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THOUGHT PAPER

Risk of other programs disrupting a core


banking transformation program

This article illustrates various challenges that surface during a Core


Banking Transformation Program because of other transformation
happening in parallel. Bank CTOs and CIOs have often faced difficulties
in defining the boundaries of a core transformation program because
of the dilemma in deciding which systems should get covered under it
and also number of vendors implementing the same. Once the scope
and boundaries have been defined, there comes another challenge of
simultaneously integrating the core system with existing IT systems
or planning their replacement. Under both these circumstances it
is imperative to evaluate and align the timelines for all the affected
programs, including core banking transformation program itself.

Broader level risks category


A core banking transformation program
necessitates certain changes in the banks
processes and surround systems. As these
changes are evaluated and their impact

which interact directly with core banking

within the core transformation timelines

systems can have a serious impact on the

is one of the biggest risks in a core

core program if the following risks are not

transformation program. While vendors

adequately mitigated:

may agree to the initial scope and


timelines during the planning phase,

a) Interfacing key business requirements:

they seldom adhere to them. If there is

Unless all critical business requirements

a delay in delivering one small function

have been captured and solutioned,

within a third party system, the Project

making a core banking product work

Management Office (PMO) has to ensure

from Day One becomes a daunting task.

that its impact on the related functions

Many core banking implementations

in the other systems is properly

have faced this challenge where key

analysed which then leads to delay in

stakeholders have focused completely

the closure of integrated testing for the

on the core functional requirements

entire set of system functions. The PMO

and completely ignored their business

has to constantly update the delivery

impact on the other auxiliary systems.

plan so as to ensure that the cascading

Just as a core product cannot work

delays are minimized. Once the delayed

all alone on the day of Go-Live, other

function of the third party system is

banking systems also cannot function

delivered, all the functions related to it

without the necessary information from

have to undergo a regression cycle once

the core banking product being fed

again; any mismatch in expectation

into the main system. Due to the sheer

creates a cascading effect on all the

complexity resulting from multiple

related functions belonging to the

systems being led and managed by

other systems. One change in functional

multiple stakeholders, even the process

requirement in the core system at a later

of finalizing the scope of requirements

stage can impact multiple systems and

extends over several cycles, thereby

lead to several rounds of discussions

increasing implementation time.

again, followed by multiple testing

The delay adds to scope creep in a

cycles, all of which add to the delay.

dynamic business environment, where

So, besides ensuring that the key

Most often, the core banking system

business stakeholders bring a different

requirements have been covered in the

upgrade is accompanied by changes in

perspective every time requirements

core, it is important that the aspects of

the surrounding systems. These changes

are discussed. It therefore becomes

other systems, which have a key impact

either involve replacing the entire system

important to ensure that the necessary

on the core are also evaluated and

or making suitable changes to the existing

requirements for interfacing all auxiliary

discussed. When the other systems are

system to make it compatible with the new

systems with the core product are not

business critical responsible for report

core banking system. These peripheral

only captured and discussed but also

generation or wealth management

systems could be as important as those

solutioned on time.

for instance they could potentially

analyzed, many IT departments realize the


need for replacing the age-old surrounding
systems, which again brings its own set of
challenges. While some of these systems
may not interact directly with the core
banking system, they could still impact
the way the bank processes its day-to-day
operational requirements; this might call
for certain changes in the existing model
or require a new operational structure
and processes altogether. Therein lies the
risk of these programs impacting the core
transformation program, which can be
classified as follows:
A) Programs involving simultaneous
upgrade of peripheral systems.
B) Programs where the banks business
strategy, processes and operations
structure need review.

Programs involving
simultaneous upgrade of
peripheral systems

which generate regulatory reports for the


entire bank, or those handling a complete

significantly derail the core banking


b) Aligning delivery timelines for
auxiliary systems:

vertical of the banking function like


treasury or wealth management. Systems,
such as treasury and wealth management,

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Integrating multiple systems from


different vendors and readying them

transformation program timelines.

Programs where the banks


business strategy, processes
and operations structure
need review
Strategy- or process-related business
decisions can also impact the Core banking
transformation program. We can divide
such risk areas into the following broad
categories:
A) Merger & Acquisition
B) New product lines of business
C) Streamlining of operational processes
and procedures
Merger and acquisition
Merger & Acquisition (M&A) is increasingly
being seen as the easiest way to

core system. In most scenarios, staff is likely


to resist adopting a new core banking
system, which is already weighed down
by the expectation of streamlining and
adopting the unified business process
of two separate merged entities. There
have been instances where the core
banking implementation has stopped
the transformation process midway,
and adopted the existing systems of
the merged entity, since that appeared

The decision to implement new product


lines of business depends on several
factors as listed below:

Getting various departments like Risk,

Audit and Accounting to assess, review


and lend their support for the new
product.

