Introduction
The banking industry is undergoing a transformation as neo-banks and fintech companies introduce innovative and efficient services that challenge traditional banks. To remain competitive, traditional banks must address the limitations of legacy banking systems, which are often costly, slow time to market, and limited in personalization and ecosystem connectivity. This article explores the need for modern core banking platforms and the three-phase approach to re-engineering these systems: Audit, Re-engineer, and Transform.
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Challenges of legacy banking systems
Incumbent banks are grappling with several challenges posed by their legacy banking systems:
1. High costs: Legacy systems carry high technical debt, consuming a significant portion of IT budgets and leading to elevated costs.
2. Slow time to market: Monolithic architectures, poorly documented code, and manual processes slow down product delivery.
3. Lack of personalization: Data stored in multiple, product-aligned systems makes it difficult to cater to individual customer needs.
4. Limited ecosystems: Legacy architectures lack the necessary connectivity to third parties for innovation and partnerships.
Advantages of next-gen core banking platforms
Advanced core banking platforms offer several differentiators that address these limitations:
1. Hyper-parameterized product ranges: Allows banks to offer customized financial products quickly by configuring parameters like interest rates and fees, leading to faster time to market and personalized services.
2. Real-time data analytics: Provides a single source of truth for customer and transaction data, enhancing decision-making, risk management, and customer experience.
3. Cloud-native architecture: Reduces run costs, improves automation, and increases resilience, enabling banks to focus on core activities while the service provider manages the infrastructure.
4. Micro-services and APIs: Breaks down large systems into smaller, independent components for faster integration, easier maintenance, and upgrades.
5. Third-party ecosystems: Allows banks to leverage best-of-breed solutions from external providers, providing access to the latest technology and innovations.
Re-engineering the core banking system
To overcome the limitations of legacy systems, banks have two options: full replacement or re-engineering and transforming the existing system. The latter is a step-by-step process involving three phases: Audit, Re-engineer, and Transform.
Phase 1: Value audit
The Value Audit phase identifies gaps and priorities within the existing core banking system. This assessment is customized based on the implementation scenario and organizational context. Key areas explored include:
• Tracking and measuring value: Ensuring the value added by the core banking system is monitored and measured.
• Implementation gaps: Identifying lacunas in the current implementation that hinder expected value delivery.
• Future readiness: Assessing whether the current system meets future business needs and plans.
Access the full PoV ‘Core Banking System Value Re-Engineering’ for a detailed analysis of 10 potential issues that are likely to arise in a post implementation scenario, why they are likely to be a problem and how these can be addressed. The image below shows a snapshot of one such issue.
The audit generates quantitative measures of implementation effectiveness, highlights process and technology gaps, and assesses the impact of these issues on value realization. This provides a foundation for the subsequent re-engineering phase.
Phase 2: Re-engineer
Re-engineering involves redesigning the core banking strategy and processes to cover identified gaps. The process includes:
• Value creation: Implementing new opportunities for value creation.
• Business process re-engineering: Streamlining processes to improve efficiency and productivity.
• User adoption and training: Enhancing user adoption and proficiency with the core banking system.
• Technical re-engineering: Updating technical infrastructure, including hardware, software, and security.
• Integration and API re-engineering: Enhancing integrations and APIs for optimal functionality.
• Reporting re-engineering: Improving reporting capabilities and data sources.
A decision framework prioritizes initiatives based on impact and relevance, ensuring the selection of high-ROI projects with strong stakeholder support.
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Phase 3: Transform
The Transform phase focuses on executing the planned initiatives to address past inefficiencies and implement necessary changes. Key activities include:
• Defining project milestones and targets: Establishing realistic, achievable goals and performance targets.
• Governance structure: Setting up a clear governance structure for smooth project execution.
• Monitoring plan: Continuously testing process metrics against targets to ensure progress.
• Issue resolution plan: Addressing any issues promptly to keep the project on track.
This phase ensures the smooth deployment of solutions and the revitalization of the core banking system, leading to improved operational efficiency, reduced costs, and enhanced customer experience.
Conclusion
The three-phase process of Audit, Re-engineer, and Transform offers a comprehensive approach to revitalizing core banking systems. By leveraging this approach, traditional banks can overcome the limitations of legacy systems, improve efficiency, reduce costs, and enhance customer satisfaction. This transformation not only addresses immediate operational needs but also positions banks strategically for future growth and innovation.
Authors
Pradeep T Y
Infosys Finacle
Head, Finacle Management Consulting
Manish Jain
Infosys Finacle
Senior Industry Principal
Sumit Kumar Saha
Infosys Finacle
Principal, Finacle Management Consulting
