Banks moving to change out core systems

Web-enabled apps are supplanting aging Cobol platforms

After coddling aging core systems for decades, many top-tier banks are planning or implementing change-outs of old Cobol-based platforms with open, Web-enabled applications. The core systems support the most basic bank functions, such as savings and checking accounts and lending systems.

The upgrades are being driven by an improving economy, growing regulatory requirements and recent moves to unbundle packaged applications, allowing for piecemeal, and thus cheaper, replacement of older platforms, said Gartner Inc. in Stamford, Conn.

Updating back-office systems can cut banks' IT operating budgets by 5% to 8% through improved efficiency, said research firm Celent Communications LLC in Boston.

About 23% of all U.S. banks are planning major initiatives related to core banking systems, according to Gartner. U.S. banks lag behind financial institutions in other parts of the world such as Europe, where banks are pressed to change by new European Union rules, Gartner said.

Fifth Third Bancorp, a $6.4 billion bank with 950 branches and more than 20,000 employees, replaced its mortgage-origination and leasing systems with packaged software from from Fiserv Inc. in Brookfield, Wis., over the past two years. Fifth Third used Fiserv's UniFi Pro Mortgage software to replace a green-screen application that was no longer supported because the supplier went out of business.

The success of the new software prompted the Cincinnati-based bank to look closely at replacing more core systems.

Gary Porter, vice president of IT mortgage servicing at Fifth Third, said developers couldn't keep up with required product-development cycles on the older systems. "Today, we can bring a new product to market in weeks," he said. "With our old legacy system, it would take months."

Fifth Third officials also cited increasing regulatory oversight of the financial services industry in the form of the Sarbanes-Oxley Act and the USA Patriot Act as a reason for choosing a third-party provider.

New York-based Citibank is in the midst of a project to migrate its core mainframe-based banking application, called Cosmos, to a common system built with hardware from Hewlett-Packard Co. and running the packaged Flexcube banking application from i-Flex Solutions Ltd. in Bangalore, India.

Citibank officials, who couldn't be reached last week, previously told Computerworld that the project was undertaken to replace a decades-old set of back-office systems in overseas offices with a single platform and a cross-border set of standard user interfaces and business processes (see story).

The 4-year-old project, estimated by Celent to have cost about $100 million so far, is now live in 50 of the 90 countries where Citibank has offices. Citibank is spending about $35 million per year on the project, Celent said.

Developing Partnerships

Some recent partnerships have led to changes in the traditional one-size-fits-all approach for banking applications that forced large banks to spend hundreds of millions of dollars or more to upgrade back offices over the past six to eight years.

Several major service providers and makers of core banking systems have joined to create bundled software/services products for operations such as customer account management, lending or billing. For example, IBM last month brought out a J2EE version of Flexcube.

That IBM/i-Flex partnership caught the interest of Ken Casey, senior vice president of retail banking delivery at ATB Financial, an Edmonton, Alberta-based bank. Casey has started to look at options for replacing a 25-year-old IBM mainframe-based core banking system.

ATB, which manages over $14 billion in assets, has already taken on a $17 million rewrite of its teller system, which included replacing 1,000 terminals with PCs. The Java-based systems are gradually replacing Cobol systems, said Casey. ATB, a midsize bank, has 4,500 employees.

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