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Key Challenges Core Banking

Key Challenges Core Banking

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Published by Infosys
"Transforming a bank’s core systems is a strategic decision that has far-reaching implications on the bank’s future business strategies and success. Read Infosys whitepaper ""Key Challenges in Core Banking
Replacement "
"Transforming a bank’s core systems is a strategic decision that has far-reaching implications on the bank’s future business strategies and success. Read Infosys whitepaper ""Key Challenges in Core Banking
Replacement "

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Published by: Infosys on Jul 10, 2013
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07/10/2013

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   P   E   R   S   P   E   C   T   I   V   E
 
Key Challenges in Core BankingReplacement
 
 
Survival of the Transformed
Core banking replacement has, for long, beenconsidered a strict no-no by banks. Establishedcomfort level with existing technologies andprocesses, relatively comfortable margins thatprovided the luxury of overlooking operationalinefficiencies, and finally, the fear of the unknown,have all ensured that banks steered clear of thissubject. But the current competitive environmentwith increasingly demanding customers is forcingbanks to take a reality check on their technologyenvironment and ensure that their IT strategy isaligned to their business objectives. And corebanking replacement is often the only solution totheir problems. However, replacement of corebanking solutions be it for large or small banks,global or regional is akin to a heart transplant. Thiscan be one of the greatest challenge for anyinstitution, which can either result in the bankleapfrogging to a high degree of differentiationand an enriched customer value proposition, or it cancreate considerable risks for the bank if thetransition is not managed properly. A core banking solution, once implemented,should be robust, scalable and future-proof andserve the business interest for at least 10 years.
Key Challenges
Banks need to focus on key factors, which makethe core banking transformation a successfulexperience. Broadly speaking, the key challengesin core banking transformation are:
1.
Vendor capabilities and credentials
2.
Dependence on legacy/vendor applications andimpact on envisioned technology architecture
3.
Bank
s business goals and alignment to leveragethe new technology
 Vendor Capabilities and Credentials
Transforming a bank
s core systems is a strategicdecision that has far-reaching implications on thebank
s future business strategies and success. Thevarious aspects that need to be consideredinclude:
Financial stability 
Financial strength and business continuity are themost important attributes for evaluating anyvendor. Typically, payback for most core bankingreplacements could take anywhere around four-fiveyears, even for rapidly growing institutions.Transforming core banking systems bring with them associated changes to operating processes,surround systems, interfaces, hardware andnetwork configurations, coupled with the re-skillingand re-deployment of people. The Total Cost of Ownership (TCO), keeping in mind all these factors,would be quite significant, even for smallinstitutions. Hence, a core banking solution, onceimplemented, should be robust, scalable andfuture-proof and serve the business interest for atleast 10 years.This is why the long-term viability of the vendor assumes critical significance.
 Vendor
s commitment to the business
 Apart from financial viability, the vendo
scommitment to the financial solutions business iscrucial. Banks must gauge the vendor 
s ability andintent to commit finance, resourcing andinfrastructure to continuously enrich their solutionoffering to meet contemporary bankingrequirements. Some of the criteria could be thenumber of customer sites across the globe, profileof client banks, contribution of the financialsolutions business to vendor revenues, track record,as well as vendor 
s investment in the core banking
space.
 Vendor
s domain and technology competence
Continuing with legacy technology and outdatedbanking practices and processes will sound thedeath-knell for most solution providers and, inturn, severely impact the client bank
s capability tosurvive and flourish in an increasingly dynamicbusiness environment. A few factors that meritattention are:Is the deployed technology future proof?Does the vendor have a good understanding of banking business practices across the globe?Is the solution based on open standards tofacilitate seamless working with surroundingsystems and delivery channels, straight-throughprocessing capability and offers real timeinformation to its stakeholders and customers?Is the technology stable and user-friendly?Typically, minor modifications should be handledwith minimal vendor intervention, and without
 
 
compromising on the solution architecture.Further, the solution should be scalable enoughto handle projected business volumes withoutcompromising on response times or consumingsubstantial resources.Does the vendor have a clear roadmap for ongoing research, development, upgrade andsupport?Does the vendor have the requisite quality andnumber of trained, experienced personnel towork on the technology platform to ensurebusiness continuity as well as businesstransformation?
 Vendor
s deployment capabilities
For a vendor, developing and marketing thesolution to banks is only part of the job. Thecritical aspect is ensuring a smooth transition tothe new system and empowering the bank toleverage its capabilities. The vendor should providea robust delivery and support platform to manageongoing business requirements and crisis, withinacceptable response times. The main areas thatrequire focus are:Does the vendor have a proven and properlydocumented implementation methodology?Is the implementation methodology designed toensure proper training, documentation anduser empowerment to enable the bank
spersonnel to deploy the solution across their businesses with minimal recourse to thevendor?Has the vendor implemented the solution inthe bank
s geography and for banks of asimilar profile? Also, what is theimplementation track record in terms of successrates, adherence to budgets, timelines anddelivery commitments?Does the vendor have a well-thought through,multi-layered support strategy (both person-based and interactive i.e. web-based with arich data bank and global best practices) toadhere to stipulated SLAs and ensure best-in-
class customer service standards?
Dependence on Legacy/Vendor Applications
Often, the biggest impediment to a smoothimplementation is the migration path from the oldto the new. This is further compounded in case of migration from a legacy third party application ascompared to that from a manual or proprietarysolution. This is because of the dependence on thelegacy solution provider to enable proper migrationof data. The process also exposes the interfacesdeployed and requires changing workflows andprocedures to best leverage the new solution
scapabilities. The key challenges to be understoodand overcome are:
Data migration
This is an extremely critical and at times a painfulphase during the implementation process. It entailsa complete understanding of the data structures inthe existing system, a one-to-one mapping withthe relevant fields in the new system, identifyinggaps in the data, enriching the same (remember, acore banking solution can only process what is fedinto it
garbage in is garbage out!) and finally,migrating the complete data to the new system. Thishas considerable dependencies on the existing ITteams in the bank as well as the incumbent and newvendor to ensure a smooth cutover.
Understanding the prevalent systems andinterfaces deployed
Proper analysis is required to understand which of these would continue to exist in the revisedarchitecture and, if so, the linkages with the newcore banking system.
Understanding the functioning of the legacy environment
This is required to enable modification andstreamlining processes and workflows to achievedesired business objectives with greater operationalefficiencies.
Configuring the new architecture
The new architecture needs to be configured withthe objective of eliminating functionalredundancies and achieving STP. It should providebanks the flexibility to quickly devise new productsand services, ranging from plain vanilla to exotichigh-end structured products, tailored to individualmarkets and segments.

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