A Nigerian bank, Sterling Bank, is undertaking a unique initiative by constructing its own core banking system. This approach is akin to a bank opting to create its own cars instead of purchasing them. Despite being a costly and risky endeavor, it could provide significant advantages for the bank.
In the banking sector, the norm is for institutions to procure ready-made core banking systems. While this is convenient and quick, it does come with notable drawbacks.
When a bank buys a pre-built core banking system, it becomes reliant on the vendor. Any required modifications to the system would entail additional costs.
Conversely, developing a custom core banking system, as Sterling Bank is doing, offers complete autonomy. It allows for tailored functionalities without the constraints of an off-the-shelf system. Moreover, any necessary adjustments can be made internally without incurring vendor expenses.
However, building a proprietary core banking system is an arduous task that demands substantial resources, time, and carries inherent risks.Â
Furthermore, if errors occur, the consequences could be severe. Research indicates that the total cost of ownership (TCO) for a custom-built system may surpass that of a purchased solution by 20-30%.
While custom banking systems have been explored globally, Sterling Bank stands out as one of the first African institutions to embrace this approach.Â
The success of Sterling Bank’s initiative remains to be seen. Nonetheless, it is evident that the bank is taking a significant leap towards shaping the future of Nigerian banking.