Core Systems

09:50 AM
Connect Directly
Facebook
Twitter
Google+
RSS
E-Mail
50%
50%

The Core Systems Dilemma

Banks looking to upgrade or replace legacy core systems have a choice: Do it all at once or gradually. Many factors go into deciding which is better for a specific bank.

Step-By-Step: Less Risk, New Challenges

While smaller financial institutions may be able to pull off a big bang core replacement, larger ones with more complex systems usually opt for a phased approach.

Phased Approach
  1. Eliminates the risk of converting everything all at once
  2. Breaks the project into shorter, easier goals, allowing it to build momentum
  3. Can use lessons learned in the early stages to apply to later stages
  4. Allows for the time needed to replace complex and tangled legacy systems

Banks with more than $5 billion in assets tend to do a staged replacement, and those with under $5 billion usually do a rip and replace, says Anne Miela, VP of program and product management at Open Solutions, a core provider in Glastonbury, Conn. "The larger ones have a more spread-out branch network and their data centers can be more spread out, too," she says. "They could have their headquarters in Detroit, but their mortgage center is in Dallas."

Many banks of all sizes simply have too much complexity in their legacy systems to be able to pull off a big bang core replacement. "You have to consider the complexity of the current systems, the architectural complexity and the number of users, as well as the vintage and range of systems. Some places have 30- to 40-year-old systems in place. That makes it impossible to do a big bang," remarks Ashwin Goyal, VP of product management at Oracle Financial Services in Redwood Shores, Calif.

However, while the step-by-step approach reduces risk for these larger core replacements, it also presents new challenges, such as working with coexisting systems during the replacement and managing such a large organizational change over time.

Oracle recently released a core banking system targeting bigger banks looking to replace their aging legacy core systems. It's designed to help them do a step-by-step core replacement; each architectural component of the core system can be broken down and managed on its own without affecting the other parts of the system, Goyal says. This eliminates a great deal of risk in the replacement, which is part of the trade-off in taking a phased approach: There's less risk since the whole system isn't being replaced at once, but it takes more time and more money.

Oracle's system lets architectural components of the core moved to the new system function with the architectural components still on the old system during the transition. This helps address one of the chief challenges of a step-by-step core replacement, Goyal says: working with coexisting core systems during the replacement. He compares a phased core replacement to open heart surgery (a common analogy in IT), where the old and new veins (systems) are running at the same time during the surgery (upgrade).

It's critical for banks to plan how to manage coexisting systems during the testing phase, Goyal notes. He recommends that they avoid splitting the customer relationship between the old and new systems during the replacement. Doing so, he says, can lead to confusion for customers and front-end associates, costing time and money.

Although a gradual core replacement can be a drawn-out costly process, Bruce Livesay, CIO of First Horizon, the holding company of First Tennessee bank, managed to complete a step-by-step core replacement for the bank under budget and ahead of schedule a couple of years ago. The Memphis bank ($26 billion in assets) broke the project into manageable short-term goals and that helped the project gain momentum as those goals were met. If you do the replacement with incremental deliverables, "you can get some wind in your sails," he says. "Focus on shorter-duration goals and celebrate them when you've accomplished those goals," he says. "That helps in dealing with burnout."

Bryan Yurcan is associate editor for Bank Systems and Technology. He has worked in various editorial capacities for newspapers and magazines for the past 8 years. After beginning his career as a municipal and courts reporter for daily newspapers in upstate New York, Bryan has ... View Full Bio

Previous
2 of 3
Next
Comment  | 
Print  | 
More Insights
Comments
Newest First  |  Oldest First  |  Threaded View
Mike G Sr.
50%
50%
Mike G Sr.,
User Rank: Apprentice
12/12/2012 | 2:15:10 PM
re: The Core Systems Dilemma
The Tier one banks do not likely have a single platform and have a number of legacy systems supporting their operation currently. A stepped approach is natural for them and as they move off a platform into a integrated silo approach the risk will be diminished over time and the return will be substancial. They are better equiped to control the risk because of the resource pool they have as a result of their size. It's the community bank that has a greater risk and forced to do a big bang cutover by virtue of the legacy systems in the market today. The typical community bank relies on a small number of people that carry the expertise of the current systems in place. Yet, they must convert to new core technology because the legacy systems lack the data base information needed to do the analytics to generate new revenue-ámodels. The current service charge models in most legacy systems are obsolete.
Jonathan_Camhi
50%
50%
Jonathan_Camhi,
User Rank: Author
12/10/2012 | 8:53:37 PM
re: The Core Systems Dilemma
Looking forward to see how banks handle this dilemma in the next few years as more and more banks are expected to do core conversions.

Jonathan Camhi, Associate Editor
Register for Bank Systems & Technology Newsletters
White Papers
Current Issue
Bank Systems & Technology Oct. 14, 2014
Bank Systems & Technology's new Must Reads is a compendium of our best recent coverage of customer analytics. Learn what big data means for banks, meet Wells Fargo CDO Charles Thomas, find out how to connect with your Gen Y customers, and more.
Slideshows
Video
Bank Systems & Technology Radio
Archived Audio Interviews
Join Bank Systems & Technology Associate Editor Bryan Yurcan, and guests Karen Massey and Jerry Silva from IDC Financial Insights, for a conversation about the firm's 11th annual FinTech rankings.