Core competency: A savvy map for transforming core banking solutions

For any bank, core banking systems (CBS) lie at the heart of operations: They play an instrumental role in processing transactions, updating balances, running batch jobs and interacting with interfaces. But with the advent of disruptive technologies, along with fickle customer preferences and overall regulatory changes, banks now tend to treat CBS as less important. They postpone replacement by investing in local workarounds, quick customizations, and narrow point solutions to save time and cost.

The trouble is that this gradually builds into a complex patchwork of solutions, which become difficult to maintain. Done right, the CBS transformation lifecycle currently has three stages: preparation, execution and post cut-over. Let’s look at the challenges faced and solutions possible for each stage. By analyzing the critical success factors and failures of each, we can combine to carefully plan and execute seamless core banking transformation initiatives. Here’s a roadmap for embracing and embarking on the CBS transformation process.

Preparation: Nine sure road signs and speed traps

• Well-defined scope: This helps banks grasp a clear vision of what to achieve and track, as well as check scope-creep.
• One product doesn’t fit all: Banks perform reference checks by looking at some other bank in the same region/country that has been successful with a vendor. But it’s not a given that they will also be successful with the same vendor.
• Continuous involvement: Selecting the vendor isn’t the end of a bank’s responsibility. Banks should own the initiative and collaborate well with the vendor until the end.
• Rationalize recommendations: Vendors under pressure of losing the deal may underquote hardware sizing. Banks must judiciously evaluate the recommendations.
• Product walkthrough: Both business and technology teams should clearly understand the product during walkthroughs. Conflicts arise when users don’t pay enough attention during this critical step.
• Business process reengineering (BPR):  Selecting a vendor doesn’t mean that all of a bank’s existing and required processes will completely fit. BPR will always be needed.
• Right approach: It is essential to decide the implementation approach. “Pilot and rollout” may help bigger banks. A “big bang” approach may help smaller banks but won’t help maintain two parallel systems for long. Pilot and rollout may require that banks maintain two parallel applications and sync them up until all branches convert to the new system.  
• System Integrator (SI): An SI who has “seen it all before” can provide helpful input based on past learnings, different approaches, and best practices.
• Communication: Banks need to communicate thoroughly to business and technology teams about their responsibilities during transformation.

Execution: Four green lights, one red

• Team focus: Project execution teams should complement technology and business. Knowledge and experience are essential—coupled with the right mindset and approach. Teams must be accountable, yet empowered enough to make quick, meaningful decisions.
• Data migration: Extracting and cleansing of legacy data needs to be performed with maturity. The prompt transfer of balances and transactions is a must if the data migration window is small.
• Change readiness: Banks too often compare legacy system functionalities with new ones. They may not be exactly the same. The ability to accept change and get accustomed with the new system holds the key.
• Clear requirements criteria: Banks should possess a clear, rational understanding of “must-have” versus “nice-to-have” requirements.
• Exit criteria: If things don’t go as planned, costs and efforts increase. Measurable criteria — defined beforehand — can help team leaders decide on whether and/or when to “recall” and exit the initiative.

Post cut-over: The express lane to success

• Off business-hour activities: The first month/quarter/year end may prove more stressful to handle. Proactive preparedness for running independent batch jobs during off-peak hours will help.
• Infrastructure management: Banks may set-up third-party infrastructure management and monitoring services.
• Proactive prediction: Proactive issues prediction, identification of hotspots and their ultimate removal will bolster performance.
• Resource utilization: Servers, databases, terminals and applications should be optimally utilized.
• Business impact: Patch applications and system downtimes need sound management to minimize the impact on business.
• Documentation: Lack of documentation proves a major hindrance when choosing a replacement for the legacy CBS.

For all the essential punch list items, there exists no set model of CBS transformation. Seamless communication, adequate empowerment, an efficient governance model and a strong top-management vision of the future will ultimately guide a bank to a success — and provide the much needed impetus to future planning. On the way to the checkered flag, CBS could well stand for “clear business strategy.”

Satya Swarup Das is a senior solution architect with VirtusaPolaris. A retail banking consultant. He has worked for different products and multiple clients across the world in the retail  banking transformations space.