The more things (in core) change, the more they remain the same…

On September 10 Forbes contributor Tom Groenfeldt wrote an interesting piece titled “Core Banking Replacement Remains Locked in the Future.” http://www.forbes.com/sites/tomgroenfeldt/2013/09/10/core-banking-replacement-remains-locked-in-the-future The article started by citing a 2003 Celent report, Core Banking Replacement Strategies: The Time Has Come. In the intervening 10 years, there have been only a handful of successful Tier I core replacements. Tom’s point wasn’t to make Celent look foolish – he could have picked any number of analysts who’ve been delivering the same message over the last decade – but instead to highlight the slow pace of core migration. We stand by our rationale of ten years ago – the need for flexibility, customer-centricity, real time, and efficiency, together with the added demands of mobile, all point to the need for banks to upgrade their antiquated core systems. The big difference is that today a wholesale rip and replace effort isn’t the only game in town. Progressive migration, middleware additions, and even starting new banks to serve, in part, as a migration destination are all strategies to defer (not avoid) an eventual core replacement. In Celent’s most recent core report, Global Core Banking: Steady But Unspectacular Growth, we highlighted the challenges, both technological and cultural, that large banks face in making the decision. Very few large U.S. banks will act in the very near term: banking systems are complex, change is costly and time-consuming, and for many, the competitive push has yet to materialize. It’s no accident that Australia has seen two Tier I core replacements – once one firm goes, particularly in a concentrated market, it raises the cost of inaction for its competitors. Further, as is the case with many cases of change and innovation, the downside is huge and the upside is limited. Core replacement is going to be much more realistic for smaller banks in the near future. Until large banks have role models of successful pioneers to follow, they’ll be reluctant to act. In our conversations with banks around the world, however, we hear that the pressure’s building to tackle the core, rather than tinker around the edges.