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  • 1/22/16, 2:30 PMIBS Intelligence - Blog: Banking is a battlefield

    Page 1 of 4http://www.ibsintelligence.blogspot.co.uk/2016/01/banking-is-battlefield.html

    IBS Intelligence is the definitive source of news, analysis and thought leadership relating to globalbanking and financial technology markets. We cover what is really going on the good, the bad, thelessons, the mistakes and the masterstrokes, with no advertorial or marketing hype. IBS IntelligenceBlog is an excellent outlet to voice opinions, views and share ideas about all things fintech, andeditorial contributions are welcome!

    Home About us Our team

    Friday, 22 January 2016

    Banking is a battlefieldFor$anyone$who$wasnt$around$forthe$80s,$any$karaoke$barexperience$virtually$guaranteesthat$the$Pat$Benatar$tune$'Love$isa$BaAlefield'$comes$to$mind$whenanything$is$called$a$'baAlefield':banking$included.

    Sad$thing$is,$when$it$comes$to$corebanking$systems,$legacy$status$means

    any$claim$of$'we$are$young,$we$are$strong,$no$one$can$tell$us$were$wrong'$islaughable$at$best,$an$uAer$lie$at$worst.

    My$recent$post$in$American$Bankers$BankThink$argues$that$a$legacy$is$somethingone$leaves$behind.$And$here,$I$assert$that$cleaving$anKquated$cores$is$the$onlysound$strategy;$keeping$legacy$core$systems$gives$only$a$hollow$and$Pyrrhic$victoryat$best.

    Most$banks$are$bound$to$legacy$systems,$where$data$is$siloed$and$moving$databetween$those$silos$obstructed.$Data$sKcks$together$like$any$good$baAalion,$andbanks$have$built$layers$upon$layers$onto$those$legacy$cores$to$support$mobile$anddigital$channels,$but$that$data$sKll$remains$rank$and$file,$bound$by$business$linesilos.$Result:$no$full$view$of$customer$needs,$poor$customer$experiences,$nochampions$for$customer$hearts$and$wallet$share.

    TAKING'AIM'AT'INFLEXIBLE'LEGACY'SYSTEMS

    Guerrilla$style$market$wars,$though,$are$quickly$becoming$the$norm.$Going$upagainst$new$challenger$banks$like$Starling,$Atom,$Fidor,Monese,$Mondo$and$Secco$requires$a$nimbleness$on$the$baAlefield,$and$a$set$oftools$in$the$arsenal$with$names$like$innovaKon,$flexibility,$realRKme,$speedRtoRmarket,$allRdigital.$

    Modern$core$systems$are$architected$to$be$open,$flexible,$and$let$data$moveinstantly$and$ubiquitously.$TradiKonally$siloed$business$lines$now$flood$data$thathelp$the$nimble$neobanks$build$connecKons$with$customers$throughpersonalizaKon,$nuanced$pricing,$and$faster$customer$service$resoluKon.

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  • 1/22/16, 2:30 PMIBS Intelligence - Blog: Banking is a battlefield

    Page 2 of 4http://www.ibsintelligence.blogspot.co.uk/2016/01/banking-is-battlefield.html

    Legacy$systems$are$fundamentally$incapable$of$keeping$those$tools$sharp,$let$aloneready$to$wield.

    RALLYING'THE'BANKING'BATTLE'CRY

    To$date,$U.S.$banks$have$had$a$regulatory$moat$protecKng$their$territory,$but$thebaAle$cry$hasnt$gone$ignored,$and$American$customers$are$also$demanding$beAerservices,$products,$and$experiences$from$their$banks.$Heres$where$a$good$offenseis$the$best$defense$when$it$comes$to$encroaching$digital$challengers,$and$Americanbanks$should$study$the$U.K.$market$for$clues$to$drawing$up$aAack$plans.

    The$basKon$of$legacy$technology$invites$problems:$recent$failuresfrom$Westpac,$HSBC,$NatWest,$and$SunGard$prove$this.$When$the$enKrefoundaKon$of$the$technology$supporKng$the$bank$is$old,$creaking,$prone$to$failure,inhibits$innovaKon$offerings,$and$leaks$revenue,$its$Kme$to$stop$debaKng$the$meritof$upgrading$or$enhancing$core$systems;$its$Kme$to$act.

