Core Banking Replacement

Core banking system replacement is arguably one of the most challenging technology projects in banking today. I often liken core operations to the engine room of a ship: it's an area that hums away in the background, needs regular care and maintenance, and historically has run that way for some time. In some instances, code written almost 35 years ago is still powering core systems in mature markets. I blogged a couple of weeks ago about challenges with the business case for replacing the core systems, and it is easy to avoid the issue if the systems are not suffering breakdowns or outages. But I would ask the question: does a shipping company wait until the engine fails before replacing parts or renewing the engines? Of course not - the risks are too great. I argue that the same situation applies to banks because the reputational damage, financial loss and security risks are too great, but the reality is that the older these systems become, the greater the chance of a catastrophic outage.

Gradual, Modular Renewal
I also recognize that ships make use of a dry dock where they can be taken out of service for refits. This of course is a luxury that banks do not have, therefore it is difficult to overstate the business and technology challenges of replacing major systems while keeping the bank running normally. For smaller banks this would typically be implementing a new package solution, testing in parallel and then switching over. For larger banks with a high level of integration complexity, and a mix of package and custom components on multiple platforms, a more gradual replacement of components guided by a strategic architecture blueprint and governance council is more likely.

Standardized Architecture Models
With either approach, there is real value in modeling banking services and processes consistently across the industry. This simplifies bank and application architecture and promotes interoperability, re-use of processes, and greater choice of solution providers with more open standards for integration. Such an approach can lower the implementation and integration costs of core banking projects, and result in an ongoing benefit of a simpler infrastructure to support. These are also some of the key objectives of the Banking Industry Architecture Network (BIAN). In addition to Microsoft and several of our key global partners such as SAP, SWIFT, SunGard and Temenos; several leading global banks including Credit Suisse, Deutsche Bank and ING are also active participants in defining and implementing standards for banking architecture models.

Whether you are a bank or a banking technology provider I encourage you to check out the BIAN website, download the white paper, and to consider what value your organization might derive; but also what it could contribute to the industry challenge of core replacement.