Core banking systems: reducing costs instead of tying up budgets

What factors influence the cost of core banking systems?

Stephan Mann, Product Owner BANCOS Core Banking: Legacy systems, many of which are still in use, tie up considerable resources simply to keep day-to-day operations running – for maintenance, for adapting to regulatory requirements, and for retaining specialist knowledge. Furthermore, developing new functionalities or implementing new banking products can also be time-consuming and costly.

This creates a self-reinforcing cycle: because the budget is tied up, the modernisation that is actually necessary is postponed – or not even undertaken at all. With each passing year, the gap widens between what the system is capable of and what the market demands.

Why, then, do many banks still not modernise their systems?

This is because, on the other side of the equation, there is often a high one-off investment. Core banking system modernisations and new implementations typically require a substantial financial outlay at the start of the project – long before the first benefits become measurable.

This creates a twofold obstacle. Ongoing operating costs tie up the budget, and the initial costs of a replacement exceed the remaining financial capacity. Banks certainly recognise the need for action, but the ability to invest can be a major barrier.

What costs can banks expect when implementing BANCOS Core Banking?

Our model is transparent and usage-based. Every bank always has access to the full range of functions offered by the entire core banking platform – but pays only for what it actually uses. For example: the platform will, of course, also support loans in future phases of development. However, if a bank offers only deposits, such as call money, only these will be included in the billing.

The second factor is the architecture itself. The new generation of BANCOS Core Banking has been redeveloped from the ground up and is accordingly lean in design. That results is a low overall cost structure, including transparent maintenance terms.

How does this affect the business case for a core banking system modernisation?

Cloud-based operations play a key role in this. This shifts a significant proportion of costs of core banking systems from fixed to variable. Instead of maintaining capacity on a permanent basis, a bank pays for what it actually uses. This makes it easier to calculate costs based on business volume, rather than having to forecast them over a period of years.

The return on investment from modernising a core banking system can therefore be determined more easily and, above all, more reliably. This is reflected in the bottom line – for example, in a declining cost-income ratio, one of the key performance indicators for any bank.