Core Banking 2009
INDEX 1.
Introduction
2.
What is a core banking system?
3.
Core banking solutions
4.
Key features of the system
5. Components of CBS 6.
CBS architecture architecture
7.
Concepts regarding core banking solutions
8.
What is the need of core banking solutions?
9.
Benefits to the branch, customer and the bank
10. Risks involved in CBS 11. Upgrading core banking: its drawbacks and advantages 12. Overview of core banking solutions and their providers 13. Key challenges in core banking replacement i)
Survival of the transformed
ii) Key challenges iii) Finally… 14. Conclusion 15. Bibliography
Core Banking 2009
INTRODUCTION After years of debate about the need for core system replacement, there is finally evidence of growing momentum both in the market of smaller banks (dominated by package vendors) and in in-house projects of larger banks. For the larger banks, the approach to core system replacement is typically based on an overall service-oriented architecture (SOA) strategy and likely to combine elements of three different approaches: legacy code migration, core banking package implementation, and the introduction of re-usable re-usable banking enterprise services alongside traditional in-house development. Core banking is a general term used to describe the services provided by a group of networked bank branches. Bank customers may access their funds and other simple transactions from any of the member branch offices.
Core Banking is normally defined as the business conducted by a banking institution with its retail and small business customers. Many banks treat the retail customers as their core banking customers, and have a separate line of business to manage small businesses. Larger businesses are managed via the Corporate Banking division of the institution. Core banking basically is depositing and lending of money. Normal core banking functions will include deposit accounts, loans, mortgages and payments. Banks make these services available across multiple channels like ATMs, Internet banking, and branches. Core Banking solutions are banking applications on a platform enabling a phased, strategic approach that lets people improve operations, reduce costs, and prepare for growth. Implementing a modular, component-based enterprise solution ensures strong integration with your existing technologies. An overall service-oriented-architecture (SOA) helps banks reduce the risk that can result from multiple data entries and out-of-date information, increase management approval, and avoid the potential disruption to business caused by replacing entire systems.
Core Banking 2009
What is a Core Banking System? Core Banking System or Core Banking Solution is a term that we hear very often these days. For IT and Banking folks, this term doesn‘t need any explanation but for those who want to know a bit, here‘s a brief overview of what
it
means.
Previously a bank‘s core oper ations such as keeping a ledger of various transactions, maintaining customer information, interest calculation of loans and deposits, adjustments to accounts on withdrawal and deposits of funds etc. were done manually. With the advent of ICT (Information & Communications Technology), efforts were done to automate various banking processes using software applications so as to make them simple, efficient, effortless and cost effective. Thus, the platform where ICT is used to perform the core operations of a bank, like those mentioned above, is known as Core Banking System. In Core Banking System, software applications record transactions, maintain customer information, calculate interest on loans and deposits etc. The data, instead of huge ledgers, are stored in backend databases in digital form. Now, the same software can be installed in various branches of a bank and can be interconnected through the internet or telephone lines to form a core banking network of the bank. The advantage, a customer can operate on his account from any branch of the bank and if the bank owns Internet Banking or ATM facilities, then the customer can operate on his account from virtually anywhere. Thus, Core Banking System has radically changed the way in which banks function. The greatest advantage of having a Core Bank System is that new features and functionalities can be easily added to the system that customers will have a whole lot of services that they can use. Electronic funds transfer between banks, online trading in the stock markets etc. are examples of this, which were unheard of in banks pre Core Banking System era.
Core Banking 2009
Core Banking Solutions Core Banking Solutions is new jargon frequently used in banking circles. The advancement in technology, especially internet and information technology has led to new ways of doing business in banking. These technologies have cut down time, working simultaneously on different issues and increasing efficiency. The platform where communication technology and information technology are merged to suit core needs of banking is known as Core Banking Solutions. Here computer software is developed to perform core operations of banking like recording of transactions, passbook maintenance, interest calculations on loans and deposits, customer records, balance of payments and withdrawal are done. This software is installed at different branches of bank and then interconnected by means of communication lines like telephones, satellite, internet etc. It allows the user (customers) to operate accounts from any branch if it has installed core banking solutions. This new platform has changed the way banks are working.
