Finacle Blog

How can you present a convincing case for core systems transformation to your bank’s top management that will justify both its considerable cost and risk?

Admittedly, this is not an easy task. To be compelling, the core systems proposition must address the major concerns of the bank’s executive management in the following ways:

• Justify the cost through ROI analysis
• Create a framework to assess impact on stakeholders and business value
• Present a fair assessment of risk and mitigation
• Craft the implementation strategy to suit risk appetite and desired timelines
• Have a plan for managing organisational change

Justify the cost through ROI analysis
Primarily, top management wants to know how much the investment in core banking transformation will yield by way of returns, and how long it will take to do so. Hence, the business case must employ realistic and relevant illustrations to address these questions upfront. For instance, how much of system maintenance costs will core transformation save? Will faster and better processes bring down error incidence and manpower costs? By how much will it improve compliance?

The case for core transformation becomes stronger if it can be demonstrated that the renewed systems will help the bank overcome its biggest pain points.  For example, a bank struggling to expand its international footprint riding on an outdated system will be very interested in a modern alternative that can be easily extended to new geographies.

It is equally important to present the downside fairly. Typically, replacing a mainframe with a Unix-based system calls for additional skills and investment. Transformation also carries a certain amount of risk. It’s best to apprise the executive management of such issues right at the beginning.

Create a framework to assess impact on stakeholders and business value
Most transformation fears arise from the uncertainty surrounding the nature and magnitude of its impact. Much of this can be alleviated by having a mechanism to quantify the impact of transformation on the organization. When transformation risks and rewards are reduced to a number, it makes it easier for top management to weigh and indeed, come to a decision.  
The impact assessment framework must be aligned with the organization’s principal objectives – for instance, if shareholder value is paramount, the framework should assess whether transformation is earnings accretive or attritive.  Similarly, it must describe how changes in processes or organization structure might affect stakeholders.

Present a fair assessment of risk and mitigation
All transformation carries risk, and all top managements know that. The chances of getting their approval improve with a business case that tells it like it is – what are the risks, how likely are they, what their potential impact is and what can be done to mitigate them.

Craft the implementation strategy to suit risk appetite and desired timelines
Banking transformation extends way beyond systems replacement to bring into play outsourcing, restructuring, change management and rightsizing. What to do and how much depends upon the banks’ individual situation. A small bank might go for a big-bang execution and immediate switch over; a large one is unlikely to take that risk, and will probably insist on phased implementation. It is important to second-guess the management’s intent and build it into the proposed implementation strategy. Convincing top management that it is possible to mitigate transformation risk and secure small, quick wins through phased execution improves the probability of getting them on board. So does a projected implementation timeline which meets their expectations.

Have a plan for managing organizational change
Managing organizational change is one of the critical success factors of transformation. Often, it is not accorded the priority it deserves, with disastrous consequences. The plan for managing and communicating change – including its impact on people, processes, resources, policies etc. – must form part of the initial presentation to top management. Banks have been known to keep transformation plans under wraps, fearing organization backlash as a reaction to change. Having a clearly defined roadmap for change management will give them the confidence to make the decision public and get all key stakeholders involved from an early stage. This could make the difference between success and failure.

Posted by Balwant C Surti at 12:13 PM | Permalink | Comments (0) | TrackBacks (0)

Over the years, your bank has built layer upon layer of IT infrastructure, from mainframe and client server applications to ERP systems and custom applications. This IT snarl is beset with problems – cost, rigidity and lethargy being some of them. If your bank is planning to transform its core systems, how can it ensure that the new applications talk to and peacefully co-exist with the old?

Defining the right enterprise architecture is the key to solving this problem. Ironically, the problems of having too many technology layers are easily solved by adding one more, that of Service Oriented Architecture (SOA), which enables all technology, from legacy to cutting edge, to communicate and co-exist. All that a bank needs to do is define its enterprise architecture in terms of SOA, ESB (Enterprise Service Bus) and other standards such as XML and Web Services.

The success of SOA adoption hinges on the robustness of the bank’s IT policy and process framework. Putting check points where necessary and automating at least some part of enforcement improves the framework’s effectiveness. These policies determine how applications must interact, share functionalities and generally behave with one another.  Yet again, technology provides the tools to define these policies, and once the rules are established within the interfacing infrastructure, all systems automatically comply.

That apart, middleware technology can enable existing applications to fit into the revised enterprise architecture by giving them a “facade” to communicate with new applications. Thus, even non-standard legacy applications can interact with new systems in a standardized manner. 

In short, the right architecture and policies ease application integration and do away with the need for re-engineering in most cases, barring when it is required to achieve other business goals.

