Getting real about real-time core banking systems

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22 December 2014
James O'Neill
How much savings in back-end processing costs do real-time core banking systems really offer? A 2011 Celent report entitled Why Change Cores? was written in the wake of the news that BBVA Compass had decided to convert to Accenture's Alnova real-time core platform. At the time, the analyst community seemed to agree that we were approaching a tipping point for widespread core system renewal. The coming wave of core system transformation was claimed to be driven in large part from the apparent ability of real-time banking systems to create operational efficiencies and financial savings by "taking out some of the back-end processing cost" for the bank, as one industry analyst suggested. This same analyst offered that back-office savings of 20 to 30% per year are required to generate the payback needed to justify the large investment involved in a major core system replacement project. That seems like a very tall order for any new core banking system, even one built on newer technology that is presumably going to be easier (and cheaper) to maintain. After all, the main difference between a real-time and batch processed core system is that the latter does in two steps what the former can do in a single step. While it is intuitive that one step beats two steps, is that enough by itself to generate 20-30% savings in back-office savings? My own view is that real-time processing is not the Silver Bullet that its proponents claim it is in terms of helping banks become efficient, customer centric, agile, and all of the other benefits ascribed to real-time systems. To be clear, I am not suggesting that real-time systems provide no benefit to a bank (as they can), nor am I speaking against the notion that all banking systems will someday offer real-time capabilities (as they will). Celent's new report Why Change Cores? Reassessing the Drivers of Core System Renewal examines the traditional arguments for bank core system replacement. This report revisits the key points made by the previous 2011 Celent report regarding the business, technical, and systems integration issues that drive core replacement. Two key conclusions flow from the new Celent report: first, no single consideration is big enough by itself to dictate that a new core system is needed, but rather a combination of many smaller issues over time will push a bank over the threshold of wanting to make a change; and second, core system transformation is less of a question of "when", but rather a questions of "how" the process will unfold. For the moment, real-time banking is more technological eye-candy than it is a prerequisite for bank systems transformation. Even if your bank is running on an "old-fashioned" legacy core solution, feel free to become more agile, reduce your costs, introduce innovative products and services, and generally operate your business more effectively and efficiently. Your core system won't mind!

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