Be aware of hidden costs of an on-premise core banking system

Rural Banks and Microfinance Institutions (MFIs) in the Philippines are operating in a highly competitive environment. To ensure that your clients continue choosing your institution first, you must meet their demands for services, grow your business and get ahead of the rapidly changing digital financial environment.  

One way to overcome the challenges that face your business and hinder your growth is to choose the right core banking system that will align with your growth strategy. With a proper core banking platform in place, your financial institution can steadily grow, reach more clients and serve them better. Which core banking platform is right for your business? 

When comparing on-premise to cloud-based core banking systems, the differences are usually summed up by referring to how the core banking platform is hosted – where is it? However, there are other aspects that could greatly impact the future of your business and its growth: hidden costs

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On-premise costs can quickly add up to more than the price of a subscription to a cloud-based system 

At first glance, on-premise systems seem affordableAs financial institutions try to grow their business with an on-premise system, hidden costs unfoldFor years, this has been the only option. Cloud technology enables your financial institution to have more options that can better align with your strategy.  

Cloud-based core banking platforms provide access to world-class banking services at the click of a button and at a single, fixed subscription fee with no hidden or other associated costs. 

The hidden costs of on-premise banking systems 

With an on-premise core banking system, you must pay the direct costs of the hardware and software up front. Then, you pay the indirect costs:  

  • Electricity to run the on-premise system
  • Maintaining and repairing the system every year 
  • Backing up data and ensuring its storage 
  • Lost data that you cannot recover if there is a disaster 
  • IT specialists’ time 
  • System down-time  

These indirect costs strain your financial institution’s budget, which otherwise could be used for the core business and reaching your growth goals. The cloud gives you access to world-class core banking platform without investing in the infrastructure.  

Most of the costs of an on-premise system are not included in the proposal from the vendor, as they are incurred on an ad-hoc basis from the vendor, or you pay for it directly as a regular or extraordinary business expense.  

The iceberg infographibelow is used to show the costs above the water are the ones which are known and visible and the hidden costs are below,  hidden from your view. Most times, hidden costs below the water are much more than the costs you can see – the tip of the iceberg. 

You should only be responsible for your Internet, not your infrastructure 

The costs of on-premise systems can quickly add up to more than the price of a subscription to a cloud-based platform. When building an on-premise system, your institution also assumes the full responsibility of integration and any security or IT related issues.  

For financial institutions, data security is of vital importance. Partnering with the right IT professionals for data security and recovery will reduce costs and ensure your business growth – at all times.  

As the leader of a financial institution, the question you should ask is:  

  • Will this system enable my financial institution to grow in a sustainable way for the next five to ten years?  
  • AI making a decision that aligns with my business strategy? 

The key to growing is to cut hidden costs and to grow faster in a competitive market 

One way MFIs and Rural Banks are streamlining these processes is through technology designed for efficiency. Oradian designed its cloud-based core banking system specially for the microfinance industry in emerging markets. This is because the cloud has proveto dramatically reduce costs and enable MFIs and Rural Banks in remote, hard-to reach communities to work more efficiently and focus on the core business.  

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