Posted by Balwant C Surti at 12:11 PM | Permalink | Comments (0) | TrackBacks (0)

You recognize that there is a strong business case for core systems transformation within your bank, but are wondering whether others will see it your way. Given the apprehensions surrounding core banking transformation, how do you get key stakeholders on board?

People issues are the biggest barriers to acceptance of the need for core banking modernization.  The bank must overcome the following challenges in order to secure the buy-in of all stakeholders:

Identify all stakeholders: Transformation has wide-ranging impact, affecting all functions including, but not limited to, IT, Business, Operations, Sales and Service, Risk Management and Finance. It is important to identify and notify all those who will be affected well in advance.

Drive different stages of transformation through the right stakeholders: Contrary to popular perception, core systems transformation is not the exclusive preserve of the IT department, although they have an important role to play. The involvement of key stakeholders changes along the journey. IT may play a large part during initiation, but once the project has the approval of senior management, business users must take centre-stage. Every phase of the transformation life cycle calls for participation from one or several teams; it is vital that the right people are involved at the right time to the right extent.

Involve stakeholders early: Obviously, if the bank expects all key stakeholders to participate in the transformation process, it must get them on board early in the day. This means seeking their contribution at every step, starting with building the business case. Stakeholders must also be involved in key decisions, to the extent necessary.

The right way to approach this is to obtain the backing of senior management first. Once the decision is approved at the highest level, the bank will find it easier to sell the concept among the ranks. At times, senior management may also lend their efforts to securing the acceptance of people down the organization. Once all stakeholders are recruited, they must be assigned clear roles and responsibilities. For instance, many people will be entrusted with execution, others with facilitation and only some with decision making – it is critical that everybody understands what is expected from them.

Assess impact fairly and correctly: Transformation impacts many, if not all people within the banking organization and not always to their advantage. While it is important to assess both risk and upside across the organization, caution must be exercised while making these known. Invariably, transformation leads to hard measures like cutbacks, retrenchment, redeployment and outsourcing; if the messaging surrounding these actions is not delivered with sensitivity and discretion, the project might even be stonewalled. It is equally important to articulate the expected benefits of transformation from the audience’s perspective, in a language they understand. For instance, a risk manager is more likely to give the nod if he understands that transformation will reduce non-compliance by 90%, whereas the call centre head cares more about customer service levels.

Handle the change well: Involving the organization’s change management team from the outset is the key, because they know best how to handle large-scale transition. If the bank does not have such a function, it must put one in place prior to start-up.

Recognize and respect organizational boundaries: Any transgression of organizational policies, ethics, budgets or guidelines must be communicated clearly in advance. The bank must not mistakenly assume that a departure from status quo will always be well received. There should be a separate plan for tackling any negative repercussions of overstepping such limits.

Communicate effectively: Since communication is the key to securing the buy-in of various stakeholders, it must come into play from the beginning and endure over the life of the transformation journey. While only senior executives may be privy to transformation plans in the initial stages, the lower levels of the organization must be progressively brought into the loop.  While it is important for individuals or members of a unit to understand how transformation will affect them personally, they must also see the bigger picture, which is, what transformation will bring to the organization as a whole.

Posted by Balwant C Surti at 12:05 PM | Permalink | Comments (0) | TrackBacks (0)

Mobile banking is staging a strong comeback in the United Kingdom, driven by smartphones and other 3G enabled devices which promise a rich user experience.  Monitise, the mobile banking specialist, estimates annual mobile banking growth to be a whopping 30%. Mobile remittances are also on an upward trajectory, aiming at £6 billion by 2012.

No wonder, that the U.K. mobile banking space has become quite busy in recent years, with everyone from banks to telecom operators gunning for a share of the business. Broadly, the players have taken one of three different approaches to setting up a mobile banking service - the bank-focused model, the bank-led collaboration model and the non-bank-led model. Barclays’ mobile banking service follows the first approach, Monilink is the colossus of the collaboration model while Payforit has chosen to go down the non-bank-led road.

Although the bank-focused model offers advantages such as more control and branding visibility to the financial institutions concerned, it is not without its challenges. Customers’ primary concerns are to do with the quality of experience, security of identity and transactions, reliability and accessibility of service and extent of personalisation allowed. Banks must address these issues by providing a mobile banking service with an easy to use interface, made secure with the help of multi-factor authentication and other technology, capable of running uninterrupted 365 days a year. As if that wasn’t enough, they have their own apprehensions about setting up the service: Where will they find the technical expertise to run such a complex banking framework? How can they address scalability issues? What will it cost? While most of these concerns can be alleviated by allying with the right partners, others, which are not so easily controlled, could pose greater hurdles. Important among these are how to propose a compelling value proposition to customers and run a successful mobile banking service in a largely unregulated environment.

