Why Change Cores? Reassessing the Drivers of Core System Renewal

by James O'Neill, December 16, 2014
Industry Trends
Global, North America

Abstract

While core banking system technology has remained more or less in its current form for at least 20 years, predictions regarding the widespread replacement of these legacy systems have for the most part remained unfulfilled for more than 10 years. This report retraces the steps of a 2011 report that supported the case for an impending wave of bank system transformation, concluding that core banking modernization is more accurately described as an ongoing and iterative process rather than a one-time event.

In the report, Why Change Cores? Reassessing the Drivers of Core System Renewal, Celent studies the practical drivers of core system renewal and reflects on the circumstances that have led decade-old predictions of wholesale replacement of these large and complex systems to remain unfulfilled.

As Mark Twain once famously wrote from London in 1897, “the report of my death was an exaggeration,” and so it appears to be with the many reports regarding the impending death of the legacy core banking system. To better understand this paradox, this new report retraces the steps of the original report and updates the thought process regarding the business, technical, and integration issues that were cited as drivers of core transformation in 2011.

“In considering the issue of core system modernization, it may be that we’re asking the wrong question,” says James O’Neill, a senior analyst with Celent’s Banking practice and author of the report. “Since very few major bank core modernization projects are performed in a ‘Big Bang’ fashion, it’s less about ‘when’ core system transformation will arrive, and more about what form core modernization will take.”

This report examines the ways core banking systems have adapted to ever-changing business, technology, and integration challenges and opportunities and concludes with an examination of what circumstances could someday turn the current trickle of modernization into a wave of core system migration and transformation.

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned operating unit of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

North America
Michele Pace
mpace@celent.com
Tel: +1 212 345 1366

Europe (London)
Chris Williams
cwilliams@celent.com
Tel: +44 (0)782 448 3336

Asia (Tokyo)
Yumi Nagaoka
ynagaoka@celent.com
Tel.: +81 3 3500 3023

Table of Contents

Executive Summary

1

Introduction

2

Business Issues

3

 

Mergers and Acquisitions

3

 

Regulatory Dynamics

4

 

Change in Business Model

4

 

Competitive Dynamics

4

 

International Capabilities

5

Technical Issues

6

 

Scalability

6

 

Lack of System Support

6

 

Real Time Requirements

7

Channel and Integration Issues

9

 

New Channels and Omnichannel

9

 

24/7 Service

10

So Where Does This Leave Us?

12

What’s Next

13

Leveraging Celent’s Expertise

14

 

Support for Financial Institutions

14

 

Support for Vendors

14

Related Celent Research

15

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