Choosing the optimal core banking solution for your digital bank involves a thorough examination of technical parameters like functionality, integrations, architecture, and technology stack. However, for fintech business owners, one of the primary considerations is effectively understanding and managing the costs tied to implementing core banking software. Launching a fintech venture involves substantial expenses, with core banking software costs serving as a significant financial component in this equation.
Before engaging with core banking software providers, it is crucial to undertake essential preparatory steps:
- Business and Product Development Plans: Develop a comprehensive business plan outlining your goals and a product development plan covering at least three years. This plan should offer a structured overview of the services you plan to provide.
- Budget Overview: Clearly define your maximum budget for the entire system, encompassing initial developments and subsequent ones over the initial and subsequent years.
- Technical Evaluation: Ensure the presence of a Chief Technology Officer or a technical advisor who can evaluate solutions and estimate expenses for development and customization.
Once adequately prepared, commence the evaluation process and request quotes from various providers. To ensure an accurate comparison, it is recommended to assess the pricing for core banking solutions over a 2-3 year period rather than focusing solely on the initial cost. A solution that may seem less expensive at the outset could potentially become costlier when factoring in future developments, additional features, and customization.
Why consider a 3-year evaluation? Each provider may offer distinct pricing options and payment schedules. Evaluating costs over a set period allows for a more accurate comparison of overall cost-effectiveness. This approach also facilitates a comparison of various deployment options offered by the same provider. Higher initial payments do not necessarily correlate with lower cost-effectiveness over the specified period.
Now, let’s delve into the specific costs that should be considered in this comprehensive evaluation when embarking on the implementation of Core Banking system. Understanding and meticulously assessing these associated costs will ensure a transparent and informed evaluation.
Fundamental Core Banking Expenses
SaaS Deployment
- Setup Fee: A one-time fixed cost specific to the chosen solution.
- Monthly Fee: Over a 3-year span, this fee may vary based on transaction volumes, necessitating consideration for potential business growth.
Software license
- Software License Price: Inclusive of a setup fee.
- Maintenance Fees: Governed by the terms outlined in the Service Level Agreement (SLA).
Additional Developments & Customization
Customization and additional developments often become imperative, underscoring the importance of a meticulously detailed product development plan. This plan acts as a pivotal tool for core banking software providers to accurately compute pricing for supplementary development.
The extent of required customization directly corresponds to the specificity, uniqueness, and diversity of services delineated in your business plan. In instances where your plan is exceptionally detailed and encompasses a broad array of services, the need for customization intensifies. It’s worth noting that the costs linked to customization over a 3-year period might surpass those associated with the fundamental solution.
Customizing the solution and incorporating additional developments can constitute a substantial portion of your overall expenses. Some vendors may provide complimentary hours for customization, typically ranging from 200 to 400 hours. Once these hours are utilized, subsequent customization is billed at the provider’s hourly rate.
Integration Costs
Depending on the vendor chosen for the initial solution package, there might be an additional cost associated with required integrations not covered in the standard proposal. To ensure the seamless provision of services aligning with your business plan, it is essential to have all necessary integrations in place. These may encompass:
- Integrations with AML/KYC providers
- Integrations with banks
- Integrations with payment service providers for various payment types (e.g., SEPA, SWIFT, or local payments such as Faster Payments, CHAPS, FPS)
- Integrations with card issuers
- Integrations with FX liquidity providers
- Integrations with financial accounting solutions if an in-built module is not provided
- CRM integrations
The total costs hinge on the number of hours required for development and the cost per hour. YourChief Technology Officer or IT adviser should be tasked with estimating the actual number of hours needed for each integration. It’s crucial to note that integrations extend beyond a standard gateway and often necessitate customization to align with your specific business processes.
Software Updates & Hosting
- Software Updates: Clearly establish whether updates are covered by maintenance fees or billed as a separate entity.
- Hosting Costs: Verify whether hosting expenses are integrated into SaaS or SLA payments.
Future Developments
In addition, it is imperative to allocate budgets for unforeseen developments and integrations that are challenging to predict or plan. This may encompass scenarios where certain integrations were not initially accounted for in your plan, such as connections with new banks for opening correspondent accounts or integrating with new service providers. A contingency budget for these unforeseen requirements ensures financial preparedness for the dynamic aspects of your business expansion.
Conclusion
To steer clear of unexpected surprises, seek a comprehensive quote that encompasses all potential costs linked to your Core Banking solution. Recognize that the final price encompasses not only software expenses but also considerations for hiring IT personnel, providing a holistic understanding of the financial commitment entailed in this strategic endeavor.
