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CORE BANKING TRANSFORMATION BEST PRACTICES FOR IMPLEMENTATIONThomas Mathew Head, Product Strategy & Planning, TCS BaNCS, Tata Consultancy Services1 Sep 2011

Auckland's 4th Annual Technology & Innovation The Future of Banking & Financial Services

• Understanding the business and market drivers

• Why is core banking transformation important?

• Launching a successful transformation program

• TCS BaNCS - Core banking transformation experience

AGENDA

BANKING INDUSTRY ANALYSIS

Threat of New Entrants

Greenfield Banks Non Banking Fin Firms

Discount BrokersPost Banks

Internet & Mobile Banks

Bargaining Power of Suppliers

Inflexible SystemsHigh Switching Costs

Vendor M&ARetiring Employees

Bargaining Power of Buyers

Low customer satisfaction Easy to switch

Threat of Substitute Products

Mobile WalletP2P

Rivalry Among Existing

Competition

DRIVERS FOR CORE SYSTEM REPLACEMENT

Growth

Efficiency

Innovation

Higher operational costs Lack of standardization Lower customer service level No single view of customer Regulatory compliance

challenging

Time to Market a challenge Lacking agility Inflexible business processes Scalability is an issue Customer satisfaction low

Product innovation challenging Industry transformation difficult Unable to launch new business

models

DRIVERS FOR CORE SYSTEM REPLACEMENT

When to change? How do I know?Core Banking Systems

1 Technology has become an impediment to business

2 Unable to scale operations

4 Increasing regulatory burden

5 Severe interfacing issues

6 Viability of the vendor supplying the core system

3 Cost of maintaining the system rises

IT Complexity

Complex & inflexible core systems The bigger the bank, the higher the

complexity, cost & risk

Costly Proposition

High operational costs for core applications

Multi year investments

High Risk Implementation

Under delivering on promised benefits Prolonged disruption to the business Vendor viability

Strategic Business Goals

Return on Investments

Successful Core Banking

Transformation

CHALLENGES FOR CORE SYSTEM REPLACEMENT

LAUNCHING A SUCCESSFUL TRANSFORMATION PROGRAM

CORE BANKING TRANSFORMATION

Definition Phase Phase - 1 Business Strategy

Selection Phase Phase - 3Solution & Vendor

Identification

Execution Phase Phase - 4Core Banking

Transformation

Scoping Phase Phase - 2Core Banking

Transformation Strategy

Core Banking Transformation Framework

DEFINITION PHASE – BUSINESS STRATEGY

Rivalry Among Existing

Competition

Bargaining Power of

Buyers

Threat of Substitute Products

Threat of New

Entrants

Bargaining Power of Suppliers

Business Strategy

Industry / Competition Analysis

Bank’s Context

SCOPING PHASE – TECHNOLOGY STRATEGYB

usi

ne

ss S

trat

egy

Core Banking Transformation Strategy

Discovery Evaluation Recommendation

Assess products processes, systems & architecture

How to reduce complexity

How to achieve the business objectives

Determine & prioritize your IT requirements & capabilities

Weigh the various options for core banking renewal

Decide on the Core Banking renewal approach

Develop a target IT architecture

Core banking transformation roadmap

Technology Strategy

SELECTION PHASE – CBS SOLUTION

Functionality Flexibility Cost Vendor Viability

Operational Performance

Program Management

Partner Management

Customer References

Target functionality Alignment with

business goals

Scalability Resilience Centralization

of data & process

Product survival (M&A) Customer

satisfaction

Key Evaluation Criteria

Adapt quickly to changing market conditions

Assess business value covering ROI, strategic, architecture & biz process alignment

Project mgt capabilities Quality

assurance programs

Partner certification process Partner training

programs

Validate customer reference credentials

EXECUTION PHASE – CBS TRANSFORMATION

Successful Core Banking

Solution Transformation

Projects

Challenges Key Success Factors

Project delaysBudget overrunsQuality problemsOrganizational roadblocksProject failures

Strong internal capabilitiesSelection of right implementation partnersClear contractual parameters & rolesRigorous project & change mgt

EXECUTION PHASE – CBS TRANSFORMATION

Strong Internal Capabilities

Assign highly skilled resources to steer the project Define their responsibilities and accountabilities Senior Management backing for the project

Selection of Implementation Partners

Carefully assess the implementation partners Evaluate vendor’s background, capabilities,

reliability and compatibility

Clear Roles Clarity on procedures, service level agreements Clearly define the roles of all stakeholders Comprehensive monitoring tool

Project & Change Management

Define operating model & governance rules Strong project management team Communicate – communicate - communicate

Key Success Factors How to Achieve ?

