This article illustrates various challenges that surface during a Core Banking Transformation Program because of other transformation happening in parallel. Bank CTOs and CIOs have often faced difficulties in defining the boundaries of a core transformation program because of the dilemma in deciding which systems should get covered under it and also number of vendors implementing the same. Once the scope and boundaries have been defined, there comes another challenge of simultaneously integrating the core system with existing IT systems or planning their replacement. Under both these circumstances it is imperative to evaluate and align the timelines for all the affected programs, including core banking transformation program itself.

Risk of other programs disrupting a core banking transformation program

THOUGHT PAPER

2 | Infosys

Broader level risks category

A core banking transformation program

necessitates certain changes in the bank’s

processes and surround systems. As these

changes are evaluated and their impact

analyzed, many IT departments realize the

need for replacing the age-old surrounding

systems, which again brings its own set of

challenges. While some of these systems

may not interact directly with the core

banking system, they could still impact

the way the bank processes its day-to-day

operational requirements; this might call

for certain changes in the existing model

or require a new operational structure

and processes altogether. Therein lies the

risk of these programs impacting the core

transformation program, which can be

classified as follows:

A) Programs involving simultaneous

upgrade of peripheral systems.

B) Programs where the bank’s business

strategy, processes and operations

structure need review.

Programs involving simultaneous upgrade of peripheral systems

Most often, the core banking system

upgrade is accompanied by changes in

the surrounding systems. These changes

either involve replacing the entire system

or making suitable changes to the existing

system to make it compatible with the new

core banking system. These peripheral

systems could be as important as those

which generate regulatory reports for the

entire bank, or those handling a complete

vertical of the banking function like

treasury or wealth management. Systems,

such as treasury and wealth management,

which interact directly with core banking

systems can have a serious impact on the

core program if the following risks are not

adequately mitigated:

a) Interfacing key business requirements:

Unless all critical business requirements

have been captured and solutioned,

making a core banking product work

from Day One becomes a daunting task.

Many core banking implementations

have faced this challenge where key

stakeholders have focused completely

on the core functional requirements

and completely ignored their business

impact on the other auxiliary systems.

Just as a core product cannot work

all alone on the day of Go-Live, other

banking systems also cannot function

without the necessary information from

the core banking product being fed

into the main system. Due to the sheer

complexity resulting from multiple

systems being led and managed by

multiple stakeholders, even the process

of finalizing the scope of requirements

extends over several cycles, thereby

increasing implementation time.

The delay adds to scope creep in a

dynamic business environment, where

business stakeholders bring a different

perspective every time requirements

are discussed. It therefore becomes

important to ensure that the necessary

requirements for interfacing all auxiliary

systems with the core product are not

only captured and discussed but also

solutioned on time.

b) Aligning delivery timelines for

auxiliary systems:

Integrating multiple systems from

different vendors and readying them

within the core transformation timelines

is one of the biggest risks in a core

transformation program. While vendors

may agree to the initial scope and

timelines during the planning phase,

they seldom adhere to them. If there is

a delay in delivering one small function

within a third party system, the Project

Management Office (PMO) has to ensure

that its impact on the related functions

in the other systems is properly

analysed which then leads to delay in

the closure of integrated testing for the

entire set of system functions. The PMO

has to constantly update the delivery

plan so as to ensure that the cascading

delays are minimized. Once the delayed

function of the third party system is

delivered, all the functions related to it

have to undergo a regression cycle once

again; any mismatch in expectation

creates a cascading effect on all the

related functions belonging to the

other systems. One change in functional

requirement in the core system at a later

stage can impact multiple systems and

lead to several rounds of discussions

again, followed by multiple testing

cycles, all of which add to the delay.

So, besides ensuring that the key

requirements have been covered in the

core, it is important that the aspects of

other systems, which have a key impact

on the core are also evaluated and

discussed. When the other systems are

business critical – responsible for report

generation or wealth management

for instance – they could potentially

significantly derail the core banking

transformation program timelines.

3 | Infosys

Programs where the bank’s business strategy, processes and operations structure need review

Strategy- or process-related business

decisions can also impact the Core banking

transformation program. We can divide

such risk areas into the following broad

categories:

A) Merger & Acquisition

B) New product lines of business

C) Streamlining of operational processes

and procedures

Merger and acquisition

Merger & Acquisition (M&A) is increasingly

being seen as the easiest way to

rapidly expand business operations or

customer base to achieve economies

of scale. Banks that are trying to enter

new markets or increase market share,

gain complementary strengths and

competencies, or simply stay competitive,

are increasingly turning to M&A. Such

decisions, which can be taken at any

given point in time, would seriously

impact the core transformation program

if taken once it is underway. The bank’s

IT division would have to relook at the

transformation objectives considering

several factors like the existing product

offerings, IT systems and operations

model of the merged entity. They would

need to take a quick business decision in

order to assess the impact on the bank’s

existing business requirements and on

the interface solutions that have already

been agreed to by the key stakeholders.

