Core Systems Replacement: The Time Has Come

Celent forecasts that the world’s 100 largest financial institutions will spend in excess of $14 billion on new core banking systems by the end of 2005. This spending will take place despite current economic uncertainties and cost-cutting pressures, as banks believe the benefits of replacement far outweigh the costs. First movers will catapult into the 21st century, positioning themselves years ahead of the competition.

Projected Aggregate Spending on New Core Banking Technologies

Replacing a core banking system is perhaps the most complex IT project a bank can undertake. The costs can run to several hundred million dollars and projects typically take between three and four years to complete. Banks have been slow to undertake these projects, as they continue to be haunted by past failures, fears of complexity, and the prospect of alienating customers.

"The risks as well as the costs are high, but banks are finding they have little choice. Legacy systems, often installed during the 1960s and 1970s, have proven extremely inefficient, costly to maintain, and no longer flexible enough to handle system changes and new applications necessary to meet the growing needs and requirements of the marketplace," said Christine Barry, wholesale banking analyst at Celent and co-author of the report.

The time has come for banks to act. Core systems replacement is likely be a major focus for IT spending over the next few years. Celent expects between 10 and 20 of the top 100 global financial institutions to replace their core systems each year for the next three years. Even the largest institutions with over $100 billion in assets, who are expected to spend between $350 and $400 million on replacement projects, can expect to achieve a positive bottom line by the end of the fifth year.