Intel Report Core Replacement - Flipbook - Page 16
THE FINANCIALS
The significant holdup to a conversion, from the top on down, also has to do with cost.
Replacing the core requires both an initial cost as well as ongoing and recurring expenses —
whether converting the core entirely or using a split-core design. It can become a high hurdle
from a cost standpoint. The benefits may not have a clear dollars-and-cents result. It isn’t only
a determination of the cost of the conversion process, but the length of time it’ll take to fully
convert, getting out of the contract with the current core provider and weighing the amount
it will cost to run the new core. These issues become the “deciding factor” when choosing
between doing nothing, selecting an alternative provider or running a full core replacement,
says Callies from Seattle Bank.
Some of the upfront costs in converting include the initial subscription fee, cost of the hardware and the price to customize, which may include third-party services and training. After the
initial conversion occurs, then recurring costs include subscription fees, internal IT costs (like
personnel and equipment) and maintenance.
The amount these costs will run vary, depending on the size of the bank and provider. FIS estimates that the average cost for implementation, initial license and customization will reach
$8.3 million. Costs can run as high as $60 million. Recurring licensing fees account for an
average of 15% to 22% of the total cost of ownership of a new core system, according to FIS.
And it will take a few years before the ROI surpasses the costs of implementation, with FIS
estimating most banks see the average payback period at 3.5 years.
Payback period for core banking modernization
The modernization theme will determine the
level of investment. Timeframe before shortterm benefits are realized also varies.
Post-implementation, there are cost
savings and other business benefits.
$15M
Cost
$12M
Cumulative Benefit
Average Payback
Period (≠3.5 years)
$9M
Cumulative Cost
Source: FIS Global
$6M
$3M
Range of Payback
Period (2-5 years)
0
1
2
3
4
5
6
7
Years
14 | FINXTECH INTELLIGENCE REPORT
POWERED BY BANK DIRECTOR