Banks are under increasing pressure to upgrade their fundamental platforms due to growing demand from customers for digital banking solutions and more competition from fintech and other tech-savvy firms. When it comes to digital transitions, the cloud is a vital facilitator, as well as a viable option to decrease technical debt (the accumulated costs from one-off tech solutions or integrations). Core banking systems quickly fail to meet the expectations of digital solutions like real-time transaction processing and rapid product releases.
Some banks are attempting to alter their core banking systems (CBS) in order to make it easier for customers to transact digitally. Even said, only around 30% of CBS conversions over the last decade have succeeded in migrating all ledgers and products to the new system completely, demonstrating that banks have not yet broken the code on full implementation.
We looked at a large number of CBS transitions over the previous several years to figure out where the problems are. Our research found eight frequent blunders that banks make while attempting to transform themselves in the areas of people, process, and technology, and at least one of these blunders was the main reason for their transformation’s demise. CBS conversions are very complicated and resource-intensive. Therefore, banks may not be aware of the effect of particular actions on the success of the entire transformation.
Table of Contents
People
Banks typically fail to place the proper people in charge of change, to adapt structures and procedures, and to obtain agreement on the transformation’s aims, despite the fact that talent is the fuel that powers transformation.
Mistake 1: Putting operations in charge of the implementation
Some financial institutions entrust the task of deploying a new system to the teams that oversee the functioning of current systems. These teams, on the other hand, are typically resistant to embracing a new architectural design and procedures, or they may mistakenly move obsolete processes into a modern core banking solution, causing delays. Instead, banks might build agile implementation teams comprised of individuals with prior experience working internally as well as those who have previously conducted CBS changes at other financial institutions and are informed about new technologies.
Mistake 2: Defining the CBS transformation as purely a technology transformation
The majority of successful CBS implementations begin with an organizational transformation that places the appropriate people in the right positions—or the organizational transformation happens concurrently with the technological change—and continues from there. When banks use DevOps and agile methods, such as the Oracle digital banking experience before undergoing transformation, they are more likely to be successful. This is because these models operate well inside a contemporary, flexible architecture, such as sprint teams and continuous integration and continuous delivery (CI/CD). Even successful banks, according to our findings, may lose out on performance increases of up to 50% if they do not adopt these techniques to improve performance.
Mistake 3: Failing to align stakeholders on the function and scope of the new system
The business and technical sides of the company may agree on the need for a new CBS, but their perspectives on why it is essential are often divergent. System architects and CIOs strive to upgrade their organizations’ systems architecture in order to provide greater capabilities, such as faster product launches. Business leaders, on the other hand, want to enhance revenue by reducing time to market, while CFOs desire to lower total expenses. These opposing priorities can result in substantial misconceptions, as well as misaligned incentives and planning horizons, as a consequence of the competing agendas. Customer migration to the new CBS is often underestimated by all stakeholders, with estimates ranging from 25 percent to 75 percent of the total time necessary. It is essential for a company to select an implementation partner that has a comparable degree of vested interest in the change in order to create effective stakeholder alignment.
Process
As a result of poor planning and the desire to hold onto outdated applications, a transformation’s impetus might be drained away.
Mistake 4: Allowing planning and implementation to delay the rollout for years
In addition, lengthy implementation stages that culminate in waterfall-style “go-lives” are a significant cause of failure (new-system rollouts). Preparation for implementation may take up to three years, with the implementation phase taking more than four years and perhaps up to 10. Because legislative and technological requirements, as well as market demand, alter over time, such timescales, also known as continuous or evolutionary transitions, may result in “scope creep.” Banks have overspent by 100% and increased deadlines by 50% to 100%, according to our data. It is possible for banks to minimize scope and expense increases by scheduling go-lives every one to two years, analyzing the success of each one, and extracting lessons that may be used during the next transformation stage.
Mistake 5: Failing to be transparent about costs and implications of the transformation
The failure of banks to appropriately fund the CBS transformation may result in project interruptions and delays if resources run out in the middle of the execution. The causes for this are many and varied. In order to avoid being rejected, stakeholders are reluctant to disclose how expensive the change may be. They may also be less than completely upfront about the ramifications of the transformation, such as the possibility of stability concerns throughout the migration, at the outset of the transition. Furthermore, a CBS transformation might be “buried” inside a business endeavor as a dependence among others, disguising the fundamental changes that will be required as a result of the shift.
Mistake 6: Continuing to use legacy components to the exclusion of a broader system revamp
While some financial institutions don’t have a decommissioning strategy in place for old systems, processes, and products at the outset of the transformation, others do so in order to make the transition’s initial complexity as low as possible. Unfortunately, since legacy components are expensive to maintain, using this method will result in considerable increases in cost over time. If they are not retired, the CBS transformation will have little effect on reducing the total complexity of the information technology infrastructure. After more than five years after the CBS deployment, many less successful situations have legacy applications that are still operating at 10 to 20% of their original capabilities.
Technology
A narrow perspective on vendor selection and the customization of specific apps may significantly reduce the effect of a new CBS implementation.
Mistake 7: Choosing partners based on price
Most of the time, banks choose a technology vendor primarily on pricing rather than the vendor’s expertise of the banking business or experience working with a CBS. However, these suppliers may underestimate the complexity of the requirements, resulting in an overinvestment of time and money on technology without examining whether it will fulfill particular business objectives in the first place. Over customization of a standard product, complicated interfaces, and scope modifications throughout the course of a project are all possible consequences of this strategy. Because each party lacks crucial competencies and is unable to bridge knowledge gaps, a collaboration between the vendor and the bank might also be challenging. Companies should make sure that pricing is not the only element they take into consideration when evaluating potential vendor partners.
Mistake 8: Failing to integrate the CBS with the broader platform
Customization adds to CBS’s complexity and, as a result, may negate any short-term advantages in efficiency. As an example, banks may misjudge how long it would take them to connect the new system with their existing back-office systems, resulting in more bespoke solutions and complicated interfaces that will cost and take longer to implement. Banks, on the other hand, may not be able to identify all of the new system’s features or completely comprehend its complexity. Projects might be delayed due to a lack of transparency, and banks may choose to construct expensive proprietary solutions to streamline integration. A digital attacker built in tandem with the current CBS will not have to cope with migration concerns linked to older systems.
Conclusion:
There are a number of potential traps to avoid while transitioning from a paper-based system to an electronic one, like the OBDX. Identifying opportunities for improvement for future large-scale changes may also be done by banks that routinely assess their methods in the areas of people, process, and technology.
