While coping with the financial crisis banks have been seen to focus on improving operating efficiency and sharpening competitive advantage, among other challenges. Perhaps one is considering a range of product, service or process innovations to help achieve both objectives. Unfortunately, legacy systems are not up to the challenge and are in serious need of renewal, but if one might not have the budget for a full-blown replacement. What is needed is to modernize the core systems at reasonable cost. The good news is it’s possible.

The Bank-in-a-Box (BIAB) model has been devised to cater to precisely this type of requirement. With pre-configured parameterization and process definition, and built-in templates, the BIAB is quick and economical to install. This solution is a best fit for segment 2 and segment 3 banks working within tight budgets and timelines, looking to implement a ready solution without the fuss of customization.

When deployed in combination with a suite of support services such as systems integration, hardware setup, networking and security, Business Process Outsourcing and consulting, this Extended BIAB offers the convenience of ‘plug and play’ core systems implementation for greenfield or new market operations. In such cases, the banks need only procure a license; the IT partner provides advisory and implementation services for everything else, from developing the business model, crafting market strategy, building channel infrastructure to managing regulatory compliance.

However, since the implementation costs of the BIAB models are front-loaded, they might still be out of reach for small institutions, credit unions and co-operatives that are cutting back on capital expenditure. There is a need for a core systems model that enables such banks to incur the bulk of implementation costs as operating expenditure, rather than an upfront capital expenditure. The telecom industry is a standout example of how a service can be made affordable for every market segment by charging customers for only what they use, when they use it. Realizing that they can ignore their customers’ needs at their own peril, technology vendors have responded with a range of versatile payment models of core systems renewal:

Pay-as-you-go: The pay-as-you-go model allows segment 3 and other small banks to invest collaboratively in a modern solution to reduce their individual expenditure. The technology provider maintains the necessary infrastructure and offers the core banking solution (CBS) as a hosted service, charged on the basis of functionality, breadth of distribution, number of sites or users and other relevant business criteria.

Application Service Provider (ASP)-based: In the ASP-based model, the core systems vendor hosts applications at the data centre of a third party Hosted Service Provider. Client banks can subscribe selectively to various services, paying only for what they need.

Software-as-a-Service (SAAS): The SAAS model takes the above proposition one step further, delivering applications only on demand. This concept works very well with seasonal or infrequently required modules such as CRM, HR, Accounting & GL.

Core Banking Solution on a Cloud: In this model, the bank and their technology partner jointly decide on the applications to be hosted in an external “cloud” environment, for subsequent sharing with other users. Generally, the bank has neither control over nor involvement in the actual hosting. The production environment is usually excluded from this type of arrangement, but testing, developing, training and data recovery modules frequently make their way to the cloud. Since the costs are spread over multiple banks paying only for actual usage, the solution becomes affordable for segment 2 and segment institutions, as well.