Core Banking Platform

Joseph Edwin, Head of Core Banking Programme

London, 2 March 2016

Core Banking Platform

Joseph Edwin, Head of Core Banking Programme

London, 2 March 2016

Today’s agenda:

 Lessons learnt from benchmark study

 Case for the Core Banking Platform replacement?

 What is Core Banking Platform?

 The journey

 Investment case
A bit about me first

Startups, Consulting, Banking

3•
Core banking at Commonwealth Bank of Australia, CBA
FACTS AND FIGURES
 5 Year Programme
 $ 1.3Bn AUD expenditure (approx. EUR
850m)
 SAP and Accenture along with a number of
other vendors and system integrators
 CBA was in the driver seat
 CEO was the executive sponsor and chaired
the Executive Steering Committee
 Scope: customer data, term deposits,
savings, transactions, loans, payments etc
 Aggressive delivery with two releases in
parallel
 Product by product migration approach with a
regional pilot and phased rollout
CRITICAL SUCCESS FACTORS
 CBA in the lead (retained programme
accountability and design authority)
 Very strong internal delivery capability built up
over time
 CEO was executive sponsor – helped with
prioritisation over other initiatives
 Iterative delivery of scope (deliver success
early and often)
 Limit platform customisation to a minimum
 Focus on people – look after them to keep it
sustainable (e.g. mandatory programme
shutdown over Christmas)
4•
How is Nordea applying learnings?
 Simplification programme has the highest priority after critical compliance work

 Nordea in the lead with strong governance anchored with Board and GEM

 Allow room for the complexity in our planning (4 platforms to 1 is hard)

 Initial simplification by drastic reduction of account products

 Align products and processes across the Nordics (reduce local variations)

 Model bank approach (adopt standard package from Temenos across the Nordics)

 Incremental & frequent delivery using agile principles to de-risk delivery

 Hire experienced transformation specialists into Nordea

 People management: actively rotate programme staff back to the line to manage
sustainability and anchor change strongly in the bank

 Migration first approach – prioritise migrating the legacy bank

 Prepare the organisation for the change: early and regular engagement with frontline
customer facing teams to prepare for aftermath of migrations
5•
Case for the 14

Core Banking Platform replacement?

Banking: an industry in transition

Mobile – distribution Big Data – deep

separated from personalisation of
manufacturing banking services

A digital
revolution

Cloud – profitability at a
Social Media – new
lower scale, unbundling
banking media
of banking

7
Banking customers: Same needs as before but changing
behavior

CHANGING CUSTOMER EXPECTATIONS… …AND CHANGING CUSTOMER BEHAVIOR

 Impatient & empowered - 24/7  Are becoming less loyal

availability and immediate delivery
 Use several channels in combination
 Knowledgeable - Specialised and
tailored advise that complements the  Use digital channels more intensively
research we have done ourselves
 Use digital channels to enforce:
 Integrated & connected – Integrated
into my process and Network
Personalisation building Co-creation
connected/compared with peers

 Require relevance - Personalised

products, services and interaction

8
 Also Nordea’s customers are changing their behavior

Relationship banking is turning digital fast End-to-end digital response required

Netbank 60 ■ Digital response required

■ Front-end solutions will not suffice

Transactions
Millions

■ Automated end-to-end processes across

Mobile 22 the full value chain is a must
Branches
3 ■ Consistency and endurance in execution to
unlock benefits
Q3/10 Q3/15

Ability to execute
14%
Online advisory
meetings
Share

3%

Dec 2014 Dec 2015 Level of digital response

9
Fintechs exploiting regulatory arbitrage, high costs, high friction

Automated
Lending financial
management

Corporate
FX
banking

Neobanks Payments

10 •
Surge in new operational regulations
Operational regulations
Balance sheet
regulations Machinery
EMIR PRIPs SEPA
Capital Recovery and room
Structural reforms resolution MiFID II
requirements
for banking Data
MAD FATCA
protection
Leverage
Banking union ratio Transparency
AML Directive
Dodd-Frank

NSFR TLAC
Payment
& OUR CUSTOMERS package
FTT Benchmark
regulations
Shadow Investor Corporate
banking compensation SFT
governance
transparency
Long-term
AIFMD financing
Living Solvency 2 Short selling
wills UCITS
CSD
Mortgage regulations PSD II
Fundamental Directive Prospectus Securities
Deposit legislation
review of the Directive
guarantee
trading book Bank MMFs
account Margin for IORP II
derivatives Products