Next, they would have to quickly take the

business staff of the merged entity into

confidence, impressing upon them the

business advantages of adopting a new

core system. In most scenarios, staff is likely

to resist adopting a new core banking

system, which is already weighed down

by the expectation of streamlining and

adopting the unified business process

of two separate merged entities. There

have been instances where the core

banking implementation has stopped

the transformation process midway,

and adopted the existing systems of

the merged entity, since that appeared

to be more cost effective compared to

persuading both parties to the merger to

adopt new systems. While such a decision

may bring some advantage, it jeopardizes

the essence of the transformation, which

set out to achieve specific business

benefits.

New product lines of business

When banking institutions expand their

existing products and services merely to

meet customer demand, it may not have

a notable impact on the transformation

journey, as the core banking product

would be able to meet the requirements of

the new products within the existing lines

of service. However, when management

decides to venture into a completely new

line of business, like say, trust services

or wealth management, or open a new

delivery channel like Internet or mobile

banking, then its success depends not only

on the core banking product’s existing

capabilities, but also its ability to interface

with the new line of business or channel,

even when such new products are getting

implemented by different vendor. The

decision to implement and solution the

business requirements under both these

circumstances would make a lasting

impact on the transformation timelines

unless the bank evaluates the business

strategy before embarking on the core

transformation journey.

The decision to implement new product

lines of business depends on several

factors as listed below:

• Getting various departments like Risk,

Audit and Accounting to assess, review

and lend their support for the new

product.

• Ensuring all operating policies,

procedures and processes are in place

and that the staff is trained to take the

product to market and serve customers.

• Evaluating the capabilities of existing

and new IT systems to ensure there are

no hindrances to implementing the new

product.

• Addressing the regulatory compliance

framework to ensure there is no risk

from a legal perspective, nor any

violation of local laws.

The above factors show that new product

implementation is a program on its own,

which can have a telling impact on the

core transformation timelines unless it is

implemented swiftly after evaluating all

risks, well before the transformation starts.

Streamlining of operational processes

and procedures

Banks are always taking measures

to enhance the quality of customer

service, while reducing cost. They have

similar expectations from core banking

transformation – that it would improve the

efficiency of the processes and operating

procedures in the existing operating

models across all departments. This often

leads to the introduction of new processes

or the trimming of old ones. Regardless of

whether the processes and procedures are

reviewed before or during transformation,

Anish Rana Principal Consultant, Infosys Finacle

there is every possibility that any delay in

decision making would impact the core

banking program itself.

A bank’s transformation by adopting

new business or operating models and

regulatory structures can go horribly

wrong if the impact of such moves is

not properly assessed. Consequences

can range from the solution becoming

ineffective to creating unforeseen impacts

elsewhere in the core banking program.

Banks, in their quest to reduce cost and

improve efficiency, explore various models:

• Minimal Human Intervention: The

objective is to ensure Straight through

Processing as far as possible, with

minimal human intervention, whether

when opening an online account or

taking a request for a standing order.

• Self Service Kiosks and Channels: As

banking practices move towards self-

service, channel-based banking and

doorstep banking with fewer staff, the

onus for scaling up to such needs rests

with the incoming core banking system.

• Business Units Restructuring: Many

leading banks have started to structure

their business units around common

services and functions rather than

product offerings. How these business

units integrate with each other and

function collectively to ensure minimal

impact on regulatory, risk and legal

compliance is also dependent on the

capabilities of the core banking system.

Conclusion

Core banking transformation is an

amalgamation of activities confined

not just to the core program, but also

encompassing other programs, which

may not be intrinsic to it, but whose

effective planning and coordination

enables smoother transformation. This

article brings forward various instances

where other programs could have a

telling impact on core transformation,

unless the key stakeholders have planned

to mitigate such risks well in advance.

The core transformation program is very

demanding, owing to the sheer complexity

of having to consider and implement

bank-wide requirements. Most often, the

risks arising out of other programs are not

properly planned for before the start of

the core program, leading to delay in core

implementation.

References

1. www.infosys.com

2. www.kpmg.com

3. www.booz.com

4. www.communitybankingconnections.

org

5. www.ibm.com

6. www.banktech.com

7. www.delloite.com

8. www.gartner.com

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