more than tripling its efficiency ratio of customers to IT employees by converting its core systems to FLEXCUBE, formerly owned by i-Flex, which was acquired by Oracle.
In this issue, BTN revisits the core banking discussion, profiling SAP and its efforts to further penetrate the North American banking market (see cover story, page 18). The German company got a big boost from ATB Financial, a $23.5 billion-asset Canadian bank, when it committed to a $100 million core banking replacement project using SAP technology. It isn’t just ATB’s Ken Casey, svp in charge of major initiatives, who’s focused on this conversion. The results of ATB’s project will be parsed by Casey’s peers across the North American market.
This isn’t lost on SAP, or its rivals. Financial institutions that rely on the quantifiable experience of others can go from pain to gain—the only way to look at any daunting project.