11 •
IT complexity in large legacy banks

Complex, risky, expensive & slow – hinders compelling customer experience

Source: BCG

12
What is Core Banking 14

Platform?
One building block in the Simplification Programme

Initial • Simplification of products, data and processes

simplification

Simplification • Focus all development activities towards supporting simplification

compliance

Core Banking • Customer information, savings, deposits, transaction and loan products in all
Platform (CBP) business areas

New Payment • Domestic, international and SEPA payments for all business areas
Platform (NePP)

Group Common • Consolidate the existing data warehouses into one to meet both regulatory
Data (GCD) requirements and changing customer demand

Simplification • Simplify the system landscape and end-to-end processes outside CBP, NePP
by cluster and GCD

Legal Structure • Merger of Norwegian, Danish and Finnish subsidiary banks to parent company
Programme to create a more efficient structure that decreases administrative complexity
14 •
The Core Banking Platform, CBP

A single Nordic platform that delivers

the core functions of banking, i.e.
product management, taking deposits,
making loans and linking customers to
front, middle and back office functions
CBP program will replace the old
banking platforms, reduce IT complexity
and also transform the related
processes, products, governance and
culture

15 •
What is Core Banking Platform?

Easy Automated &

tailoring digital

Savings & Lending

deposit products
products

Improved
relationships
Customer Transaction
data Relationship
banking pricing
Compliance
made easier

One Product &

standard service
IT platform delivery

Much faster Simplified product

development portfolio
of Internet & Mobile
Improved product
Reduces risk
management
16 •
CBP enables our four strategic capabilities…

Value to customers

Relationship banking Know, advice, service and stand by

Four strategic capabilities

Agility Competence Resilience Scale

Key activities Simplification activities

Other key activities

17 •
…shaping the future relationship bank

• Build the ‘engine’

1
Great customer experiences
Agility for faster reaction
to customer needs

• Reduce
2 ”Easy to deal with,
operational risk relevant and
Competence due to complex and competent,
old IT landscape anywhere and
anytime, where the
personal and digital
• Quickly respond to
3
relationship makes
Resilience regulatory
Nordea my safe and
requirements
trusted partner”
• Improve operations
4A

cost efficiency
Scale
• Improve IT cost
4B

efficiency

18 •
The benefits of a new and simplified core

WHAT CBP ENABLES

Channel-neutral customer One user interface for core

experience banking services

Straight through processing

Task automation
and real-time banking

New services and products

Enhanced product tailoring
created more rapidly

19
CBP value for product development

WHAT CBP ENABLES

One Nordic way Elevated product capabilities

Quick adaptation to market

Increased tailoring & targeting
changes

20
The journey 14
Comprehensive due-diligence and preparation phase

2013-2014 2H 2014 Jan – Jun 2015 Jun - Sept Sept Onwards

Pre-study phase Start Phase I Phase 2

Validation of Software
Contract High level programme delivery
transformation journey, demos
negotiations approach and plan development
selection process &
SIMPLIFICATION PROGRAMME Gaps
mobilisation with
identification
McKinsey / Bain
in vendor Vendor Migration strategy and plan
Reference calls with solution engagement model development
development
ANNOUNCED

other banks (CBA, ABN, Customer

ING etc) to validate reference Examination of desired Nordic
roadmap & vendor Visits Final vendor + SI processes against
ecosystem selection & board Temenos model bank
Scalability & approval
Market insights from performance
testing Temenos initial system build
research firms including Nordea model bank
(Forrester, Gartner, Programme delivery
Proof of
ovum) strategy development
concept
CBP programme pilot defined
Solution deep-dives with and kicked-off
Vendor due diligence vendors
and risk reviews
RFP process
Programme resource on-
(incl. demos,
boarding and training
workshops)
Legal contracting review
and input Initial simplification Ph I Initial simplification Ph II
(reduction of products) (reduction of products)
22 •
 Current CBP high level delivery and migration plan
2015 2020
SV / SI 1 2 3 4
selected
Country migrations done
Milestones

Contract signed Decommissioning done

Business case + CBP implementation done

migration strategy agreed
First version of model bank
implemented

Prep.
Pilot

Deposits
Key activities

Loans

Mortgages

Trans. accounts

Other products
Data cleansing and decommissioning
23
Current CBP high level delivery and migration plan
(A closer look at deposits delivery)
Key pre-requisites:
 Testing complete
 Mock migrations runs completed & New account
exit criteria met opening
 Business & technical deployment available for
readiness checklist completed staff, friends
 Data cleansing activities
& family
completed
 Go/No Go decisions established Expand new
 Dress rehearsals completed accounts
opening to all
customers
Customer
data load
completed Go/No Go
decision

