why would a bank change its core system?

There are lots of reasons why a bank would change its core system. Here are top 5 reasons based on Chris Skinner’s ‘The Complete Banker: It’s Banking, Jim, But Not As We Know It’ published by Searching Finance

Legacy constraints

This is the most obvious one, but it does not create a reason for changing a core system in or of itself. After all, I know of plenty of banks that continue to operate processors and applications developed in the 1960s and 1970s because the view is: ‘if it ain’t broke, leave it’. That’s why many City institutions still have a need for FORTRAN and ASSEMBLER programmers, and why some banks process transactions converted to pounds, shillings and pence (pre-decimal systems should have been dropped in 1971!). It is because these systems worked and were too expensive to change back in the 1970s and 1980s. Now, 50 years later, they have the problem that they are too incomprehensible to change. After all, many of the folks who developed these systems didn’t document them and the developers are now retired, suffering from dementia or dead. So the bank keeps them running as they can’t dump them. However, if the legacy is causing them to be uncompetitive and to lose business, then that may finally prompt the change of core system that has been so strategically required for decades but ignored. This leads us to the next major reason for change: competitors.


A bank will often change systems if competitive pressures force it to. For example, no bank wanted to launch call centre or online banking services until someone launched it first and started taking accounts away from them. This is why banks are variously described as sheep or lemmings, because they all follow each other around and copy what each other is doing. The result is that if a new core system capability delivers significant competitive differentiation for a financial institution, then all the other institutions will either buy the same system, buy a similar one from the provider’s competitors or will copy it.


All of the regulations that have been introduced over the past few years such as MiFID, the PSD, Faster Payments, the Capital Requirements Directive, RegNMS, MT202 Cover Payments and more, have required significant change to systems, structure and processes for the banks and operators in those market sectors impacted. Therefore, every time there’s a legislative change, it will more than likely prompt an assessment as to the fitness for purpose of the existing system to meet and comply with the new obligation and, if it doesn’t comply or if it is too difficult to adapt, then the bank will change core system.

Merger and acquisition

Every time a bank merger occurs, there has to be a rationalisation of systems as that is a core rationale for justification of a merger. In other words, cost savings… there is absolutely no rhyme or reason as to why a bank would run two parallel core systems as that would mean twice the cost. Therefore, one of the core systems will change. Unfortunately, it usually means that the core system changes by throwing out the system of the acquired bank and converting it across to the acquirer’s platforms. This has little to do with effectiveness or efficiency and is more to do with ego and power. For example, NatWest’s systems were forced onto Royal Bank of Scotland’s when RBS took over NatWest a decade ago and, more recently, Abbey’s were dumped and converted to Santander’s. In retrospect, it would make more sense for a fuller review to take place before such decisions are made to ask: (a) which is the best system, and (b) is there a better one outside the bank overall? Having said that, I cannot imagine any bank converting both their own and their acquired bank’s systems across to a new platform at the same time but, when acquiring a bank, it would be a good time to consider converting the acquired bank’s core system to the best in the market and, if that means buying externally, then convert your own core systems across to the same platform thereafter.

New management

Again, it is often just a case of ego and power, but when new management takes over a bank, the first thing they want to do is to stamp their authority on it. This can be done in two ways: first, sack all of the sycophants who worked for the previous management team; second, replace all of their decisions with new ones that show how ineffective their decisions were. The latter means finding things they did or did not do, and then showing how stupid they were. For example, not replacing an old legacy system may be a good way to highlight this; or the fact that they replaced core systems but didn’t choose a good one is another. Either way, a new management team, given the right prodding, could easily be convinced to change core systems if they thought the previous management had been shirking their responsibilities by not changing it or changing it for a poorer one.

So there you have five good reasons to change core systems: legacy constraints, competitive forces, regulatory mandate, merger and acquisition and new management requirements.

Thinking about these things, the post-crisis fallout means that all of the above are rife. Many banks have new management teams, are going through a tumultuous acquisition, have been forced to change due to regulation, and have new competitors and new customer needs that put a strain on their legacy operations. This means that 2010 onwards is a great time to see core systems change in many European and American banks.

However, there’s one point that is not made above that is just as critical. No bank will change a core system because of new technology.

New technologies are great. They may be sexy, interesting, create differential and be very compelling, but new technologies in and of themselves will never justify a core systems change.

It is only when the new technology can demonstrate that it will support the needs to be compliant with new legislation; or to eradicate legacy overhead for operational efficiency; or to improve management and business processes that the bank can maintain competitive parity now and into the future; that the systems are purchased. In other words, the debate about core systems has nothing to do with the features and functionality of the technology itself, but is triggered by a burning platform that means that if the bank does not change the core system they will flounder.

