What Does a Core Banking System Really Cost?
An in-depth analysis of total cost of ownership (TCO)
There is no simple answer to the question of what a core banking system really costs. The expense is often higher than it first appears, and many financial institutions that stay with legacy core banking systems find that the total cost of ownership (TCO) is highly complex and difficult to see through.
What is total cost of ownership (TCO)?
Total cost of ownership covers every cost associated with owning and running a core banking system. This includes the obvious items such as software licence fees, as well as hidden costs such as maintenance, training and downtime. Traditional core banking systems, also known as legacy systems, tend to carry a higher and less transparent TCO, whereas modern systems are often more cost-efficient and easier to account for.
Components of TCO in legacy core banking systems
The TCO of a legacy core banking system is made up of many different components. The most significant ones are:
Software licence fees and annual maintenance: typically the largest and most visible costs, recurring every year.
Hardware costs: legacy systems require dedicated hardware that is expensive to purchase and to run.
Software updates: regular updates are necessary to keep the system secure and operational, and they add further cost.
Database licences and maintenance: databases also need to be licensed and maintained, which adds further expense.
Operating costs: these include power, cooling and other infrastructure costs.
Operations staff: specialists are needed for monitoring, change management and deployment, which brings high personnel costs.
Specialist software: monitoring tools and security software such as a web application firewall are additional cost items.
Training: staff need regular training to work with the system.
Cost of downtime: system outages can cause considerable financial losses and drive up the overall cost of ownership.
The challenge of budget planning with legacy systems
One of the greatest drawbacks of legacy systems lies in how opaque and unpredictable their costs are. Financial institutions often struggle to plan accurately, which can lead to unexpected cost overruns. Without clear transparency, budget planning becomes guesswork.
The advantages of modern core banking systems
Modern core banking systems offer a number of advantages that help to lower TCO and make it more transparent:
Transparent pricing: modern systems often work on pay-per-use models, where you only pay for the resources you actually consume. This allows for better scalability and avoids hidden fees.
Lower maintenance costs: cloud-based infrastructure reduces the need for expensive maintenance and hardware. The software stays up to date and secure at all times.
Less downtime: modern systems are stable and scalable, which means fewer interruptions and therefore lower costs from downtime.
Straightforward integration: they integrate smoothly with existing processes and systems, saving time and money during implementation.
Savings potential compared with legacy systems
Another important aspect is the savings potential that modern systems create. Cost to serve (CTS) — a metric that captures the cost per customer — is often considerably lower at modern banks. Where legacy systems carry high operating costs per customer, modern systems can reduce these by up to 80 per cent. This results in substantial savings and better cost efficiency.
Conclusion: efficient core banking systems as the key to cost control
With legacy systems, the total cost of ownership of a core banking system is often opaque and very high. Modern core banking systems offer a cost-efficient and transparent alternative that allows financial institutions to control their costs more effectively and reduce them over the long term. If you are looking for a core banking solution that is not only technologically modern but also offers a transparent and predictable cost structure, you have come to the right place. Contact us for a demo, with no obligation.