However, the overriding fact is that mobile banking offers hard to beat growth prospects for banks and other participants. Their success hinges on overcoming its challenges and exploiting its opportunities.

Posted by Shekhar Kapoor at 5:58 AM | Permalink | Comments (0) | TrackBacks (0)

Although people in the U.K. still walk into a branch more than most of their European neighbours, they’re moving quite rapidly towards other channels. Analysts expect the number of online banking users to touch 22 million in about 2 years, with 2 out of 5 adults adopting this service. Not surprisingly, young, educated high income earners will be the biggest users. What’s behind this growth? The internet apart, mobile phones and self-service kiosks are driving the move towards branchless banking. In fact, mobile banking has scored over the internet in spreading financial inclusion, since a lot more people know how to use a mobile phone than browse the World Wide Web.

Most U.K. banks have seized the opportunity by offering a choice of non-branch channels such as the call centre, mobile and IVR, using which customers can conduct almost every type of transaction from account opening to bill payment. But they’re not the only ones to do so. The rising popularity of branchless banking has spawned off a number of niche financial service companies like Egg, Zopa and Smile which conduct their entire business online.   Although these firms have achieved quick success, they must have a strategy in place for sustaining this early advantage and differentiating themselves from the big boys of banking.

How can these small players beat established institutions at their own game? One way is to provide superior customer experience over a simple and user-friendly platform and back that up with an equally efficient complaint resolution mechanism, accessible through SMS, telephone and the internet. Equally important is to convince users that their transactions are absolutely secure, thanks to the prudent risk mitigation and security practices followed by the organisation, namely multi-factor authentication, alerts, regulatory compliance etc. They must also launch targeted marketing measures including online loyalty programs and viral campaigns to improve customer stickiness. The use of analytics to unlock valuable customer insight from raw data can enable this last objective.

Posted by Arunnima B S at 4:58 AM | Permalink | Comments (3) | TrackBacks (0)

Think...and while you are at it, think Bank-in-a-Box (BIAB). The bank is devising ways to spruce up efficiency and enhance their competitive edge through various means; perhaps a new product or service, but constrained by the legacy systems that are not up to it. And the bad news is that budgets are tight. The good news is that modernizing core systems to achieve these goals is now possible. And at an affordable cost.

Bank-in-a-Box has been created with pre-configured parameterization, process definition and built-in templates. Installation is quick and cost-effective. A boon for the segment 3, tier 3 and tier 4 banks, functioning on small budgets and stringent timelines minus the demands for customization. 
 
When used with support services such as systems integration, hardware setup, networking and security, Business Process Outsourcing and consulting, this combination BIAB provides ‘plug and play’ core systems execution for fresh market operations or green field operations. The bank needs to obtain a license and the IT affiliate renders consultation and complete execution services right from generating the business model, designing market policy to developing channel infrastructure and handling standard compliances.

With all this, the costs may still seem out of wallet for smaller banks, credit unions and co-operatives. What is needed is a core systems model wherein the cost figures as an operating expenditure for these banks instead of an in-your-face expense explosion. Technology vendors hear you and have come up with an array of flexible payment options for core systems renewal:

Pay-as-you-go: This model calls for segment 3 and other small banks to come together and invest in a solution that reduces each one’s expenditure. The IT provider looks after the required infrastructure and gives core banking solution (CBS) as a hosted service. This is chargeable on grounds of usefulness, number of sites or users, distribution span etc.

Application Service Provider (ASP)-based: Here, the core systems provider hosts applications at the data centre of Hosted Service Provider. Banks can choose their services and pay just for that.
 
Software-as-a-Service (SaaS): Delivery on demand. This model does well with modules such as CRM, HR, Accounting GL.; software used once in a while.
 
Core Banking Solution on a Cloud: The bank along with the technology vendor collectively decides what applications are to be hosted outside – in a ‘cloud’ – for consequent sharing with other users. The bank is kept out of the actual hosting but testing, developing, training and data recovery modules do get to make visits to the cloud. The cost here is spread amongst multiple banks based on usage; this model is practical for segment 3-tier 3 and tier 4 banks.

Posted by Rajashekara V. Maiya at 4:31 AM | Permalink | Comments (0) | TrackBacks (0)

Modernisation of treasury systems has always been a big challenge for banks, as it entails more than significant investment and business risk. Long lead times involving a lengthy scoping exercise could mean that the original objectives have changed by the time the system is finally ready, leaving the bank no better off than before. That apart, paying for a full-blown solution is not commercially viable for banks that might have operations limited to, say, the money market and fixed income segments.  The perceived business risks and a prolonged implementation process and apprehension on scale of investment drive banks to continue with their current solutions that has limited capabilities and high maintenance cost.