Now a day’s all banks are upgrading to provide the facility of core banking to their customers to be in the race. It is one step closer to mix technology with baking for providing convenience of banking to the customers. Levels of computerization vary significantly in the Indian Banking Industry. On the one hand centrally computerized and fully networked new private banks and foreign banks and on the other with little computerization in old private banks and PSBs are in two ends of the spectrum. This situation will very soon change and the entire banking system in the country will be technology driven. This is evident from the fact that almost all the banks have implemented / are implementing the core banking solution and are also offering Internet banking services. With the payment system in the country getting upgraded technologically, the intermediaries namely the Banking system will have to absorb technology in a big way. Further, competition in the industry, cutting edge technology based customer services and products, growing customer needs, RBI guidelines, guidelines issued by CVC and also the VRS offered by Banks are some of the factors that are driving all the players to computerize the operations quickly and effectively to reduce the transaction cost and maximize profits. Major efforts towards computerization in the banking industry started almost two decades ago.
Core Banking 2009 The stages of computerization in the banking industry may be classified as below: • ALPM branches • Partially computerized branches • Fully computerized branches • Centrally Computerized and Fully Networked Banks o Banks offering Internet Banking, o ATM /banking o Off-shore data processing Various Committees appointed by the Reserve Bank of India proactively encouraged introducing technology to enhance customer service in the banking industry. Simultaneously the Central Vigilance Commission also urged the banks to improve transparency in their operations by computerizing all their operations / business. These driving forces coupled with the need to bring down transaction costs and increase profitability forced banks to embrace technology in a big way. In the early 80s banks introduced Automated Ledger Posting Machines which was the genesis for introducing automation in banks. During the mid 1980s, banks computerized their operations on stand-alone computers for catering to the needs of the customers and at the same time improve the efficiency in the functioning of the branch. Through introduction of such a system, banks could render a particular service only at specified counters in the branch. For example, transactions relating to savings bank account or term deposits can be put through only at specific computers. Even though this marked the beginning of automation, it did not meet the expectations of the demands of the customers. However the branch functioning improved noticeably and the employees were exposed to the use of computers. In order to improve the customer service further, banks adopted the concept of ‗single window‘, which meant that the branches move over to a ‗client-server‘ environment. This led to networking within the branch and the branches were classified as ‗Totally Automated branch‘ (TBA) or ‗Partially Automated Branch‘ depending upon the extent of computerization of the various business areas of a branch functioning. A major thrust to networked computing came about with the entry of new private sector banks in the later part of 1990s, which were mandated by the RBI to be totally computerized and networked banks right from day one of their existence. These banks were able to offer anywhere / anytime banking and also offered multiple delivery channels in the form of ATM, Internet banking, Mobile banking etc thereby weaning away the clientele from the PSBs.
Core Banking 2009 Today, if banks want to survive in their business they need to cater to the demands of the customers who dictate to a great extent the service that banks are required to offer. Core Banking offers an ideal platform to meet the challenges in the financial industry. It is heartening to note that all banks, especially the PSBs, with their constraints and compulsions have been able to adapt to core banking technology smoothly.
Key Features of the System 24X7 Banking
As a result of implementing Core Banking, most of the facilities being offered by banks, are available to Customers 24 hours a day, 7 days a week. The transactions are performed using multiple channels such as ATMs, Internet Banking, Phone Banking and Mobile Banking. Further, the transactions using these delivery channels are updated in the CDC in real time. Anywhere Banking
Customers can avail of banking services across the branch and Channel network irrespective of location where their account is maintained. Integration with strategic sectors
Core Banking integrates all strategic sectors of Banking such as Trade Finance, Treasury, Asset-Liability Management and Corporate Balance Sheet. As a result, the information related to these areas is centrally available for use or reference. Strengthening MIS, DSS and EIS
Core Banking Solution is more than just a transaction processing system. It provides updated data for generating various reports for Management Information System (MIS), and will facilitate Decision Support System (DSS) and Executive Information System (EIS). As data is located on CDC, branches and administrative offices can concurrently avail updated data when required. Business Process Re-engineering (BPR) - enabler
Core Banking would enable implementation of BPR initiatives of a Bank and facilitate centralized handling of various processes. Branches would do less and less back office work and would be able to focus on marketing, customer relationship management and cross selling.
