Survival-Driving Core banking Transformation(CBT)

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Contents
Preface
From the Editor`s Desk
Evolving Trends in Core Banking Transformation (CBT)
01. Customer Expectations and Next Generation Banking
05
02. Survival - Driving Core Banking Transformation (CBT)
13
03. How to Write a Winning Business Case for
Core Banking Transformation (CBT)
21
04. Realizing Value from a Core Banking
Transformation (CBT) Initiative
29
05. Web 2.0 - Transformation Strategy for Banks
37
Challenges Faced in Core Banking Transformation (CBT)
06. Overcoming Organizational Change Management Challenges
in a Core Banking Transformation (CBT) Program
45
07. Technology and System Integration Challenges of a
Core Banking Transformation (CBT)
53
08. Core Banking Implementation Challenges for a
Global Bank in a Multi-country Environment
59
Implementation of Core Banking Transformation (CBT)
09. Reliable Implementation Frameworks for
Core Banking Transformation (CBT) Programs
67
10. Core Banking Transformation (CBT) -
Methodology for Implementation
75
11. Portfolio Analysis for Migrating Legacy Applications to a
New Core Banking Platform
85
12. Products and Services Innovation-led
Approach to Transformation
93
13. Core Banking Transformation (CBT) -
Bank in a Box (BiaB) Approach
99

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CORE BANKING
TRANSFORMATION
Technology Insights for the Financial Services Industry
02 Survival - Driving Core Banking

Transformation (CBT)
This article reflects Infosys` view that banks will be forced to change
their core banking systems in order to survive in the near future. The
Madhav Soundalgekar evolving customer dynamics and changes in the value chain in the
Senior Principalfinancial services industry will drive this change. The future core banking
Infosys Consulting
system wil require a different set of capabilities to support the creation
and distribution of products and services required by customers in the
future. These are based on certain scenarios that are mere extrapolations
of the present banking environment and not far from reality.
Marc Barad
Senior Principal
Infosys Consulting

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Introduction
These changes are putting tremendous
pressure on banks to enhance their age
In the year 2007, if anyone had predicted
old (some as old as 40 years) core banking
that 3 of the top 4 US financial institutions
systems to survive in the marketplace.
would need a government bailout to stay
Hence, even if banks are able to weather the
afloat, she/he wouldn`t have been taken too
current storm through some adjustments
seriously. The change in the perception of
(mostly accounting!), the medium to long
banks in the last 6 months is unprecedented
term survival of banks will depend on
and, in our view, is an inflection point in the
their ability to transform their strategy,
history of banking.
operations and technology back bone to
meet the demands of the future. We believe
that the transformation of the core banking
The process of introspection is underway
engine is central to the theme of survival
and it will no doubt bring a set of new
and warrants a serious review in light of the
guidelines and principles that need to be
current crisis.
followed by banks in order to prevent a
similar crisis from recurring. Banking in the
revived economy will be a lot different from
what we understand it to be today.
Evolving Customer Dynamics
The banking value chain has evolved
Two key factors, regulatory demands and
from being strictly an organization that
customer demands, will require banks to
intermediates between depositors and
transform their business strategy as well as
borrowers to one-stop financial mega
operations supporting the strategy. While
institutions offering a wide array of financial
the tenets of banking wil not change
products and services across retail, corporate
fundamentally, the business drivers and
banking and investment banking. However,
models are changing at a rapid pace. New
these products and services were typical y
banking models either through direct banks
designed and developed by a bank and
or micro credit institutions are evidences of
they relied predominantly on core banking
the transformation that the financial industry
systems to deliver the required capability
is currently experiencing. The emergence of
across different elements of the value chain
non-traditional banking entities providing
as shown in Exhibit 2.
banking services at a lower cost and
higher quality of service has created new
benchmarks for banks to meet and exceed if
they want to survive.
What is evolving today is the customer`s
view of banks as a service or utility provider
rather than a provider of financial products
Banking Value Chain
Exhibit 1
Execution
Support Process
Products &
Processing
Control
Distribution
* Accounting
* Customer & Account
* Product Development
* Channels
* Marketing
Management
* Financial Planning
* Private Banking
* HR
* Payments
* Asset & Portfolio
* Retail Banking
* Supply
* Securities
Management
* Corporate Banking
* IT and Ops
* Loans
* Risk Management
* Investment Banking
* Customer
* Credit
Communication
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or solutions. Banks have taken notice of
on interest rate to fee based products
these changes but are chal enged to meet the
which can be sourced from any producer.
expectations on several fronts. Infosys views
Switching between service providers wil be
the 4C approach as a guiding principle for
governed by quality of service and customer
banks to evaluate their strategy to address
satisfaction.
the dynamics of customer demands in the
near future.
For example, Tesco (U.K.-based global
supermarket and merchandiser) provides
loans from 3,000 to 25,000 for the
Consolidation
purchase of cars, home improvement or
debt consolidation. The retailer also offers
Banking customers are becoming more
credit cards, mortgages, insurance and other
hands-on and more mistrustful - trends that
financial products at rates competitive to
are even stronger in younger generations.
banks. These services are supported through
Less than one-third of the customers of
the same set of shared services that are used
top 10 U.S. banks (32%), for example,
by the retail business, which provides a very
consider their banks to be advocates. More
low cost/transaction that would be difficult
importantly, about as many (31%) believe
for banks to match
that their bank does what is best for its
bottom line at the expense of customers.
As time progresses, technology and
competition wil continue to make it easier
to research, compare, and form and break
Editors Note: Ask yourself: Does your core banking
relationships - driving switching costs
system enable you to offer a bundle of products and
towards zero.
services for a complex matrix of offerings ranging
from media, communication, retail and financial
services like banking and insurance?
The challenge on the business model is that
it needs to change from pricing products
Four C's of Banking
Exhibit 2
* Emerging financial supermarkets - e.g.
Insurance aggregators, retail chains selling
Consolidation
financial products serviced by banks.
* Ability to define the contours of the product
rather than choosing from a standard set.
Customization
Direct banks are a case in point indicating
the direction.
* Convenience from a 24X7 perpsective
as well as meeting needs of the unbanked
Convenience
population whose needs are different.
* Showing concerns and responding
immediately to customer issues or needs
Concern
using social networking and real time
analytics tools.
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Customization
is Wesabe (www.Wesabe.com). Wesabe
provides customers a very intuitive view
In the future, banks wil be able to personalize
of their transaction behavior with a relative
products and services based upon customer
view against similar people within the same
specific needs across different channels. We
demographic category as the customer.
expect the Value Addition` of a bank in the
financial supply chain to undergo change
and largely depend on other value added
Editors Note: Does your core banking system enable
services that a bank or financial institution
you to understand and recommend personalized
can offer apart from a pure play account
product offerings based on customer demographics
to transact or invest in. Customization isn`t
and psychographics and customer analytics?
limited to the price attributes of a product or
service offered but also includes the manner
Convenience
in which services are delivered. Customers
wil be able to customize specific aspects of
The whole dimension around convenience
their banking relationship such as
is changing from Anytime and Anywhere`
to include Any How`. The convenience of
doing banking transactions is now a function
of the nature of the customer and ability of
the customer to conduct transactions with
* Name & address for communication and
the bank. For example, customers from
legal purposes
under developed countries with poor literacy
* Frequency, format and details
rates (who can`t even read or write) also need