    The$high$risk$of$a$core$replacement$project$is$well$documented;industry$skepKcism$for$replacement$ROI$is$also$high.$But$new$strategies$haveemerged$that$address$miKgaKng$the$risk$of$a$ripRandRreplace$approach$$all$ofwhich$first$and$foremost$address$what$the$definiKon$of$a$core$system$ought$to$be.

    Reduced$to$its$most$basic$funcKonality,$a$core$system$is$a$record$keeper$fortransacKons,$updater$of$the$General$Ledger,$and$manager$of$balances.$But$industryand$customer$demands$have$put$the$onus$on$core$systems$to$be$all$things$to$allpeople,$and$over$the$last$20$years$core$providers$have$tried,$unsuccessfully,$tomeet$that$demand.$In$a$recent$post,$banking$systems$analyst$MarKnWhybrow$predicted$that$core$soluKons$that$componenKse$their$systems$will$seethose$component$markets$invaded$by$new$niche$suppliers,$because$a$single$corepanacea$offering$is,$well,$rather$mindRbogglingly$complex$and$unlikely.

    One$core$upgrade$risk$miKgaKon$strategy$is$to$layer$nonRcore$API$funcKonality$ontothe$base$core.$The$Open$Bank$Project$and$even$regulaKon$such$as$PSD2$havesupported$the$adopKon$of$alternaKves$to$hardRcoded$(limited)$core$funcKonality,especially$when$those$products$and$applicaKons$are$in$such$demand$by$the$endcustomer.

    Challenger$banks$core$systems$are$architected$from$scratch$to$componenKsefuncKonality$outside$of$the$tradiKonal$core$system:$no$longer$is$every$productmanaged$and$priced$from$the$core$where$any$product$change$requires$a$team$ofcoders$to$make$updates$in$mulKple$systems$before$the$new$aAribute,$term,$orprice$can$go$into$effect.$Private$comments$from$banks$confirm$the$lengthycampaign:$500$days$to$make$a$single$price$change.

    Due$to$the$absence$of$silos,$the$magnified$data$aggregaKon$also$translates$into$asharpened$pricing.$Pricing$opKmisaKon$becomes$a$rapier$weapon,$and$miKgatesthe$downward$pressure$on$margins,$both$from$diminishing$fee$returns$(the$newcap$on$interchange$fees$for$card$payments$in$Europe$being$the$most$recentexample,$and$in$the$US$conKnued$pressure$to$revisit$DoddRFrank,$and$repeal$theDurbin$amendment),$and$compeKKve$offerings$from$new$entrants.

    This$componenKsed$funcKonality$means$the$core$does$what$it$does$best:$it$creditsor$debits$the$general$ledger$(GL).$The$components$do$what$they$do$best:$manageproducts,$facilitate$pricing$opKmisaKon,$aggregate$business$intelligence,$facilitateanalyKcs,$process$payments,$and$support$digital$channels.$It$also$means$theoperaKonal,$KmeRconsuming$burden$of$perpetual$core$updates$is$eliminated.$Thecore$baAalion$remains$strong,$but$guerilla$groups$are$responsive,$flexible,$nimble.Response$to$customer$demand$can$be$swic.$CompeKKve$relevance$is$restored.

    Core$modernisaKon$does$not$necessarily$dictate$a$replacement,$but$it$doesdemand$extracKng$funcKonality$$like$pricing$$outside$of$the$legacy$core.$Even$infullRfledged$core$replacements,$American$banks$can$approach$a$system$overhaul$bycreaKng$that$external$funcKonality$as$the$first$step$in$a$core$migraKon$path,$gainingflexibility$right$from$the$start.

    The$industry$has$recognised$that$the$old$definiKon$of$a$core$system$should$be$justthat:$a$legacy$lec$behind.$By$reRscoping$and$redefining$what$a$bank$core$systemcan$and$should$be,$harnessing$technology$as$modern$tools$$even$as$weapons$inthe$baAle$for$wallet$share$and$customer$loyalty$$banks$can$shed$the$mantel$ofanKquated,$strengthen$their$services,$and$head$in$the$right$direcKon.$Its$abaAlefield$out$there.$Its$Kme$to$revamp$the$arsenal.

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    Labels: banking, banking technology, challenger bank, Core banking systems, digital,fintech, legacy systems

    By#Ghela#Boskovich,#Director,#Global#Strategic#Business#Development#Marke

  • 1/22/16, 2:30 PMIBS Intelligence - Blog: Banking is a battlefield

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