Core Banking 2009 Components of CBS Major components of a core banking solution are: Data centre Network connectivity CBS application software Hardware at branch and data centre Delivery channels Disaster recovery site A strong business continuity plan
CBS Architecture In the CBS set-up, all the servers are hosted at a central place called the data centre. Data centre can also be outsourced. The data centre should have high end infrastructure in the form of robust access control, 100% fire-proof, Non-stop power supply, AC, reliable connectivity and high speed internet facility etc. The generic architecture is a three tiered architecture as shown below: CBS runs on the WAN. The central server is located at the Data centre. Generally there is no application running at the aggregation points. However, the aggregation points will be having the network components. Branches have a branch server which acts as a gateway to the branch. To this branch server various nodes of the branch are connected.
Core Banking 2009 The system architecture is generally as follows:
(Please note: The set up as explained in the diagrams above are general in nature and many banks have implemented CBS in this way. However a different architecture may also be implemented by some banks as dictated by the application deployed).
The connectivity architecture could be different for different institutions depending upon the technology adopted and the connectivity service chosen. Generally banks have a generic Wide Area Network Design as depicted below:
Core Banking 2009
Branch Aggregation Point Branch
Branch Data Centre
Leased Line / MPLS – VPN* etc
Aggregation Point Branch
Branch Aggregation Point Branch
* MPLS – VPN = Multi-protocol label Switching – Virtual Private Network As shown above branches could be connected to a common point called the aggregation point (which could be the circle / Zonal / Regional / Divisional Offices of the bank). The aggregation points in turn will be connected to the data centre. The primary medium of connectivity could be Leased lines and ISDN (Integrated Services Digital Network) lines will act as the backup. Transactions after being recorded at the data centre are simultaneously passed on to the backup / DR site. Remote trouble shooting capability is also available in the data centre besides the network monitoring software at the data center to monitor connectivity. System software, RDBMS, Anti-Virus as well as data centre make up the core of the CBS. Data centre will generally have a backup site with full replication of hardware, software, Network components and personnel.
Core Banking 2009
Concepts regarding Core Banking Solutions Is the concept a novel one?
No this concept came into existence somewhere in 1980‘s but till recently it was in its budding ages, but with technological advancements in all fields this concept is also grooming and adding more and more features to itself. Why the inception in INDIA so late?
There are many reasons for the late inception of CBS in INDIA, some of them being Indian banks were not interested in going for it. Required technology for adopting CBS was absent. The competition prior globalization was not that of present level.
What are the application areas of core banking?
Required computer software is developed to perform core operations of banking like Balance of payments and withdrawal are done. Mobile banking Internet banking ATM‘s Recording of transactions Passbook maintenance Interest calculations on loans and deposits Customer records
This software is installed at different branches of bank and then interconnected by means of communication lines like telephones, satellite, internet etc. It allows the user (customers) to operate accounts from any branch if it has installed core banking solutions. This new platform has changed the way banks are working. Now many advanced features like regulatory requirements and other specialised services like
Core Banking 2009 share (stock) trading are being provided. Core banking solutions are very helpful to SME industries. What all banks are using it?
Most of the nationalized banks in India for example: State Bank of India, Punjab National Bank, Allahabad Bank, HDFC, ICICI Bank today supports core banking. As of 2007, many Cooperative banks in India such as REPCO Bank, Jain Urban Cooperative Bank, Kangra Central Cooperative Bank, Udaipur Urban Cooperative Bank, Kollam District Cooperative Bank, Kerala State Cooperative and Panchsheel Mercantile Cooperative Bank have started to use and offer centralized Core Banking too. Some of the Cooperative banks and RRBs are yet not having CBS, but they are on their way to go for CBS and very soon they will also be under the roof of the umbrella of Core Banking Solution. What are the Standard Software tools?
Some of the standard software tools that many banks are using these days are Intellect Suite from POLARIS
Flexcube from iFlex Solutions
Finacle from Infosys B@ncs from TATA Consultancy Services
What is the need of Core Banking Solutions? The need for such a solution does not arise just because of one reason or the other but it requires a combination of driving forces to come into existence. Some of these forces being-
Core Banking 2009
To meet the intense competition and changing market dynamics in an over banked environment.