TCS BANCS CORE BANKING TRANSFORMATION EXPERIENCE

TCS BANCS SOLUTION STACK

TCS BANCS CORE BANKING CUSTOMERS WORLDWIDE

Allahabad Bank ANZ - International

locations Arab Bank Australia Bangladesh Bank Bank Negara Indonesia Bank of Maharashtra Central Bank of India Commonwealth Bank – Fiji Community Alliance Credit

Union CTCB Philippines Bank Indian Bank ING Direct Koram Bank Korea Development Bank Korea Exchange Bank LG Petro Bank State Bank of India The Rock Building Society

African Bank Amlak Finance Arab African International

Bank Bank of Kuwait & Middle

East Capitec Bank CMEC Mercantile Bank National Bank of Kuwait National Commercial Bank Nova Ljulbjanska Bank Post Finance Qatar Development BanK Scotish Credit Unions –

CUSCO Soceite Generale South Africa Bank of

Athens The Gulf Bank B&N Bank

Bank of China Bank of Panshin Cathay United Bank Central Bank of Mongolia China Trust Commercial Guandong Rural Credit

Union Hang Zhou Bank Hua Xia Bank Shanghai Rural

Commercial BanK Tai Fung Bank Taishin International Bank Yuanta Bank

American Express Banco Pichincha Morgan Stanley

APAC EMEA China

Americas

Forrester Wave Global Banking

Platforms (2010)

TCS BαNCSLEADER

Magic Quadrant for Retail Core Banking (2010)

TCS BαNCSLEADER

CELENT ABCD Core Banking Vendor (2010)

TCS BαNCSLEADER

The Best Core IT Implementation

Award (2010)

SBI World's Largest Centralized Core Implementation

Driving Growth Through Brand Differentiation

ANALYST’S ACCOLADES (TCS BANCS & CUSTOMERS)

#1 Core Banking Vendor in China

for 3rd Year in running (2010)

TCS BαNCSLEADER

Best Trading Back Office

Project (2010)

TCS BαNCSLEADER

Best Trading Back Office

Project 2010

Best Sub-Custodians

(2010)

“Of the hundreds and hundreds of core banking deals in 2010, the most significant and noteworthy was done by TCS BaNCS – Deutsche Bank” – Martin Whybrow,

while announcing the IBS Sales League Table for 2011.

COMMUNITY ALLIANCE CREDIT UNION (CACU)

Community Alliance Credit Union (CACU) is a full-service FSI, headquartered in Wollongong, New South Wales, Australia. The legal entity resulted from the

merger of Illawarra and Unicom Credit Union in 2003. Since then CACU has added Shoalhaven and Western City and has also launched a new online brand, bringing

a total of Five brands under its corporate structure

Core Banking Transformation Strategy

Enable CACU to continue with its multi-branding of its acquired institutions’ offerings

At the same time effectively leverage the operational efficiency of a centralized IT architecture

Shaolhaven

Illawara CU

Unicom CU

Western Sydney CU

CU Online

CACU’s Multi Brand Strategy Each brand has its own

“personality” that delivers a unique value

proposition and is highly differentiated

Focus on local community, primarily though branch channel

Serves an aging community

University focus , Internet channel, low fees, club tone.

Internet based, not linked to any specific community Friendly know

customer by name, foster innovation

CORE BANKING TRANSFORMATION STRATEGY

Business Strategy

Solution & Vendor Selection

Core Transformation Strategy

Retain unique brand identities for each of its four acquisitionsEach brand will provide unique value proposition &

highly differentiatedBring operational efficiency to support the business

goals through a centralized IT architecture

Use a single system to provide multiple products to multiple brands through multiple channels Deploying a configurable system, as a single instance

running on a single IT infrastructure

Solution should be scalable, open, flexible and configurableThe IT architecture should meet the core banking

transformation strategy needs The vendor relationship should be based on a close-

knit partnership with a shared and common understanding/belief in the strategic goals of CACU

CORE BANKING TRANSFORMATION

TCS BaNCS Single ( Platform

Instance & Infrastructure)

Shaolhaven CU

Illawara CU

Unicom CUWestern Sydney

CU Online

• Single instance running on a single IT infrastructure facilitated efficiency, saved operational costs, eased business continuity planning, and reduced maintenance and staff overhead.

• These elements ultimately converged to provide a lower total cost of ownership (TCO.)