That is the key to why banks change core systems and the sooner providers get off the feature, functionality and technology platform and get on to the business need, management drivers and strategic platforms, the better.

source: QFinance Article

by Agus Muljady – Director


banking transformation

Sejak dimulainya era global market, interaksi antar sesama dapat dilakukan tanpa harus berinteraksi secara langsung (face to face). Hal ini dikarenakan hubungan interaksi bisa saja diselesaikan melalui dunia maya atau yang sering disebut internet. Maraknya jejaring sosial atau social network adalah merupakan ciri dari kemajuan teknologi berbasis internet atau online seperti facebook, twitter, linkedin dan masih banyak lagi yang semuanya mengandalkan kemajuan teknologi terkini.

Dukungan teknologi yang berkembang pesat memungkinkan semua aktifitas bisnis maupun non-bisnis dapat dilakukan tanpa dibatasi oleh ruang dan waktu dengan sangat cepat. Konsep transformation ini juga sangat berdampak kepada perkembangan sektor bisnis perbankan.

Beberapa bank kelas dunia seperti BNP Paribas, Deutsche Bank, dan lain-lain sudah mulai melakukan transformasi core banking sejak tahun 1999 dimana terjadi pembenahan aplikasi dari sebelumnya banyak aplikasi stand alone, menjadi integrated application dalam satu core banking.

Beberapa alasan yang menyebabkan bank melakukan transformasi bisnis adalah :

  1. Legacy system tidak lagi dapat mendukung perkembangan bisnis bank
  2. Komponen aplikasi yang tidak memungkinkan untuk melakukan efisiensi terhadap seluruh kebutuhan perbankan
  3. Kehilangan kesempatan untuk berkompetisi dengan bank lain
  4. Adanya issue terkait dengan perubahan regulasi dan resiko bisnis

Survey yang dilakukan oleh Ernest & Young Global Consumer Banking Survey tahun 2011 di beberapa Negara seperti Eropa, Amerika, Amerika Latin, Jepang, Kanada, Cina, India dan Afrika Utara menunjukkan tingkat kepercayaan nasabah kepada institusi keuangan atau bank tidak lebih dari 55%.

Dan hasil survey yang dilakukan oleh beberapa lembaga lain juga menunjukkan kompleksitas aplikasi menyebabkan dukungan terhadap growth suatu bank menjadi terhambat. Oleh karena itu untuk menunjang perkembangan teknologi seiring dengan kompetisi meraih pasar, perlu dilakukan proses transformasi.

Hasil survey yang di lakukan oleh IBM Institute pada tahun 2009 kepada sejumlah bank menunjukkan statistic data sebagai berikut :

Dampak positif yang dirasakan oleh bank secara langsung pada dengan proses transformasi adalah sebagaimana digambarkan dalam gambar berikut ini.

3 hal yang penting dalam melakukan proses transformasi teknologi untuk mendapatkan hasil yang maksimal adalah sebagaimana digambarkan dalam diagram di bawah ini.

Inilah yang dinamakan Banking Transformation. Merubah paradigma dunia perbankan bagi customer dengan memberikan kemudahan tanpa batas yang disertai dengan dukungan teknologi yang memungkinkan suatu bank dapat melakukan segala aktifitas bisnis dan berkompetisi serta berkembang seiring kemajuan teknologi terkini.

Keuntungan customer terkait dengan adanya proses transformasi di dunia perbankan diantaranya adalah :

  • Semua elemen pengalaman nasabah terhadap investasi, inovasi produk dan pelayanan serta etos kerja di bank menumbuhkan keinginan untuk tetap mendapatkan yang terbaik dari bank tersebut (Brand enhancement programs).
  • Hubungan personal terhadap kebutuhan terhadap produk perbankan yang bisa disesuaikan dengan kebutuhan nasabah akan lebih bisa memberikan persepsi yang baik terhadap brand tertentu (Personalizing banking).
  • Transparansi dan penempatan nasabah sebagai salah satu kekuatan sales yang dimiliki oleh bank serta model insentif yang mungkin bisa diterapkan oleh bank merupakan penghargaan tersendiri kepada nasabah yang merasa menjadi bagian dari bank itu sendiri. (Create brand ambassadors).
  • Adopsi social media dengan pendekatan improvisasi persepsi terhadap brand dan sistem konsultasi online untuk setiap kebutuhan nasabah menjadi bagian penting dalam menjamin kemudahan nasabah mendapatkan layanan perbankan (Embrace online innovation).
by Eko Priyanto – Head of Marketing & Communications
You can follow him on his twitter @EkpLo