To meet the regulations and compliance requirements (example in order to meet the Basel II norms banks must enhance there IT infrastructure).
To meet the demands of customers who are better informed, more demanding and less loyal than ever.
To enhance efficiency and effectiveness.
Increasing customer satisfaction and convenience
Freeing up time for branch staff to focus on sales and marketing
Simplifying process for employees
Enhancing bank‘s competitiveness in the market
Improved process efficiency
―Shrinking margins, slow growth….‖ The challenges that confront today‘s banker are as intense as they are varied. And technology, the banker‘s trusted friend in the past few decades, has lately become an obstacle in the quest for market leadership. Stakeholders‘ expectations continue to be whetted by their positive experience in other industries like retail and travel, of how technology can make a difference. Satisfying such expectations requires that banks make their vital systems customer-centric, cross-channel capable, multilingual and process-oriented. Not doing so in the near term could prove to be a costly gamble.
Benefits to the branch, customer and the bank Benefits to the branch As the back office work is done at a centralized location, more time is
available to the branch officials for activities like product promotion, marketing, business expansion and cross selling of products.
Core Banking 2009 Single window service for the varied needs of the customers is made available at the branches. This enhances customer service at the branch There is a uniform approach to the branch rules / operations Branches can concentrate on developing business. Standardization of IT infrastructure at the branches. No End of Day (EOD) / Beginning of Day (BOD) process at the branch No local server and hence no local backup and other administrative chores
Benefits to customers Anywhere / anytime branch banking is available to the customers As multiple delivery channels are facilitated, Internet banking, online access
to all ATM network, tele-banking facility, bill payment facility etc are made available to the customers. Customer becomes customer of the bank Improved customer service at the branches No need to visit the branch as the multiple delivery channels enable the customer to transact basic banking even from the comfort of her home / office
Benefits to bank Instant availability of consistent and accurate data. MIS at a central location enhancing the decision support for the top
management. There will be effective control and monitoring by the top management. Data base and processing are centralized leading to better monitoring of the business and reduction in data cost and transaction cost. Faster introduction of customer centric products from the central location ensuring uniformity in implementation. Roll out of new products / Business changes can be implemented immediately New delivery channels can be integrated easily The need for reconciliation among the branches is eliminated thereby improving better housekeeping and better operational risk management Ease of system administration and thereby reduction in support costs. Information system security is ensured as the Information processing facility is centralized.
Core Banking 2009 Since the transactional as well as master data of all the branches is available
at a centralized location, it is easy to set up Data-warehousing which will provide a decision support system. Critical nationwide payment system products introduced by the regulator such as RTGS, NDS, CFMS, and SFMS etc can be implemented and integrated with the core banking at the data centre.
Risks involved in CBS There are also certain risks involved in the implementation of CBS. These are
All eggs are in a single basket and hence the effect of centralized failure will be colossal resulting in reputation risk for the bank. The dependence on vendors and service providers increases Data Integrity and data security have to be ensured all the time as the centralized location will be the target of all evil eyes. To be able to provide a reasonable level of comfort in this aspect, the security program of the banks will have to be dynamic and alive to the imponderables. Acceptance by the staff and changing their mind set to accept technology and a role shift will be a very big challenge for managements As the benefits outweigh the risks and as other major private sector banks started off from this platform coupled with competitive pressures and heightened customer expectations are forcing all banks today to adopt technology in a big way.
Core Banking 2009
Upgrading Core Banking: Its Drawbacks and Advantages Core banking functions include deposit accounts, loans, mortgages, and payments. These services are available through bank branches, ATMs, and websites. The use of real-time transaction processing has increased due to electronic clearing and transfer of payments. Old core applications designed for batch processing are not equipped to handle real-time transactions. The retail core system is the center of all banking operations. Not only have real-time transactions placed pressure on banks, but also old systems may be more complex and inflexible and thus more difficult to manage. This hinders the growth of banks, especially older banks. Therefore, upgrading core banking systems is an urgent need. Foreign banks, small and mid-sized banks, and credit unions find it easier to bring about changes to their retail core deposit systems. Smaller banks with new systems and greater flexibility have become tough competition for large banks. In many U.S. banks, retail core processing systems are becoming more and more difficult to manage, and financial institutions are under tremendous pressure to upgrade their old systems. This is especially common in older banks, where the systems are less flexible and thus limit the banks‘ operations and growth. Larger banks tend to resist implementing changes and upgrading existing systems for a variety of reasons. They may fear anticipated problems resulting from transitions from old to new systems. The risks associated with transitions can create inconvenience for existing customers, which may affect institutions‘ reputations. Also, the costs of upgrading core processing systems are considerable for large banks. Some banks feel they cannot justify the large expenditures to their shareholders despite the fact that a number of banks currently spend nearly 50% of the cost of upgrading their core systems every year to maintain old systems.