However, modernisation is essential due to the complexity of treasury and trading products. Banks may face high opportunity costs and unreliable risk management if a proper system is not in place.

The decision to go in for a new treasury solution is indeed a tricky one particularly for mid-sized banks. Financial institution that are just starting out or have limited play in this area have an expedient alternative in the form of a best-in-class boxed-up package that can be deployed modularly and quickly, but at the same time be customised to their needs.

Infosys Technologies Ltd. yesterday announced the launch of Finacle Treasury-in-a-Box, a rapid implementation framework for an integrated front, middle and back office treasury system. The product built on best of breed open technology platforms provides banks with high flexibility and straight-through processing capabilities. The solution enables banks the twin benefits of rapid implementation and high scalability.  The extensive menu of features, interfaces and functionalities supports a wide range of financial products and their derivatives in foreign exchange, money markets, fixed income and equities allowing banks faster time to market for their products and offerings.

More details on press release are available here.  

Posted by Milind G Kolhatkar at 9:24 AM | Permalink | Comments (0) | TrackBacks (0)

From mere distributors who facilitated transactions, banks today have progressed to performing an advisory role for their clients. And this is in line with client expectations. Today, customers look at banks as a one stop shop to meet their financial needs. In this scenario, it is wealth managers’ aim to manage clients’ wealth holistically, offering solutions for all their financial requirements - constantly tracking their portfolio, comparing it against benchmarks and re-balancing when required. This expansion of banks’ role as wealth managers provides new opportunities to enhance their fee income generation capabilities.

To enable investors to build a mutual fund portfolio and manage the same, banks charge a transaction fee, a periodic wealth management advisory fee or a combination of the two. Banks charge a transaction fee for facilitating transactions in mutual funds. It earns an advisory fee under the broader service of managing the clients’ wealth. The online platform for investing in mutual funds is increasingly becoming popular amongst investors as it offers the convenience of transacting without the hassle of filling physical forms. Apart from banks, other financial firms also follow the online distribution model. These online transaction websites may or may-not charge a fee from the investors. They earn revenue from having a large customer base and earning trailer commission from the fund house. Banks however score over these sites by offering advisory services to their clients besides the more basic transaction service - comprehensive analysis on the markets, the different mutual funds available and impact of various economic factors on the clients’ portfolio, among others. The more specialized the service, the higher could be the fees charged by the bank for the same.

Banks may define different fee structures for different categories of clients. Hence clientele in higher segments of wealth could be given a favorable fee structure over clients with a lower asset base maintained with the bank. A bank intending to increase its asset base, could charge a lower fee for higher transaction amounts or for larger mutual fund portfolios maintained with the bank.  Banks may even charge different fee for different mutual fund schemes. Investments in equity mutual fund schemes could have a higher transaction fee for the investors compared to debt mf schemes. Similarly different transactions in mutual funds could imply different fees being charged to the client. In order to encourage small time investors, a bank may not charge any fees for investment through systematic investment plans.

Hence, banks tailor their fee structure to meet their individual requirements of servicing a category of customers, increasing revenue share from a particular customer category and increasing their assets under management.

You can also read the white paper - Wealth Management: The New Revenue Frontier for Banks

Posted by Priyanka Diwan at 9:45 AM | Permalink | Comments (0) | TrackBacks (0)

A universal remote control is under-utilized if all you have is a T.V. Not to mention wasteful expenditure!

And, the same concept is applicable even in case of the new-age banking solutions, especially treasury systems. Of course, having a comprehensive suite of functionalities is nice but if all its modules are not going to be immediately utilized then going the modular way may be the  best way to achieve higher efficiency and lower cost of ownership.

Today, freedom of choice and commercial viability have become important criteria in the selection of a banking treasury solution. A modular solution that allows users to pick and pay for only those capabilities that they actually need makes ample sense in these conservative times, and not just for smaller banks. While it is true that a modular solution holds a strong commercial appeal for banks with restricted or modest treasury operations, it also offers Tier I banks the flexibility to quickly add select components to their existing treasury solutions landscape.

The advantages of a modular solution over a full-blown implementation are many – from lower total cost of ownership to organized budgetary spend; from faster implementation to having wider capabilities within reach. A modular treasury implementation should allow users to pick and select components as per need, reducing lead time, cost and failure risk.

Ultimately, such a solution definitely has something for everyone – while small banks can acquire limited yet sophisticated functionalities to fulfill current requirements, the big ones can top up existing capabilities without investing in yet another full-fledged, expensive solution.

Posted by Sanjeev Kumar nargotra at 10:19 AM | Permalink | Comments (0) | TrackBacks (0)