Core Banking Modernization
Core banking modernization - A myth or a reality?
Modernization of core banking platforms has been discussed for a few decades, but is it a myth or a reality? Do banks need to undergo this change, and if so, how can they approach this change to come out successfully?
Why do banks need to modernize their core systems?
Whether it is a small, medium or a large bank, traditional or non-traditional, local, regional or global, all types of banks face competition. Their survival and success depends on conflicting priorities such as reducing costs, increasing revenues, and increasing capital. In addition to this is the complexity of regulatory changes, compliance, and competition from banks and non-banking entities. It ultimately comes down to how banks will achieve growth in deposits, control customer attrition, and roll out innovative customer-facing strategies.
- Banks need flexible core banking systems to address these strategies whether it is increasing their customer base, increasing deposits or servicing them better, origination and servicing of loans, offering products and services quickly, or assessing credit risk.
- Ageing legacy systems are becoming costlier to maintain, difficult to support from technology, vendor support and resourcing perspectives.
- A lot of time and effort is needed to make these legacy systems adapt to new functionalities, open up to new channels, support new products and services quickly.
* Non Exhaustive
Before banks take on this challenge of core transformation, they need to find answers to the following questions.
1. Will the core transformation reduce operational costs and in what period?
2. Will the core platform change support the bank's future growth and vision, and if so how?
3. How will this change benefit in creating a better customer experience?
4. Will the change help banks get a better handle on managing risks and changing regulatory environment?
5. What is the plan to make employees at the bank skilled to embrace and adapt to this change?
Banks need to make a business case that details the value they will derive from modernizing their core systems. This change is not solely a technology-driven mandate but needs to be a strategic business decision. The detailed plans require an analysis of people, process, and technology costs while looking at business value, business process improvements, customer experience and value in parallel.
How can banks make this core transformation a smooth journey and come out successful?
- Committed transformation with responsibility and accountability from the highest levels of the bank
- Communication, governance, and stakeholder management
- Transformation roadmap should be created by the business and technology teams together aligning with the bank's business vision and technology path
- Professional program and project management, robust delivery capabilities backed by a scalable engagement model
- Requirements and scope management through the change
- Evaluation of current business process to decide on re-engineering to align with the new product
- Understand the implementation methodology, impact to the bank and customers, and how they will be handled
- Infrastructural support that leverages the latest architecture and modernized applications
- Organizational change management with involvement of the top management across impacted lines of business
What have banks who have already taken this bold decision said?
Zions Bancorporation (assets > US$50 billion) made this decision due to factors such as risk concerns and systems with limited support. They also wanted to achieve common standards, , more centralization, and straight-through (STP) processing across the enterprise through this change.
Deutsche Bank (assets > US$2250 billion) made this decision to standardize processes, improve flexibility in IT infrastructure, and build modular functions through a service-oriented architecture approach. It was aimed at boosting efficiency, profitability, accelerate time to market new products and services.
Commonwealth Bank of Australia's (assets US$725 billion) vision through this change was to build a customer-centric organization, driving growth through simplicity. Their objectives were real-time banking, customer-centric processing, increased customer offerings, industrialization and multi-entity enablement. Customers experienced benefits right away - ability to see transactions quickly, accounts were opened instantly, account switching was done on the spot, transactions descriptions were simpler, and increased sales interaction.