What does a core banking system actually cost?

What does a core banking system actually cost?

An in-depth analysis of the total cost of ownership (TCO)

The question "What does a core banking system actually cost?" is not easy to answer. The costs are often higher than initially thought and many financial institutions that stick with legacy core banking systems often realize that the total cost of ownership (TCO) is very complex and opaque.

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What is the Total Cost of Ownership (TCO)?

The total cost of ownership (TCO) includes all costs associated with owning and operating a core banking system. This includes not only the obvious expenses such as software license fees, but also hidden costs such as maintenance, training and downtime. Traditional core banking systems, also known as legacy systems, tend to have higher and non-transparent TCO, while modern systems are often more cost-efficient and easier to understand.

Components of TCO for legacy core banking systems

The TCO of a legacy core banking system is made up of many different components. Here are the most important ones:

  • Software license fees and annual maintenance: These are often the largest and most obvious costs incurred each year.
  • Hardware costs: Legacy systems require special hardware that is expensive to purchase and operate.
  • Software updates: Regular updates are necessary to keep the system secure and functional, which incurs additional costs.
  • Database licenses and maintenance: Databases must also be licensed and maintained, which leads to further expenses.
  • Operating costs: These include electricity, cooling and other infrastructure costs.
  • Operations personnel: Specialists are required for monitoring, change management and deployment, which entails high personnel costs.
  • Special software: Monitoring tools and security software, such as a web application firewall, are additional items on the cost side.
  • Training: Employees must be trained regularly to be able to use the system.
  • Cost of downtime: System failures can cause significant financial losses and drive up the total cost of ownership.
What does a core banking system actually cost?
Potential savings by switching to cloud-native core banking systems (selection)

The challenges of budget planning for legacy systems

The lack of transparency and unpredictability of costs is one of the biggest disadvantages of legacy systems. Financial institutions often find it difficult to plan accurately, which can lead to unexpected cost explosions. Without clear transparency, budget planning becomes a guessing game.

The advantages of modern core banking systems

Modern core banking systems offer a number of advantages that help to reduce TCO and make it more transparent:

  • Transparent price structure: Modern systems often work with pay-per-use models, where you only pay for the resources you actually use. This enables better scalability and avoids hidden fees.
  • Reduced maintenance costs: Cloud-based infrastructures reduce the need for expensive maintenance and hardware costs. The software always remains up to date and secure.
  • Minimization of downtimes: Modern systems are stable and scalable, resulting in fewer interruptions and therefore lower costs due to downtime.
  • Easy integration: They can be seamlessly integrated into existing processes and systems, which saves time and costs during implementation.

Savings potential with legacy systems

Another important aspect is the savings potential that arises from the use of modern systems. The cost to serve (CTS) - a metric that shows the costs per customer - is often significantly lower with modern banks. While legacy systems have high operating costs per customer, modern systems can reduce these by up to 80 %. This leads to significant savings and better cost efficiency.

Conclusion: Efficient core banking systems as the key to cost control

The total cost of ownership (TCO) of a core banking system is often opaque and very high with legacy systems. Modern core banking systems offer a cost-effective and transparent alternative that enables financial institutions to better control their costs and reduce them in the long term. If you are looking for a core banking system solution that is not only technologically advanced, but also offers a transparent and predictable cost structure, you have come to the right place. Contact us for a no-obligation demo.