Measuring the Benefits of A Core Replacement

Aite Group found that Philippine bank RCBC has seen significant cuts in operating costs thanks to its recent core conversion.

Replacing the core is a huge expense for a bank, and one of the main reasons that banks hesitate to take the step of changing their core systems. But a core conversion can also lead to major savings in operating costs that allow banks to shift investment to other strategic priorities, according to a new case study conducted by Aite Group on the core conversion of Rizal Commercial Banking Corporation (RCBC), one of the five largest commercial banks in the Philippines.

RCBC completed a conversion to Infosys’s Finacle Core Banking Solution in late 2012. Aite use a new methodology for measuring ROI on core banking core conversion to determine the savings that the core replacement has created for the bank, according to a statement from Aite detailing the findings of the case study. With the new methodology, Aite found that RCBC had seen an ROI of 54.4% on their switch to the Finacle solution.

Thanks to the new core the bank has seen productivity increases that have led to a cut of 1.1 billion Philippine pesos (or $24.6 million) in annual operating costs over a three-year period. Those cost reductions are expected to increase to 2.1 billion Philippine pesos (or $47.1 million) in the fifth year after the replacement was completed in 2012.

[For More On Core Banking: Legacy Core Systems: The Biggest Obstacle for Bank Digital Strategies]

The results of the case study were based on interviews with RCBC personnel and on operational gains and cost reductions that RCBC saw in the first six months after the core’s deployment.

“Core banking systems can be under-appreciated as enablers of a bank’s strategic objectives. Aite Group’s ROI analysis shows that there are clear financial benefits and that the deployment also improved customer service, enabled faster new-product introductions, and dramatically increased transaction processing capacity,” David O’Connell, Aite’s senior wholesale banking analyst said in the statement.

Jonathan Camhi has been an associate editor with Bank Systems & Technology since 2012. He previously worked as a freelance journalist in New York City covering politics, health and immigration, and has a master's degree from the City University of New York's Graduate School ... View Full Bio