Core Banking 2009 It is widely accepted that under older systems, bank workers spend considerable amounts of time attending to customer-related back-office activities and less time on face-to-face customer interactions. Bank workers are also aware that core banking systems need improvement to increase efficiency and cut operating costs. Upgrading retail core processing systems is beneficial, as it integrates all of the functions of the bank. Some of its advantages include: Substantial reduction of operation costs Easier introduction of new products Faster customer service Integration of all products and services, leading to improved risk
management Real-time transaction processing Scaling up of operations Availability of e-trade options to bank customers Efficient and easy transactions which can be conducted 24/7.
A number of established vendors supply core banking solutions. They help banks upgrade to new core processing systems. These vendors are continuously developing and improving products to meet the demands of the market. Overview of Core Banking Solutions and their providers
Package
Provider
Alnova Financial Solutions
Accenture / Alnova
Bancs
TCS
Core Banking 2009 BANKMILL
MINDMILL SOFTWARE LTD
Bankway
Metavante
Corebank
Fidelity National Financial
Core Banking
SAP AG
Finacle
Infosys
FLEXCUBE
Oracle Financial Services Software
Hogan
CSC
Intellect Core
Polaris software Labs Ltd
OMNI Enterprise
InfrasoftTech
Profile
Fidelity National Financial
Signature
Fiserv
Systematics
Fidelity National Financial
T24
Temenos Group
Laser Panacea
Laser Soft
Core Banking 2009
Key Challenges in Core Banking Replacement I.
Survival of the Transformed Core banking replacement has, for long, been considered a strict no-no by
banks. Established comfort level with existing technologies and processes, relatively comfortable margins that provided the luxury of overlooking operational inefficiencies, and finally, the fear of the unknown, have all ensured that banks steered clear of this subject. But the current competitive environment with increasingly demanding customers is forcing banks to take a reality check on their technology environment and ensure that their IT strategy is aligned to their business objectives. And core banking replacement is often the only solution to their problems. However, replacement of core banking solutions be it for large or small banks, global or regional is akin to a heart transplant. This can be one of the greatest challenges for any institution, which can either result in the bank leapfrogging to a high degree of differentiation and an enriched customer value proposition, or it can create considerable risks for the bank if the transition is not managed properly. A core banking solution, once implemented, should be robust, scalable and future-proof and serve the business interest for at least 10 years.
II.
Key Challenges Banks need to focus on key factors, which make the core banking
transformation a successful experience. Broadly speaking, the key challenges in core banking transformation are: 1. Vendor capabilities and credentials 2. Dependence on legacy/vendor applications and impact on envisioned technology architecture 3. Bank‘s business goals and alignment to leverage the new technology
Core Banking 2009 1. Vendor Capabilities and Credentials Transforming a bank‘s core systems is a strategic decision that has far reaching implications on the bank‘s future business strategies and success. The various aspects that need to be considered include: a) Financial Stability Financial strength and business continuity are the most important attributes for evaluating any vendor. Typically, payback for most core banking replacements could take anywhere around four-five years, even for rapidly growing institutions. Transforming core banking systems bring with them associated changes to operating processes, surround systems, interfaces, hardware and network configurations, coupled with the re-skilling and redeployment of people. The Total Cost of Ownership (TCO), keeping in mind all these factors, would be quite significant, even for small institutions. Hence, a core banking solution, once implemented, should be robust, scalable and future proof and serve the business interest for at least 10 years. This is why the longterm viability of the vendor assumes critical significance. b) Vendor‘s commitment to the business Apart from financial viability, the vendor‘s commitment to the financial solutions business is crucial. Banks must gauge the vendor‘s ability and intent to commit finance, resourcing and infrastructure to continuously enrich their solution offering to meet contemporary banking requirements. Some of the criteria could be the number of customer sites across the globe, profile of client banks, contribution of the financial solutions business to vendor revenues, track record, as well as vendor‘s investment in the core banking space.
