Thirty year old core systems drive up bank costs

European banks’ reliance on legacy technology is hampering their flexibility and increasing their costs, according to research.

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European banks’ reliance on legacy technology is hampering their flexibility and increasing their costs, according to research.

Banking IT supplier Callataÿ & Wouters commissioned a survey of banking IT decision makers in France, Germany and the UK to measure how banks are approaching IT investments in core technology in response to the financial crisis.

The survey found that 69 percent of organisations are operating with a core banking infrastructure that is 11-30 years old. A further 11% said their core infrastructure had been in place before the 1980s.

An overwhelming 89 percent said that legacy technology has reduced flexibility, and 88 percent said it has increased costs.

Digging deeper into the impact of legacy technology on the business, some 57 percent agreed that "banks have had to adapt their business around legacy technology" rather than "using flexible technology which adapts to banks’ needs".

Current core banking systems are failing to support the business due to the siloed nature of systems said 70 percent of respondents, while 62 percent highlighted the absence of a direct link between systems and the bank’s business objectives.

Given the growing importance of core banking systems to the business, 44 percent of respondents planned to increase spend on their systems over the next two years, despite the current economic climate.

Increasing competitiveness is the main business driver for investing in core banking systems overall, followed by meeting regulatory initiatives and risk management.

The research found that French banks ran the oldest systems overall and were more likely to run them in-house. They were also the banks least likely to invest in new core systems in the coming years.

Diederik Van Der Linden, EMEA strategy director at Callataÿ & Wouters, said, “Core banking systems are becoming ever more important for banks as they deal with the aftermath of the financial crisis, which has brought increased competitiveness and regulation, a greater focus on risk management and a more demanding customer."

The Callataÿ & Wouters research was conducted by Vanson Bourne, and questioned 101 IT decision makers from a cross-section of the banking industry, including retail banks, universal banks, corporate banks and wealth management institutions.

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