“Overhauling banks’ IT systems” Deeya Utamsing ISM 158 April 29, 2010 “Overhauling banks’ IT systems”

Core Banking Core banking is a bank’s basic functions, such as gathering deposits, making loans, and managing corporate cash.

Core banking systems (CBS) CBS began in the 1970s. the information technology that run a bank’s basic central nervous system —the software and infrastructure that links services to business units, customers, and back. allowed banks to coordinate their operations centrally, creating a dependable but firm platform designed to handle large volumes of transactions efficiently and with minimal downtime.

Problems the systems served banks well until the past decade, when the IT environment changed, and Web communications, network computing, and plug-and-play system design took over high-performing IT platforms Some companys found their CBS was hurting their ability to control costs “the systems from the 1970s and ’80s are not fit to support the range of functions, modularity, and scalability that today’s financial institutions need”

many banks are now seeing underperforming systems and outdated architectures that barely support key processes bad time too see this because institutions are being pressured to pack down costs and adjust to conditions in a unstable financial system

One private bank found that its old CBS was severely hurting its ability to control costs. Manual work-arounds and a growing volume of custom applications ran up an additional €100 million in IT spending Another fast growing bank, dedicated to serving emerging markets, fell behind its rivals in delivering online banking services because its CBS made it hard to combine account data across the business

Plan of Action At first, banks tried to hot-wire aging systems to improve their performance but became an uphill struggle for many banks, replacing these systems is the best way to reduce complexity and support business growth replacements made many CIOs think twice, because the magnitude of the change translated into high costs and high risks But the processes and tools for CBS replacements have improved considerably, and research shows that banks that have rebuilt the CBS in part or in full have achieved measurable performance improvements over their peers

Improvements These developments have brought improvements in planning, project management, and platform design. Banks are investing more up-front in the planning and evaluation process, which helps reduce errors, build organizational consensus, and speed implementation. studies show that CBS replacements can help banks achieve higher asset and pretax-profit growth and better cost control Of those institutions that made the transition, their pretax-profit growth rate has accelerated by up to 30 percent, and their IT 4 cost/income ratios improved significantly Emerging banks that transformed their CBS experienced a 30 percent increase in their rate of asset growth. With the economics improving, the number of packaged solutions has grown by about 20 percent annually since 2004. That volume is expected to rise sharply over the next ten years as more systems reach the end of their lives.

Thank you! Any questions?

Sources http://www.mckinseyquarterly.com/Business _Technology/BT_Strategy/Overhauling_bank s_IT_systems_2554?gp=1#