Cutting Costs in Core Banking

Microsoft and BIAN are helping
Article in Finance on Windows, Spring Issue 2013 (page 34 — 39)

Banking is one of the most IT intensive industries with no physical product to sell but a mountain of data to manage effectively and efficiently. It may come as no surprise then that IT spending in the industry is high, with research from Temenos revealing that banks are spending 14 per cent of their budgets on IT, compared to a cross industry average of just seven per cent. But, the cost ratios and economics for banking operations and IT spending are unsustainable given banks’ increasing capital requirements, declining margins and the rise in operational costs. At the heart of this are core banking systems, which comprise the largest area of IT spending for banks.

“Core banking systems are like the engines systems of a ship — they are large, have to be ultra reliable but are also high cost and high risk,”says Colin Kerr, industry solutions manager in the Worldwide Financial Services team at Microsoft. “Part of the reason why banks’ IT spend is so high is because their core banking systems are expensive to run, outdated and siloed, and have been patched and customised according to requirements over the years. These complex legacy systems are difficult to update and lack the agility needed to run cost-efficient operations. They can also be unreliable, which negatively affects the customer experience and harms brand reputation.”

When banks purchase off-the-shelf products, they often have to spend an additional three to four times the list price for money integrating them with their other systems,”says Tesselaar. “To reduce these costs, the banking industry needs an open reference model that includes generic boundaries and service definitions. If both the banks and the vendors comply with that standard, a huge financial and technical issue will be solved. This will help reduce costs enabling banks to become more agile and increasing the business case for replacing core banking systems.”All the banks and vendors involved in BIAN are working towards this common goal and many vendors have now started to restructure their banking offerings in line with the BIAN landscape to simplify the implementation process for banks.

Microsoft, as one of the founding members of BIAN, has used these standards as a basis for the Microsoft Industry Reference Architecture for Banking (MIRA-B). MIRA-B offers a collection of ideas, practices,and frameworks based on Microsoft’s experience in delivering mission-critical solutions to the financial services industry. Rather than focusing specifically on Microsoft’s technology for the sector, it provides guidelines on implementation approaches and technical capabilities, as well as explaining the importance of people, process, policy and governance. “MIRA-B was created for marketplace education and to provide a framework to the banking industry, our partners and our customers to help them align business and technology assets,”says Kerr. “Before, many banking customers and partners weren’t aware of the depth and breadth of the Microsoft technology stack, which is something MIRA-B aims to address.”With a core banking system built on the Microsoft technology stack that Kerr mentions, banks will have a scalable, reliable and high-performance platform that provides end-to-end data integration. Microsoft is continually investing in its platform with the most recent versions of SQL Server and Windows Server offering a raft of enhancements, which are helping the company make its mark in the industry.