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Rationalized Software Cost

Posted by Reghunathan Sukumara Pillai (View Profile | View All Posts) at 11:25 AM

Banks investing in core banking software have to be cognizant of the various costs involved in procuring and implementing the same, such as:

a) Licensing
b) Implementation
c) Maintenance and Support

In general, costs can be split into fixed one-time costs and recurring expenses. Licensing and implementation are fixed costs while annual maintenance and ongoing IT support are recurring. The licensing cost, however, may vary based on the number of accounts, transactions, customers, branches etc. as per norms followed by core banking vendors worldwide.

As for implementation cost, it could be similar for banks of identical size and business volumes with comparable lines of business, irrespective of retail or corporate banking. Factors like integration cost of existing systems likely to be retained by the bank may have to be considered as well. Furthermore, bank-specific customizations and process changes can add to the cost.

A matrix based on functionality, modules licensed by the bank, its status, for e.g. tier I/II/III, geography of operation etc., can help arrive at a ballpark estimate of the base price. Other factors such as regulations and/or bank-specific complexities will determine the final cost. It is also important to ensure that a piece of software is not priced drastically differently for banks with comparable volumes and business operations across a given region, say South Asia, Middle East or Europe.

Standardized pricing practices, such as defined price bands for different tiers, can create an environment of mutual trust between banks and IT vendors.  It would also make it easier for banks to evaluate vendor and solution options. Banks that have put off core banking transformation for want of more data will now be armed with information to take appropriate decisions.

This would be a step in the right direction to help propagate core banking solutions as well as create and sustain a healthy demand for these products. Without doubt, this will prove beneficial to banks and IT vendors alike in the long run.



With regard to recurring costs, what would be the typical maintenance and support costs (in terms of percentage of total license fee)
Also how is change management factored into this? Is there a tiered approach?



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