c) Vendor‘s domain and technology competence Continuing with legacy technology and outdated banking practices and processes will sound the death-knell for most solution providers and, in turn, severely impact the client bank‘s capability to survive and flourish in an increasingly dynamic business environment. A few factors that merit attention are:
Core Banking 2009
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 to facilitate seamless working with surrounding systems and delivery channels, straight-through processing capability and offers real time information to its stakeholders and customers?
Is the technology stable and user-friendly? Typically, minor modifications should be handled with minimal vendor intervention, and without compromising on the solution architecture. Further, the solution should be scalable enough to handle projected business volumes without compromising on response times or consuming substantial resources.
Does the vendor have a clear roadmap for ongoing research, development, upgrade and support?
Does the vendor have the requisite quality and number of trained, experienced personnel to work on the technology platform to ensure business continuity as well as business transformation?
d)
Vendor‘s deployment capabilities
For a vendor, developing and marketing the solution to banks is only part of the job. The critical aspect is ensuring a smooth transition to the new system and empowering the bank to leverage its capabilities. The vendor should provide a robust delivery and support platform to manage ongoing business requirements and crisis, within acceptable response times. The main areas that require focus are: Does the vendor have a proven and properly documented implementation methodology? Is the implementation methodology designed to ensure proper training, documentation and user empowerment to enable the bank‘s personnel to deploy the solution across their businesses with minimal recourse to the vendor? Has the vendor implemented the solution in the bank‘s geography and for banks of a similar profile? Also, what is the implementation track record in terms of success rates, adherence to budgets, timelines and delivery commitments? Does the vendor have a well-thought through, multi-layered support strategy (both person based and interactive i.e. web-based with a rich data
Core Banking 2009 bank and global best practices) to adhere to stipulated SLAs and ensure best-in class customer service standards?
2. Dependence on Legacy/Vendor Applications Often, the biggest impediment to a smooth implementation is the migration path from the old to the new. This is further compounded in case of migration from a legacy third party application as compared to that from a manual or proprietary solution. This is because of the dependence on the legacy solution provider to enable proper migration of data. The process also exposes the interfaces deployed and requires changing workflows and procedures to best leverage the new solution‘s capabilities. The key challenges to be understood and overcome are: a) Data migration This is an extremely critical and at times a painful phase during the implementation process. It entails a complete understanding of the data structures in the existing system, a one-to-one mapping with the relevant fields in the new system, identifying gaps in the data, enriching the same (remember, a core banking solution can only process what is fed into it — garbage in is garbage out!) and finally, migrating the complete data to the new system. This has considerable dependencies on the existing IT teams in the bank as well as the incumbent and new vendor to ensure a smooth cutover. b) Understanding the prevalent systems and interfaces deployed Proper analysis is required to understand which of these would continue to exist in the revised architecture and, if so, the linkages with the new core banking system. c) Understanding the functioning of the legacy environment This is required to enable modification and streamlining processes and workflows to achieve desired business objectives with greater operational efficiencies. d) Configuring the new architecture The new architecture needs to be configured with the objective of eliminating functional redundancies and achieving STP. It should provide banks the flexibility to quickly devise new products and services, ranging from plain vanilla to exotic high-end structured products, tailored to individual markets and segments.
