Why Core Banking Transformation? – Today’s Drivers and Success Factors for Tomorrow
Legacy core banking platforms may not be broken, but they cannot support the agile bank of the future.
Consultant, Capgemini FS│SBU
Contact information: LinknedIn.
Advanced technology, rising customer demands, and a slew of unexpected competitors are upending traditional financial services and forcing incumbent banks to face stark realities about core infrastructures. As consumers everywhere embrace digital adoption, so, too, do banking customers expect seamless service across multiple channels and all lifecycle stages. Accordingly, future-focused bank executives are hunkering down to develop novel business models that generate delight-inducing customer experiences and new revenue streams―all while working to retain long-held customer relationships.
Bespoke core infrastructure has long provided the safety, security, and robustness upon which banks have built their reputations. However, considering the high demand for system scalability and flexibility within an open-banking ecosystem, banks are accepting the inevitable necessity to develop agile, next-generation architecture capable of integrating with other systems.
Driven by the industry’s digitalization rallying cry, core banking transformation (CBT) is swiftly gaining momentum and encouraging the replacement of outdated architecture with new core banking platforms (CBP).
Today’s open-banking ecosystem is driving CBT
Survival of the fittest
Traditional branch and online banking arrangements are being abandoned to make way for ecosystem partnerships in which banks become orchestrators and relationship managers that facilitate access to the most innovative and useful services―regardless of how they are sourced. As a result, dedicated, on-premises infrastructure is needed to seamlessly integrate with public and private cloud systems to maintain core banking functionality while supporting new banking business models(1).
Many existing core systems are designed, operated, and maintained as a system platform for developing and delivering product services. However, as banks attempt to add new-age product services, customer channels (telephone, internet, and mobile), and external connections, they are hindered by issues around aging structure, data model rigidity, lack of application flexibility, IT redundancy, and duplication of labor.
CBT includes replacing, upgrading or outsourcing core banking systems from traditional to more digital-based platforms. Banking platform transformation has advanced enormously over the past decade and in fact, has become an enterprise-wide activity covering the upgrade or replacement of numerous products and functional operations.
Nevertheless, legacy core systems that connect the institution’s network―and which enable mutual settlement and credit transfer between financial institutions as well as regulatory reporting―are rigidly structured and cannot deftly handle decoupling, decommission, and upgrade.
Successful CBT implementation
Core architecture replacement is not a flip-the-switch effort. Innovative business processes must accompany the new platform to deliver substantial efficiency gains. Best practices combined with closely-aligned staffing models are required―well before implementation―to ensure optimal return on investment.
When a bank decides to transform its core systems, the right partners and strategic guidance can make a critical difference. CBT teams must not be afraid to seek advice from experts that bring the skills, experience, and fresh perspective needed to tackle the operation objectively and efficiently. Given the internal and external pressures involved, CBT demands support from partners with a proven record of strategy excellence and flawless execution. Successful CBT implementation requires focus, adaptability and unwavering commitment from all participants, especially the bank’s leadership team.
What does success look like?
A core banking platform should be underpinned by principles that ensure flexibility, maintainability, scalability, and openness. We have identified platform and package principles to help align the expectations of the CBT team and stakeholders.
Consider these platform principles:
- Adopt an end-to-end solution versus attempting to adapt legacy architecture. CBT should enable the ability to pick and mix so that the bank can offer its customers distinctive features while keeping in sync with business objectives.
- Open-standards-based integration to allow plug-and play-capability.
- Private cloud, hosted platforms for quick-start capability and advanced security features.
- A multi-tenant solution with horizontal and vertical scalability that supports new entrants as well as existing banks
- End-to-end service delivery and service management to provide single-point-of-contact management.
Research these package principles:
- An eco-system of proven partners and solutions to provide end-to-end capabilities.
- A package-led approach to business processes―especially for commodity processes and functionality.
- Select a configuration and workflow-driven package versus that which is code or customization-driven.
- Limit changes to those that will support areas of differentiation.
- Enable direct business management and self-service of the solution wherever possible.
Mitigate risk through alignment and communication
Transformation requires change management in processes, events, rules and regulatory, controls, roles, service levels, and in the way of doing business. One of the most sensitive yet essential aspects of CBT is the human factor and potential resistance to change. Therefore clear, consistent and ongoing communication is critical.
Bank executives, employees, and communities must all understand and embrace the decision to transform banking systems. Everyone must appreciate the reasons, benefits, and risks associated with the new system. Stakeholder engagement begins with the CBT requirements’ definition through to successful implementation. However, this is only possible if stakeholders are encouraged to participate actively in the transformation journey and keep informed along the way.
- Empower staff and resources entrusted to deliver outcomes
- Create focused CBT teams with clear accountabilities and responsibilities―and no overlaps
- Require agile, time-boxed delivery of outcomes
- Assume an incremental, iterative approach with a right-to-left focus to provide early visibility
- Focus 80/20 on outcomes, benefits, and deliverables versus demanding perfection at all cost
- Make cultural change happen
To learn more about core banking transformation and CBP implementation, visit Retail Banking Service and be sure to download a copy of the World Retail Banking Report 2018 from Capgemini and Efma―available September 18.
(1) IBM website, blog, “Core Banking Transformation: Starting from Z,” Paul DiMarzio, October 13, 2017, https://www.ibm.com/blogs/insights-on-business/banking/core-banking-transformation-starting-z
Salma Qureshi, Consultant, Capgemini FS│SBU
I help our clients understand and adapt to the challenges they face through innovative architectured solutions while being compliant with latest regulations such as GDPR and PSD2. I hold a Master degree in E-Business Management from the University of Warwick – WMG.