Plugging in to a Simpler Core? as Banks of All Sizes Ponder Upgrade Options, They Might Keep These Issues in Mind

Among bank industry geeks, the aging tin beasts" that are core systems in U.S. banks have long been the subject of both eye rolling and lurid speculation. Just what will it take to get the suits to rip out the old and usher in the new, the real-time, the COBOL-free? Not everyone agrees with that description of traditional systems, mind you. Nor is there consensus on a universal "best" way to go with system reengineering or even why it is important. Suffice to say some believe the typical core system is not only antiquated, it is the only elephant in the room worth addressing as banks struggle to stay relevant in a world of razor thin margins and exacting customers. On background, system integrators and new technology vendors will tell you, in biased yet convincing tones: * "Old core systems are incredibly inflexible--product introductions are a headache." * "Old core systems are expensive and difficult to maintain. There is less IT talent to maintain them." And so on. Meanwhile, their traditional tech counterparts will present plausible counter-arguments and risk-based analysis supporting the decision to make do and tinker around the edges of core. For most U.S. banks, non-Unix, batch systems are, in fact, still the norm. (Depending on the size of the bank, there are usually several core processors synchronized by middleware.) These systems post and push transactions for the general ledger, demand deposit accounts, loans, and some form of customer information file. Even as the industry continues to speculate on the timing of core swap outs--or replacements--individual banks need to go through a little soul searching. Also required is a thorough evaluation of risks and rewards to come up with a "right cost" option for key initiatives. Old but sufficient? If they seem "JFK-era space age," clunky, or a contraption worthy of the Rube Goldberg Award, traditional systems also remain sufficient, notes Bob Hunt, senior analyst, TowerGroup, Needham, Mass. Elsewhere, modernization is coming. "Asia's top-tier banks are very aggressive in core replacements and working in real-time," says Hunt, who has just finished the first of what he intends to be a series of case studies on core conversions. "In the last five years, systems in countries such as India, Thailand, and China had become such a liability in the struggle to attack new markets and offer new products, that [system designers and integrators] had to start with a blank slate. As a result, those banks have the latest technology." Hunt adds, "The European market is heating up." In that region, a few cross-border mergers were the catalyst that have left a road map--or at least footprints of a sort--for fast followers, says Hunt. Yet here in the U.S., for the most part, a new fire has yet to attach itself to the core--although awareness over risks associated with aging technology is starting to build. Keeping step with payments? Hunt, for one, sees a gradual transition here in the U.S. to real-time, simplified systems occurring over ten years among banks of all sizes in line with payments modernization overall. "Credit cards and debit cards get authorized in real-time but they get processed in batch," says Danne Buchanan, chief executive officer, NetDeposit, a Zions Bancorp. affiliate based in Salt Lake City, Utah. He also believes that core modernization will occur not in a big blast of activity, but in smaller bursts, over time in line with market forces and individual business needs. "Check authorization and processing is slower still," says Buchanan. "Until payments on the whole become electronic, I don't see a huge push to change core. If anything, you'll see reengineering done to generate faster batch cycles as an intermediate step." Already, the industry has seen periodic announcements of such upgrades. …