Stabilisation Migrate wave 1 Migrate wave 2 Migrate wave 3

Period 1

Key operative
Limited Full new Migration Migration
milestones for banking new sales sales starts ends

Deposits

24 •
Investment case 14
2016-2018: Transforming for the future

Group total expenses development

“One Nordea”…
Transition period

…more efficient with

simpler structure &
decreased complexity…

’13A ’14A ’15A ’16E ’17E ’18E

• Execution of transformation agenda

• Investments in Core Banking Platform …enabling 2019-2022 cost
reductions
• Key activities to manage transition efficiently

26 •
 IT savings: expected to materialise through CBP impact on nine
key cost drivers
COST DRIVER CBP IMPACT DESCRIPTION

Number of • Replacement of legacy applications by CBP rationalises

applications landscape and lowers maintenance efforts
Application
services

Number of • Replacement of legacy applications by CBP increases stability

incidents and usability of systems, decreasing number of incidents

• Decommissioning of vendor-provided legacy applications

License fees
cancels corresponding license fees

Sourcing of • Outsourcing of core package developments to CBP vendor

Develop-

projects lifecycle decreases cost of specific parts of IT projects lifecycle

ment

Complexity of • Standardised integration patterns and rationalisation of IT

integration landscape in CBP scope simplifies integration with surroundings

Number of physical • Decommissioning of legacy applications enables

structure

devices decommissioning of dedicated supporting physical devices

Infra-

Resources • Decommissioning of legacy applications reduces direct

consumption consumption of storage space and processing power

Number of • Decrease in IT services volume driven by business workforce

end-users reduction through operational efficiency gain
Staff

IT management • Reduction of overall IT workload allows for lighter and leaner

workforce IT management layer
27
Business savings: expected to materialise through CBP impact
on eight key cost drivers
COST DRIVER CBP IMPACT DESCRIPTION

Straight through • Consolidation of IT landscape and improved systems integration

processing allows for increased straight through processing
Efficiency

• CBP features replacing manual processes allow for increased

Automation
share of automated process steps

• Faster and less expensive digitalisation of customer facing

Digitalisation
processes and channel integration (e.g. self-service)

Business • CBP provides improved business intelligence and allows for

intelligence more rapid and error-free processing (e.g. credit decisions)
Quality

Product • Centralised product factory system of CBP facilitates the

parameterisation development and maintenance of products

• CBP consolidates data sources and increases data quality

Data quality
through standardisation

Focus on business • User-friendliness of CBP requires less technical capabilities and

issues allows users to focus more on business related issues
Staff

Business management • Reduction of overall workload in the business units allows for
workforce lighter and leaner management layer

28
CBP enables further benefits
BENEFIT
Improve time-to-market
Enable shift to self-service
Replace obsolete
technologies
Address IT flexibility
issues
Enable re-focus of
operational expertise
Reduction in operational
risks and/or impacts
Shift to digitalisation
DESCRIPTION
• Shorter time to issue new banking products on
the market
• Workload rebalancing from Nordea staff to self-
directed customers
• End-of-life technologies of current IT landscape
replaced by core banking platform
• Reduction of knowledge gaps within IT,
supported by proper workforce planning for the
future
• Switch of required operational expertise from
systems to customers
• Lower effort required to mitigate operational
risks and/or reduced amount of losses
• Overall shift to digitalisation in back-office
affecting processes not only related to the core
29
Investment in Core simplification

DISTRIBUTION OF CAPITALISED VS NON-CAPITALISED INVESTMENTS, EURM

2016 2017 2018 ~90%

of total
Capitalisation ~180 ~200 ~200
investments
Total ~200 ~225 ~225
are
capitalised

Simplification programme cornerstone in achieving best-in-class C/I ratio

30
In summary

 Learnings from CBA and other banks applied in the programme

 Digitalisation is changing the world - fast

- Banking customers expectations and behavior are changing

 CBP is one building block in Simplification Programme

- A single Nordic platform replacing old country specific banking platforms
- CBP enables our strategic capabilities – shaping the future relationship
bank

 The journey entails comprehensive due-diligence, preparation phase

and migration plan

 CBP enables IT and business savings along with other benefits

31
 Core Banking Platform
Joseph Edwin, Head of Core Banking Programme
London, 2 March 2016

Core Banking Platform

Joseph Edwin, Head of Core Banking Programme

London, 2 March 2016