Ensuring all operating policies,

procedures and processes are in place

to be more cost effective compared to

and that the staff is trained to take the

persuading both parties to the merger to

product to market and serve customers.

adopt new systems. While such a decision


may bring some advantage, it jeopardizes
the essence of the transformation, which
set out to achieve specific business
benefits.

rapidly expand business operations or

New product lines of business

customer base to achieve economies

When banking institutions expand their

of scale. Banks that are trying to enter

existing products and services merely to

new markets or increase market share,

meet customer demand, it may not have

gain complementary strengths and

a notable impact on the transformation

competencies, or simply stay competitive,

journey, as the core banking product

are increasingly turning to M&A. Such

would be able to meet the requirements of

decisions, which can be taken at any

the new products within the existing lines

given point in time, would seriously

of service. However, when management

impact the core transformation program

decides to venture into a completely new

if taken once it is underway. The banks

line of business, like say, trust services

IT division would have to relook at the

or wealth management, or open a new

transformation objectives considering

delivery channel like Internet or mobile

several factors like the existing product

banking, then its success depends not only

offerings, IT systems and operations

on the core banking products existing

model of the merged entity. They would

capabilities, but also its ability to interface

need to take a quick business decision in

with the new line of business or channel,

order to assess the impact on the banks

even when such new products are getting

existing business requirements and on

implemented by different vendor. The

the interface solutions that have already

decision to implement and solution the

been agreed to by the key stakeholders.

business requirements under both these

Next, they would have to quickly take the

circumstances would make a lasting

business staff of the merged entity into

impact on the transformation timelines

confidence, impressing upon them the

unless the bank evaluates the business

business advantages of adopting a new

strategy before embarking on the core

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transformation journey.

Evaluating the capabilities of existing

and new IT systems to ensure there are


no hindrances to implementing the new
product.

Addressing the regulatory compliance


framework to ensure there is no risk
from a legal perspective, nor any
violation of local laws.
The above factors show that new product
implementation is a program on its own,
which can have a telling impact on the
core transformation timelines unless it is
implemented swiftly after evaluating all
risks, well before the transformation starts.
Streamlining of operational processes
and procedures
Banks are always taking measures
to enhance the quality of customer
service, while reducing cost. They have
similar expectations from core banking
transformation that it would improve the
efficiency of the processes and operating
procedures in the existing operating
models across all departments. This often
leads to the introduction of new processes
or the trimming of old ones. Regardless of
whether the processes and procedures are
reviewed before or during transformation,

there is every possibility that any delay in

onus for scaling up to such needs rests

telling impact on core transformation,

decision making would impact the core

with the incoming core banking system.

unless the key stakeholders have planned

banking program itself.


A banks transformation by adopting

Business Units Restructuring: Many

leading banks have started to structure

new business or operating models and

their business units around common

regulatory structures can go horribly

services and functions rather than

wrong if the impact of such moves is

product offerings. How these business

not properly assessed. Consequences

units integrate with each other and

can range from the solution becoming

function collectively to ensure minimal

ineffective to creating unforeseen impacts

impact on regulatory, risk and legal

elsewhere in the core banking program.

compliance is also dependent on the

Banks, in their quest to reduce cost and

capabilities of the core banking system.

improve efficiency, explore various models:

Minimal Human Intervention: The

Conclusion

to mitigate such risks well in advance.


The core transformation program is very
demanding, owing to the sheer complexity
of having to consider and implement
bank-wide requirements. Most often, the
risks arising out of other programs are not
properly planned for before the start of
the core program, leading to delay in core
implementation.

References
1. www.infosys.com
2. www.kpmg.com

objective is to ensure Straight through

Core banking transformation is an

Processing as far as possible, with

amalgamation of activities confined

3. www.booz.com

minimal human intervention, whether

not just to the core program, but also

4. www.communitybankingconnections.

when opening an online account or

encompassing other programs, which

taking a request for a standing order.

may not be intrinsic to it, but whose

Self Service Kiosks and Channels: As

effective planning and coordination

banking practices move towards self-

enables smoother transformation. This

service, channel-based banking and

article brings forward various instances

doorstep banking with fewer staff, the

where other programs could have a

org
5. www.ibm.com
6. www.banktech.com
7. www.delloite.com
8. www.gartner.com

Anish Rana
Principal Consultant, Infosys Finacle

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