We manufacture software products for banks. Therefore, integration with other IT systems is part of our project work. A replacement of the core banking system – a fundamental part of banking IT – and the associated changes are not an everyday occurrence for our customers. One of our customers is currently switching to a new core banking system. We will show you the challenges for the surrounding systems and how we deal with them.
Background
There are many reasons why a bank wants to change its core banking system. Banks must modernize their IT to be more efficient and to comply with regulations. Changing the core banking system is one of the largest IT projects for a bank. This gives rise to two uncertainties: 1) about the success of the implementation, i.e. will the project be completed on time, within budget and as envisaged; 2) about the long-term return on the large investment. It is important to reduce these risks.
It is even more exciting when one of our customers does it. It is tense because the technical and human complexity is growing owing to increasing regulatory requirements. If bank operations are interrupted, the topic is also discussed in the media (e.g. FAZ/Paywall). It is particularly stimulating for us because we have a lot to do. Core banking system is a fundamental part of banking IT. It is connected to numerous other systems. We get involved very quickly because of our expertise in the integration of other IT systems with our CRM and credit applications. This article shows the biggest challenges and how we deal with them.
Challanges
The change of the core banking system goes together with efforts to modernize and harmonize banking IT. The critical issue is not the will to invest or the availability of new technologies, but the existing IT architecture. Therefore, it is so essential that the bank has a thorough understanding of its current system.
The pressure on return from such a project must not be underestimated. Boards of directors are often replaced when major IT projects fail (e.g. Handelsblatt/Paywall). Any meaningful assessment of such projects must include the total operating costs. Such an assessment has its own challenges and many strategic elements.
❉ Technological complexity: Core banking systems have often grown over decades and consist of many interconnected components. Existing systems’ interfaces are often not clearly defined. They retrieve data from the database, add new content using business logic, or perform other unexpected functions. Planning and coordination are necessary to ensure that all parts work together.
🕕 Time planning: These structures cause gaps in the knowledge of the interfaces to the surrounding systems. This lack of knowledge, coupled with a lack of IT specialists within the bank, makes the change difficult. Estimates become unreliable and only allow for time planning with large safety margins. This can lead to problems because deadlines on switching off the old systems.
💸 Business case planning: A business case for a core banking system is complex. There are license and manufacturing costs. Migration and integration are additional cost drivers. The goals are reduction of the total operating costs, but also innovation and modernization (and the associated compliance and security). The challenge is to make all the requirements clear and measurable.
🌈 Future flexibility: We see innovation capability as the ability to foresee changes and react as quickly as possible. Core banking systems are not known for being particularly flexible and innovative. This is good for us. The challenge is to create the boundaries of the system in such a way that the IT architecture can be adapted when the conditions (including the strategy) change.
Approach
Mastering challenges requires classic project management. Good communication and expectation management are important. These subjects require cooperation of the bank’s and the suppliers’ personnel. Once these foundations have been created, the following points are crucial for the approach:
- Discuss expectations: The customers certainly did not take their decision lightly. Therefore, the expectations of the project must be clearly discussed with everyone involved. What do we expect from the changeover and the new system? What were the new system selection criteria? A system that is implemented quickly will not necessarily be the most innovative or, in retrospect, the most cost effective.
- Know and get to know interfaces: Surrounding systems are very important for a core banking system. You must know which data are delivered to the system and which are dependent on it. That sounds simple if the IT architecture is transparent. However, when a core banking system has grown over time, it is different. We must know which application is the data leader and therefore has control. This question is not easy to answer for a provider of CRM and credit software. It usually depends on historical developments, architectural decisions and on costs.
- Break down the project: It is difficult to have an overview of large projects. Many banks do not want to switch comprehensively but prefer to do it step by step. The switch can be separated from the parameterization and the connection of the interfaces. When using a service-oriented architecture, the business processes behind it should also be prioritized. Which applications have an impact on customers and the supervisory authority? Which of them can go live later? Prioritization and sequential processing often make sense.
- Remain flexible: With large projects, one must expect the unexpected. We see that with large projects. With all the expertise that we have, we might face new or bigger problems. For us, agility means regularly reviewing our plans and modifying them in consultation with the customer, if necessary. We and our customers must decide what is most important.
Conclusion
In most cases, replacing the core banking system has a significant impact on the surrounding systems. The biggest challenges in implementation are the technical complexity and the difficulty of planning all the influencing factors. In addition, the long-term return expectations do not make planning and the demands on it any easier. One starts with a well-planned approach, in which expectations, interfaces and sub-steps are clear. After that it is a matter of remaining flexible.
We trust that our customer and everyone involved is well prepared and that the changeover in mid-October will be as seamless as possible and that the end customers will not notice anything. We are interested in your experiences. Please, feel free to comment below or send us a message.
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