of

statements/transaction feeds/RSS
to conduct banking transactions and hold


bank accounts.
* Balance and balance changes of different
accounts
* Loyalty point affiliations
The paradigm of convenience spans a
* Transaction and information alerts
spectrum where banks like Umpqua bank
have renovated their 144 branches to offer a
* Marketing alerts
boutique` like experience that offer services
* Research reports
such as yoga classes in addition to a coffee
bar to discuss your investment strategy with
* Preferred channels of transactions vs
your financial advisor to banks like ICICI
communication
bank providing door step banking for rural
customers using field agents and partners
* Transaction reports and analysis.
to carry out disbursements, col ections
* Preferred customer service agent
and deposit transactions. Application of
innovations like the surface technology
While customers can customize some of
launched by Microsoft will redefine the
the aspects of their relationships, they can`t
meaning of convenience to both internal
tailor their account setup such as the bundle
and external users. The ability to transfer
of products required, bundle of services that
information between two devices without re-
are free and those that are charged against a
keying in information wil have a tremendous
volume bracket similar to products available
impact on transaction accuracy and
in the retail and telecom sectors.
productivity across al channels irrespective
of them being branch or service.
As we proceed into the future, the ability
to customize information delivery as wel
as service delivery will require banks to use
CRM enabled core banking systems and
real time analytics to able to understand
Editors Note: Does your core banking system
and recommend a customized offering to
enable you to offer personalized environment or
a specific client. A real life example today
tools to conduct financial and non financial business
transactions at any time of the day?
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Concern
Editors Note: Will your core banking system enable
you to respond proactively to customer needs e.g.
Quality of service and the need for being
book a dentists appointment based on the last set of
recognized as a customer today stands out to
medicines purchased by the customer?
be one of the major reasons why customers
change their banks or are loyal to a bank. Many
a times we have heard customers recollecting
The Transformed World
horror` stories or bad experience with either
Banks or enterprises in the revived world
branch or customer service representatives,
would require a totally different structure
who just couldn`t understand their problem.
and a supporting infrastructure to address
One of the key reasons being that the bank
the evolving customer dynamics. While there
doesn`t understand the customer needs or is
are many descriptive versions of the bank of
not concerned enough to analyze the need.