Core Banking 2009 3. Bank‘s Business Goals This is probably the single most important factor that will determine the success of the implementation and the extent to which the bank leverages the new technology to achieve its stated imperatives. The critical considerations are: a) Expectations management Stakeholders at different levels usually have differing expectations from the solution. A Chief Information Officer (CIO) will expect a well integrated operating environment and a low TCO, a marketing manager the flexibility to design and roll out new products, whereas a Chief Operation Officer (COO) would be more concerned with streamlined, straight through processes and minimal operating risk. It is critical to have complete clarity on the desired outcomes from the transformation. Knowledge and understanding of local practices, regulations, cultural and lingual issues is also important. The biggest impediment to a smooth implementation is the migration path from the old to the new. This is further compounded in case of migration from a legacy third party application as compared to that from a manual or a proprietary solution. b) Finalization of the scope and the timelines This should be driven purely by business imperatives and the bank‘s ability to commit resources (people, finance, and infrastructure) to the project. Based on this, the bank can opt for a variety of approaches like:
‗Big Bang‘ approach: All branches and lines of business going live simultaneously. ‗Phased Pilot‘ approach: The solution is first implemented at few preselected, pilot locations and finally rolled out across the bank. ‗Line of Business (LOB)‘-based approach: The bank identifies one/multiple lines of business (e.g. treasury, loans etc.) where the solution is first implemented in the chosen line of business.
Each of these approaches has its own advantages and drawbacks. The Big Bang approach will result in faster implementation cycles, greater visibility and stakeholder interest levels. On the other side, it calls for considerably higher resourcing on the part of the bank as well as the vendor, and much lower error tolerance levels — there are no second chances. A ‘Phased Pilot’ approach enables the bank to get a first-hand feel of the solution in a smaller space and affords the opportunity t identify lacunae, incorporate learning, and ensure a better fit to business requirements, enhancing the probability of a successful implementation. This is usually the preferred approach for large, complex
Core Banking 2009 deployments. The major downside would be longer implementation cycles, resulting in a longer payback, and, at times, a re-negotiation of the scope of the project. The LOB approach allows the bank the flexibility of migrating solutions as per the maturity and readiness levels of the individual businesses with little impact on other business units. However, this may again create siloed structures with disparate customer information, different workflows and inhibit the bank from deriving the complete benefit of the new technology, banking implementation, resulting in reprioritization, budget and time overruns, and quite often, a high degree of disillusionment and a feeling of being let down by the new technology. c) Empowerment There should be sufficient empowerment at the core and operating team level to enable them to champion the transformation across all stakeholders in the bank. d) Change management and ownership issues This occurs primarily due to a ‗top-down‘ approach in identifying the business objectives as well as inadequate and improper communication of the change drivers and resultant business benefits. It is important to ensure complete buy-in across all stakeholders and address concerns that the bank‘s personnel may face, on account of re-organization, rescaling needs, change in operating practices and fear of redundancy. Clear, timely and relevant communication across all levels is essential. e) Midway changes through the project This is one of the biggest risks in any core banking implementation, resulting in reprioritization, budget and time overruns, and quite often, a high degree of disillusionment and a feeling of being let down by the new technology. f) Resource availability Timely availability of adequate skilled resources and infrastructure such as hardware and network is required. This goes a long way in ensuring a smooth transition within the timelines targeted by the bank.
III.
Finally…
While the advent of state-of-the-art technologies and global best practices undoubtedly offer improved agility, efficiency, CRM capability and faster implementation cycles, banks need to be mindful of the challenges associated with core banking deployments. These challenges, once understood and
Core Banking 2009 mitigated properly, are perfectly manageable. All the same, banks must appreciate that technology is an enabler and not a panacea. As history indicates, successful banks are those that have understood the potential of new technologies and aligned themselves to fully leverage its power. These are banks that have focused on the adaptive change that made the technology transformation process successful.
Current Problems with Core Banking System Other
8%
Errors In Operations
5%
Availability
9%
Errors In Data
7%
Scalability
12%
Erroros In Processing
11%
Timing Problems
13%
Technology
14%
Simplification
23%
Integration
47%
Cost
47%
Flexibility
70% 0%
10%
20%
30%
40%
50%
60%
70%
Percentage of executives citing area as problem
80%
Core Banking 2009
CONCLUSION As core banking system gather momentum worldwide, the small and large banks are starting to adopt SOA-based strategies to ensure that they put in place an agile banking platform for the future. Most companies are increasingly recognized as having the mission-critical credentials to provide the platform of choice for a new generation of banking enterprise services that will complement their multi-channel collaborative and communications technologies and help ensure that banks realize a better vision.
BIBLIOGRAPHY The data has been collected from various sources and analysed manually before interpretation. The sources include various websites like: www.microsoft.com/industry/financialservices/banking/about.mspx#EEG http://en.wikipedia.org/wiki/Core_banking www.infosys.com/finacle