Efficiency

• Get products to market quickly.• Can be done in days as against

several weeks / months earlier

Configurability

• Used TCS BαNCS as the single configurable system providing, multiple products to multiple brands through multiple channels

Simplicity

KEY BENEFITS

CACU Growth over the past 5 years

• Products are white-labeled leveraging a standardized master product.

• Core processing is completed under the single legal entity, as are reporting and regulatory compliance

• Standardized processes, common consolidated information from a single data source

• The back-end system functions as a generic production "factory.”

TESTIMONY

“The TCS BαNCS retail banking platform forms the backboneof our company’s expansion strategy.

If we are aiming to launch new savings products or moreadvanced internet banking services, we can do it extremelyfast, faster than any other credit union in Australia.

It really is an outstanding core banking platform. TCSBαNCS provides our staff with a clear competitiveadvantage.

This technology puts us in the race and provides our clientswith reliable and agile technology solutions.”

Mr. Michael Halloran, Chief Executive Officer, CACU

STATE BANK OF INDIA (SBI)

SBI Group

Today

Scale of Operations• One of the largest banks in the world• One of the largest branch network in the world• One of the largest ATM network in the world• One of the largest bkg employer in the world

• Retail banking• Small business banking• Corporate/ institutional banking• Agriculture & rural banking• Principal bankers to the government,

Government institutions, city corporations• Clearing bank

37 million transactions

per day

250 + million

accounts

150,000 tellers

200,000+ employees

20,000 SBI Group

ATMs

17,000 + branches

Core Banking Transformation Strategy

Deploy a centralized core banking system that can scale up to support one of the largest transaction volumes and facilitate the high growth plans of SBI

Bring efficiency and cost benefits through the centralization of IT architecture, product factory, business processes across their 17,000 + branch network

Bu

sin

ess

Are

as

THE ISSUES

Fragmented

Inefficient , costly,decentralized at branch Level

Duplication & redundancyincluding paper based data

Duplication & fragmented,non standard processes

Absence / limited

Disparate systems

Limited

Unable to match expectations

System architecture

Operations

Data integrity

Processes

STP

Customer view

MIS

Customer service

CORE BANKING TRANSFORMATION STRATEGY

Business Strategy

Solution & Vendor

Selection

Core Transformation

Strategy

Regain market share that SBI was losing to private-sector banks Introduce new products and offer better service to customers Streamline processes across the bank to realize operational

efficienciesMerge the affiliate banks into SBI with relative ease

Deploy a centralized core system that can scale up and support the high growth plans of SBI Facilitate the standardization of the processes across the bank Single customer view of all accounts Centralized product factory

The system should be able to scale up to 10000+ branches process 72 million accounts and 25 million transactions per day Centralized architecture Implementation skills, ability to do comprehensive training The vendor’s credentials on successful execution of large

projects

LARGEST MIGRATION ON EARTH – CELENT / TOWER

System architecture

Operations

Data integrity

Processes

STP

Customer view

MIS

Customer service

Fragmented

Inefficient, decentralized at Branch Level, costly

Duplication & redundancy, including paper based data

Duplication & redundancy, non standard processes

Absence / limited

Disparate systems

Limited

Unable to match expectations

Single View

Centralized & efficient, lowered cost considerably

Data integrity achieved

All processes standardized across businesses

STP achieved

Centralized System Architecture

Functional MIS

Enhanced customer service

Before After

KEY BUSINESS BENEFITS – STATE BANK OF INDIA

Business per employee increased by 250% over 5 years, top line revenue growth at 20% CAGR

Was able to completely re-design processes and centralize the process management function

Was able to consolidate affiliate banks with ease

Customer attrition arrested & is gaining new market share with 250+ Million accounts in 2010

Able to offer full range of products across all branches , significant increase in speed to market products.

17,000 + Branches, 20,000 + ATMS, 37 Million txns per day,

Was able to considerably reduce operational costs – Drastically reduced IT staff count (65%)

$158

$ 80 bn

Deposits

2005 2010

$117

$43 bn

Loans

ENABLING STATE BANK OF INDIA TO CREATE THE

WORLD’S LARGEST HOMOGENOUS BANKING

NETWORK – 17,500+ BRANCHES

• Case Study by Celent’s Bart Narter, referred to SBI as “one of the largest Banks in the world“.

• The case study "SBI's core banking implementation, one of the largest migrations on earth" with 17,385 branches; 20,000 ATMs; 262 million accounts; 37 million peak transactions per day; and 205,000 employees

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THANK YOU