Are banks ready to ditch core banking systems and move out of the box?

Could it be possible that we have reached a tipping point that will transform banking technology infrastructures?

A story with a similar headline is probably written every year, but following the banking carnage of the last few years there might be more reason to take note.

Banks have had legacy systems purring away for 40 years in their IT infrastructures.

I met up with Cagemini’s UK banking expert Christian Ball recently and he said we could be at a tipping point, never seen before, where banks finally replace legacy systems.

According to Ball a combination of events have lead to this potential tipping point. These are the confluence of pent up demand for change, mergers and acquisitions and demergers, the arrival of new banks and the fact that banks are looking for business in emerging markets. According to Accenture banks are spending again.

Ball says that the reason banks have failed to renew IT is partly related to the fact that senior execuitives are rarely arounfd long enough to even think about starting a project that will almost certainly outlive their tenures.

Legacy systems work so banks are reluctant to change. Also these systems are so deep within the banks that they are very difficult to remove. But they need top be removed and replaced with more flexible systems if banks want to compete in the future.

A good example of entrenched legacy systems were described in an article I wrote in September 2008 about Commerzbank’s plans to buy Dresdner Bank. Dresdner’s fund accounting system called Paladign, which it uses to balance the books at the close of business, is old and has been modified so often that few IT people can work with it. A Dresdner trading platform called Imagine, which covers parts of the bank’s investment business, was another example of a legacy system hard to shift.

Commerzbank’s challenge with legacy systems will be repeated across the banking world as the credit crunch resulted in mergers between banks and different parts of banks being de-merged

So what are the out of the box options for the banks?

Here are a couple:

SAP has been winning a few deals of late

Infosys’ core banking product, known as Finacle