Re-imagining modern banking for business growth
Banking systems are the heart and backbone of an institution's technology infrastructure and provide the foundation for business growth, being the primary enabler. These systems are designed to be highly secure, scalable and reliable, enabling banks and financial institutions to offer efficient, competitive, regulatory-compliant services focused on the best possible user experience, to grow the business and satisfy customers.
The pandemic accelerated the adoption of new digital technologies by banks and institutions to ensure uninterrupted customer service during the crisis. However, the global economic situation has increased pressure, mainly on revenues and profitability, making it clear that there is a need to find ways to grow the business and make it profitable.
Additionally, the sector has quickly realised that simply enabling digital channels does not guarantee business growth, as this typically involves offering the same services, but through a digital channel. This helped with customer retention, but to ensure growth there must be innovative services, which requires a core system able to keep up with the demands, enabling product innovation. When working with a legacy core, achieving this becomes challenging.
There are two paths to modernisation:
- Legacy core refactoring: this strategy comes with complexities associated with software development. In addition, this requires correct component redesign and precise definitions on the functional scope perimeter of each component.
- Adopt a new financial product processor: in this strategy we would not have the same complexities of refactoring, as these financial product processors already come with a robust and proven architecture from a large number of banks around the world. The challenge is ensuring that the platform is implemented in the right way.
The road to modernisation
Technology has become the main enabler to overcome these challenges and ensure growth. Progressive technological obsolescence is adding to this challenge, making it increasingly difficult for banks to maintain frictionless operations while tackling technological upgrades.
In addition, competition between financial institutions and banks is being reinforced by the arrival of fintechs, further intensifying the race for customer acquisition and retention. These ecosystems come with strong innovation in financial product modelling, generating recurrent changes in systems driven by that innovation.
This presents an opportunity that banks and financial institutions can seize to re-imagine the construction of modern banking and technological renewal. This is a significant undertaking; it involves a thorough review of every functionality embedded in legacy systems and porting it to the new system. It is of paramount importance that the new functional architecture is designed with the financial product lifecycle and its corresponding end-to-end processes in mind, with the objective of having a set of components loosely integrated with each other.
This achieves three things:
- Future Proofing: it ensures a technological transformation in line with market demands, which will allow integration with the rest of the ecosystem.
- Technological management becomes much simpler as the perimeter scope is very well defined between components.
- A clean and maintainable architecture.
There is no perfect recipe for modernisation, but there are key ingredients to unlock exponential value:
- System with greater functional coverage to manage financial products.
- Horizontally and vertically scalable system.
- An SI (System Integrator) that masters the enablement of these systems, as incorrect or inefficient enablement can lead to multiple complications, compromising key transformation objectives.
- People and Culture. It is very important not to leave this aside because in the end we are the humans who are going to interact with the new systems.
Choosing the right system and system integrator is crucial to the success of a core modernisation.
The new systems adopted must provide greater coverage so that the investment in customisations is lower. Fewer changes result in greater stabilisation, and given that the investment in purchasing a core solution is not minor, it is necessary to ensure that the value that can be obtained from it is maximised, and that depends on how much coverage the system provides in product management.
This limits the development outside the perimeter of each component and, as a result, we obtain a clean and less complex architecture for its administration and evolution.
Challenges
To maintain agility in adapting innovations in the business, it is essential that the core technologies can absorb any changes at the same speed.
This is why it is important that cores allow financial products to be modelled without the intervention of additional developments. Even if they are low code, once there are changes in the code, the typical software development lifecycle begins. You would have to design, write the code and do quality assurance, which does not have a positive impact from an economic or time-to-market point of view.
However, we must be aware that there are different risks in the modernisation journey. There are also ways to mitigate them.
The main risk is failure to meet the plan and budget. If the modernisation cannot be completed in a short time, it becomes a liability for the banks. This can be mitigated by following these steps:
- Choosing the right system: one that restricts the need for additional developments and is scalable.
- Define: set out a clear strategy and objectives from the outset, when organising the entire modernisation programme.
- Openness to change: it is a new core system that people must adapt to. This has to do with organisational culture.
- System Integrator: the right choice of the SI who is responsible for introducing all the benefits of the new system so that its capacity utilisation is optimal.
To maximize the potential value in cost optimization on a large scale, these modernisation strategies must be coupled with the cloud migration strategy;
There is a broad spectrum of value generation in every core modernisation process. There are multiple paths to core modernisation. Finding the ideal path is about the right choice of technologies coupled with accelerators to reduce time, and the right expertise from your modernisation vendor. At Sophos.GFT we help you build your own path, mitigating risk and ensuring a smooth and effective modernisation.
Learn more about our core modernisation solutions here.
