Refreshing infrastructure a big decision for banks

Deloitte & Touche released last week a study entitled “When Legacy Is Not Enough: Understanding the high-stakes game of replacing a bank’s core systems,” discussing the core systems replacement in the financial space, which analysts say could be on the horizon, but also need not be so dramatic.

Banks are notorious for having heaving masses of outdated, complex, proprietary legacy systems, and Deloitte & Touche are all too ready to help banks rip them out. Said Deloitte & Touche assistant partner David Dawson: “The scalability has to grow for business needs. You have to look at the lifespan of the current system, what capabilities you have in-house, and what the business alignments are.”

Senior analyst Rob Burbach of IDC Canada’s Financial Insights said that this is one of the biggest decisions facing Canadian banks today. When it comes to the five major banks in Canada, he said, such a deal would be a huge coup for the vendor who landed it, and could be worth around $500-million to the lucky winner. “But if they choose to do it and something goes wrong, it could absolutely cripple the bank,” Burbach said.

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Managing vice-president Susan Cournoyer of Gartner Research said that American banks seem less stressed out about the possibility of a dramatic refresh. A 2007 survey found that 24 per cent of 42 American banks surveyed were planning to replace at some parts of its core infrastructure in 2008, with 14 per cent planning to do so in 2009. Twelve per cent had actually done some replacing in 2006.

Canada is ahead of American banks on the technology curve, said Cournoyer, due to the more focused competition, but are doing well with more componentized refreshes right alongside our American neighbours. “It’s more about customer-facing programs and middleware,” she said, citing SOA, business process management, and event-driven architecture as of more pressing concern to banks and their IT staff.

The biggest core replacements that are taking place aren’t even full-on replacements, but more of a restructuring.

This is most evident, said Cournoyer, in the green trend that has seen more companies consolidating and virtualizing: a big step, but not a massive rip-and-replace job.

“It’s all about the progressive refreshes,” said Andy Woyzbun, a lead analyst with the Info-Tech Research Group. “It’s evolution, not revolution.”

Replacements are not likely at this point, according to Woyzbun. Said Woyzbun: “You don’t have to change the complete structure, even to add something like ATMs or online banking. Banks really need to feel the pain, and customers aren’t usually crying out for innovation.”

Said Burbach: “The problem is that it needs to be compelling from a high level. It’s all about ROI in the end. You need to figure out how to convince the top of the house, but the problem is that IT has been shoved into a place all by itself, so it’s not viewed as a part of the system.”

Woyzbun said, “What’s a pain for IT is not necessarily a pain for the organization.”

This re-shifting of priorities could even result in some downsizing. Said Burbach: “Banks have to consider, ‘What business are our banks in?’ If they don’t have enough competencies in IT, they might just back off, which means outsourcing more and engaging more partners if you can’t have those competencies in-house.”

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