The Core & Beyond - A Tailor-Made Transformation
Replacing or keeping the legacy Core Banking System (CBS) is one of the most fundamental decisions for a financial institution to make. This strategic bet should be carefully evaluated, with three key aspects in mind: a clear view on the entire IT platform (wider than legacy CBS and its constraints), a strategic vision set within a specific time horizon, and the return on investment. For organizations with a burning platform, CBS replacement may be a necessity, but in many cases the real investment potential is located elsewhere – in areas such as data platforms, integration layers, portals, or process engines. This alternative approach leads to numerous non-trivial questions: Where does the value come from? Is legacy the real issue? Which areas to reinforce and in which order?
The Challenge
Rapidly changing customer demands are one of the manifestations of the digitized society. Nowadays, personalized and seamless multichannel services with ever shortening product development cycles are the new holy grail of banking. It takes a lot of mature business & IT capabilities to be able to chase such an ambition. Many would say, having a modern and flexible Core Banking System is a key to being future-ready. A large universal bank in Central Eastern Europe (CEE) was forced to make a fundamental decision on the future directions for their CBS, as the system license was getting close to its expiry date.
The management board was presented with two basic options: either prolonging the license for the existing system, knowing it is already a legacy solution, or replacing it. Regarding the existing legacy CBS, there were serious doubts about its reliability and future-readiness. Replacing it, however, was expected to trigger considerable cost, size, technical and organizational complexity, and risk. A further difficulty arose from the large variety of modern solutions and their specificities. The bank decided to bring in BCG Platinion to help evaluate possible approaches.
The Approach
At the start of the project, the team set aside the technical issues for a moment. Instead, they focused on the business strategy outlook. In close cooperation with the board, key growth vectors and underlying strategic aspirations were identified. Extensive focus was put on the trends currently shaping the financial industry, and the expected future limitations of the existing core.
At the same time, the team worked to define the perimeter of the core ecosystem itself, which expands far beyond the actual CBS. This is an important step for CBS replacement projects, as it provides an overview of which technologies and functions are performed within the actual core, and which are executed outside of it. Moreover, existing pain points hampering the bank’s development ambitions and their root causes were analyzed. Combining these two evaluations with an analysis of out-of-the-box offerings of leading CBS vendors and their usability potential with regard to the client, the team made its recommendation. The bank should not seek an immediate replacement, but redefine the role of the current CBS within its IT landscape instead. Efforts should be made to
- modernize the core ecosystem;
- address existing issues with the current platform, which root causes were mostly identified to be outside the CBS;
- build digital core capabilities in a streamlined and scalable manner.
The ultimate aim of this core transformation program was the building of a reliable and future-proof foundation for the client’s digitization journey.
The Impact
The management board decided to execute the recommendation and launched an extensive core banking transformation program along the proposed outline. This was publicly announced as one of the key pillars of the future strategy, getting the highest priority in the field of digital banking. This way, the client will be able to profit early on from technological innovations in that field.
Looking Into the Future
The streamlined, flexible, and scalable core architecture will significantly reduce the time-to-market for new products and services and improve the ability to connect with other enterprises to form partnerships for whole banking ecosystems. Therefore, the new core enables the client to offer an even more compelling and personalized banking experience to its customers. This in turn reinforces the bank’s aspiration to become a digital innovation leader.
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