the future, we found the fol owing statement
from a senior banker to be very short but
accurate way of describing enterprises of
the future.
Today, technology is changing the way banks
can collect and analyze data while listening
and reacting to customer concerns on a more
immediate basis. While social commerce
"Global firms will move toward more fluid,
would create a direct communication
integrative enterprises." (Vice president of strategy,
channel between customer groups and
large European bank)
banks, the use of real time analytics will help
banks respond or be proactive to customer
In a nutshel , the value chain that wil evolve
needs based on techniques adapted by the
in the near future wil have some of the
retail industry.
following contours, where there will be cross
bank transactions and banks specializing in
Future Banking Value Chain
Exhibit 3
Transaction
Product/Service
Client
Bank
Bank
Distribution
Bank
Transaction
Product/Service
Bank
Bank
Client
Orchestration of Value Chain
Support
Execution
Customer & Account
Process
Processing
Management
Distribution
Integrated Supply Chain Management
Supplier 1
Supplier 2
Supplier n
Distribution
Bank
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transaction banking, product and service
features, but will also cope with negotiating
capability and distribution.
product conditions with a raw product
configurator inside or outside of a given
This structure will require a total
bank. In addition, the new platform wil need
transformation of the core banking platform
to keep records of al of these customized
that can integrate in the supply chain of
products -- if not for customer intelligence
products and services that meet the dynamic
purpose, then at least for regulatory reasons.
customer needs.
The IT function will transform into a
The ability to bundle products and services


is the most important capability that
business function

banks wil require to support the emerging
Understanding the impact of these changes
business model. These product bundles will


on the bank`s IT landscape is crucial as banks
be aggregated using advanced customer


wil have to invest in the technologies that
relationship or customer driven solutions


can support these needs. Our view of the
like e-commerce tools or other online


impact on the IT landscape especial y the
commerce applications. These solutions will


core banking systems and the surrounding
aggregate products and services of many


IT ecosystem can be summarized as shown
service providers supplying different kinds of


in Exhibit 4.
products at one place. Banks will raise beyond


universal banking to universal services.
The ability to streamline products, services
and processes across the boundaries of
organizations is central to the theme. While
The core banking system`s CRM driven


product customization capabilities wil need
there will be niche players offering very

specialized set of services and products,
to work with business services that are


most of the banks wil transform into the
offered by multiple internal and external


distribution segment - similar to the large
product configurators representing and


retailers that have changed the rules of the
offering financial services products. This will


retail industry today. Business processes will
not be limited to a mere display of product


Business Integration landscape
Exhibit 4
Customer Management & BI
Customer
Product Bundles
Relationship
Services
Core 1
Core 2
Open
Service
External
Source
Banks
Services
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go everywhere, and work time will be 24x7
surfing the internet, speaking on the phone
around the globe. Supply chain and business
wil keep adding or subtracting nano-bits
process orchestration wil be synonymous in
of the future digital currency from one`s
the future.
account balance. Service availability wil be
based on various channels using devices in
all sizes with heterogeneous capabilities. The
Enterprise and consumer IT wil have


convergence of communication technology
converged. Wikis, blogs, community


and information technology wil bring a
networks, and social computing wil be a


new definition to financial transactions.
normal element of many IT environments.


While the regulatory burden will most
Customers will not differentiate between

channels anymore. At the same time,
likely increase, it wil be easier to deal with


based on highly flexible systems and real-
employees wil be empowered through

technological y advanced devices to perform
time availability of data, information, and


any business transaction in any part of
related analysis. At the same time, old core


the world at any point in time. Ubiquitous
competencies like core banking will move


banking -- the future shape of multichannel
outside of banks` interest and utility-type


service banks will offer many of today`s
banking -- wil include multiple versions of

the branch using advanced communication
traditional functions.


technology like using virtual holograms
of people and truly create the notion of
banking services everywhere.
Customer interaction will navigate
seamlessly between the real and
virtual world.
Multiple flavors of bank branches wil
The bottom line: The new core banking
deploy the most recent technology to
platform wil depend heavily on business
serve customers with highly convenient
process management capabilities along
interactions, presenting personalized offers
with supply chain integration capabilities
and collecting information. Automated and
found in e-commerce platforms. CRM will
human-directed avatars wil extend the reach
be at the core of the new platform and it
of the branch in terms of time, location,
wil consume external and internal product
and product expertise. Collaborative
presentation services as well as customer
technology will be mandatory to make
and business intelligence services to deliver
customer information available at the best
what the customer needs, where it is needed
point in time and to combine the know-how
and in the form that best suits the customer
of multiple experts across multiple bank
at that point in time.
locations. Branches will need to be a hub in a
networked multichannel environment. They
wil connect locally to channel devices and
use and present services that are also used
via other channels, just more effective and
Conclusion
more convenient for the customers.
While the large banks in developing nations
have focused on transformation of core
banking systems, 90% of Core Banking
Transformation initiatives in the US in 2008
were spent by smal er banks and credit
unions.
Monetization of information and
data will demand banking to be
omnipresent
No longer will Tier-I and Tier-II banks in
North America and Western Europe simply
Things we do in our day to day lives will
get by with aging technology platforms.
have a continuous impact on our net value.
Banks that can innovate using next
For example, work, travel, going to the gym,
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generation technology to address the 4C`s
the next generation platforms wil probably
wil emerge as leaders. Siloed technology
make it just in time to reap the rewards of a
and business functions wil give way to fully-
recovery in the global economy. For those
integrated, CRM and e-commerce enabled
who don`t, time wil only tell where they wil
stream lined processes and improved
stand in the future.
capabilities. Banks that are early adopters of
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