Core Banking on the Mainframe: On the Road to Oblivion?

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20 March 2015


In a recent report titled Why Change Cores? Reassessing the Drivers of Core Systems Renewal, Celent challenged the “common wisdom” of core systems renewal, the widely held (if mistaken) assumptions and beliefs regarding legacy banking systems. This report serves as a bookend to that report, examining the true reasons why core banking systems renewal is inevitable for banks and the vendors that serve them.

In the report Core Banking on the Mainframe: On the Road to Oblivion? Celent studies the evolution of core banking systems over the past 50 years. The report draws from the example of the advancement of engineering in the automobile industry to determine where emerging technologies will be moving today’s core banking systems forward in the near future.

The report traces the movement of the automobile industry from its origins into Version 3.0, the use of modern platform engineering to achieve operational efficiencies through the sharing of standardized design components across diverse vehicle types, brands, and models. The Volkswagen Group recently made a $70 billion investment in platform engineering and expects annual savings of $19 billion within only a few years, demonstrating the potential of advanced engineering in automobile production.

In contrast, most large banks and their system vendors are stuck in their own Version 2.0, the encapsulation of aging mainframe-based core banking systems by a thin veneer of modernity in the form of SOA-based middleware.

“The longevity of COBOL-based legacy core banking systems has been based on their high level of scalability on the mainframe, and conversely, the inability of other more modern, flexible programming languages to perform well on the mainframe,” says James O’Neill, a senior analyst with Celent’s Banking practice and author of the report.

The report examines the coming of Banking 3.0, which will be heralded by the replacement of rigid mainframe-based legacy systems with a new class of modular banking systems that are highly scalable due to their use of clusters of commodity servers that are tethered together within a cloud services environment. With the disappearance of COBOL’s trump card of unparalleled scalability, new core banking technologies powered by cloud services stand ready to take the place of these legacy banking systems.

Banking platform engineering will allow CIOs to do more with less by leveraging modern reusable system components to demolish silos of system functionality, share technology investment across business lines, and inject agility into development and maintenance of their banking ecosystem, all while maintaining the high level of reliability and scalability that is the hallmark of mainframe-based systems.