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Your Core Banking System modernization endeavor must succeed - come hell or high water!

"A vision without a plan is a hallucination." - Will Rogers


A large number of banks across the globe are still grappling with wilting loan portfolios, cost pressures and issues surrounding customer retention and growth. Unsurprisingly, many banks have found that their existing core banking systems (CBSs) are the biggest obstacles in their efforts to overcome survival and growth challenges. Bankers say that their existing, legacy CBSs:

·         Are unable to provide consistent customer information

·         Lack the flexibility to accommodate business process changes

·         Are not scalable due to the rigid architecture

·         Require lengthy development cycles to develop new or enhanced products (a factor that directly impacts time-to-market)

·         Find it difficult to respond to customers' needs for flexible product bundles, new banking products or relationship-based pricing

·         Cannot keep pace with new and constantly-evolving regulatory changes

·         Struggle with many other such shortcomings

Expectedly, over the past few years, a large number of banks across the globe have endeavored to modernize their CBSs. A significant number of banks are further expected to undertake CBS modernization programs until 2015. As a result, it is not surprising that the global CBS market is expected to grow to over US$5 billion by end-2013. Unfortunately, failure stories of CBS modernization projects abound. CBS modernization is a complex multi-year endeavor and requires large scale changes to key components of core systems (e.g. General Ledgers, accounts, deposits and loans systems). It involves both technology and business transformation.

So what can banks do to ensure flawless CBS modernization? While there is no 'one size fits all' approach to CBS modernization, history shows that banks who executed successful CBS modernization leveraged certain best practices. These include:

1.     Business case development and stakeholder participation: Banks need to proactively initiate investigative efforts for building a business case for their CBS modernization. They cannot afford to wait for--and reacting to--major business triggers (e.g. M&A, favorable macro-economic indicators, etc.) for building the business case could be counter-productive. All stakeholders (not just the IT department but C-level and business leaders, board of directors, etc.) should contribute to business case development, decision making, strategizing and execution of the CBS modernization endeavor. Also, return on investment (ROI) considerations alone should not be used for CBS modernization decision making. Banks should consider leveraging the expertise of leading CBS providers to help build the business case.

2.     Goal identification: Clearly identifying and "etching in stone" the goal of CBS modernization and zealously tracking its progress is crucial. The business, IT team and the management must all have clear and consistent view of the goals. Productivity and efficiency improvements, regulatory compliance, etc. are only elementary goal considerations. It is crucial that the ultimate goals be loftier and forward-looking like, for instance, facilitating business and product innovation that leads to tangible large-scale business benefits.

3.     Data cleansing: Data cleansing (e.g. customer, account information, etc.) in the old CBS and associated impacted systems must be focused on from the start. Towards this, mastering the existing data stores (data structure, data quality, etc.) is crucial to enable flawless migration and consolidation of data under the new CBS. Disorganized data structures will prove to be even more problematic for large banks that are in a state of flux (e.g. due to fast growth of their, regional businesses, etc.).  It is recommended that banks pursue a measured and phased approach towards re-architecting their data models.

4.     Piloting and creating a reusable plan. Agility: Large banks should not try the typical "big bang" approach to CBS modernization. Instead, banks need to pilot the new CBS at a line-of-business (LOB), subsidiary, function, etc. level and thrash out all potential issues before performing an enterprise-wide rollout. As an example, recently, National Australia Bank (NAB) leveraged UBank, its direct banking subsidiary, as the test-bed for the new NAB CBS and migrated 300,000 customers to the new platform. As another example, recently, Deutsche Bank migrated its 5 million savings account customers onto Magellan (its new CBS). After having moved the savings accounts, the bank plans to migrate all business processes and PBC accounts in Germany in a phased manner by 2015. Banks must train their end users and have them used to the new CBS before the rollout. As part of the pilot, banks should also create a reusable CBS modernization plan (comprising tools, methodologies. checklists, processes, communication structure, etc.) to help flawlessly expand the new CBS enterprise-wide. Having the ability to quickly react to and fix problems (either as a work-around or permanent solution) after the roll-out is crucial. Banks must clearly set the phase-wise schedule for CBS modernization and manage the overall program diligently. Good governance is a critical imperative.

5.     Engage a trusted CBS vendor as a partner: Banks must engage the CBS vendor as a trusted business partner. As an example, in Apr '12, Infosys' Finacle was successfully rolled out for all the 137 branches of Wema Bank (Nigeria's oldest surviving indigenous bank) within a record time of 8 months. This rollout helped create important, key differentiators for the bank to set it apart from its peers. The vendor's product and business innovation capability, experience and credentials, product viability, deployment capabilities, financial stability, business commitment, domain and technology competence and governance model are all factors that must be closely looked into while selecting a vendor. Also, today, many CBS vendors don't have enough experienced staff to execute the many CBS modernization initiatives the vendors are engaged in. Hence, many of these vendors are increasingly leveraging external partners for CBS deployment support. Hence, banks should also closely scrutinize the CBS vendor partner's certification programs to ensure there are no risks to the bank's CBS modernization program.

CBS modernization is a strategic, complex and costly multi-year undertaking for banks.  The CBS modernization can cost a large bank hundreds of millions of dollars. Hence, it is imperative that banks leverage proven best practices to be on a firm footing to make their CBS modernization endeavor a grand success.

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