1. 1/22/16, 2:30 PMIBS Intelligence - Blog: Banking is a battlefield
Page 1 of 4http://www.ibsintelligence.blogspot.co.uk/2016/01/banking-is-battlefield.html
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Friday, 22 January 2016
Banking is a battlefield
For$anyone$who$wasn’t$around$for
the$80s,$any$karaoke$bar
experience$virtually$guarantees
that$the$Pat$Benatar$tune$'Love$is
a$BaAlefield'$comes$to$mind$when
anything$is$called$a$'baAlefield':
banking$included.
Sad$thing$is,$when$it$comes$to$core
banking$systems,$legacy$status$means
any$claim$of$'we$are$young,$we$are$strong,$no$one$can$tell$us$we’re$wrong'$is
laughable$at$best,$an$uAer$lie$at$worst.
My$recent$post$in$American$Banker’s$BankThink$argues$that$a$legacy$is$something
one$leaves$behind.$And$here,$I$assert$that$cleaving$anKquated$cores$is$the$only
sound$strategy;$keeping$legacy$core$systems$gives$only$a$hollow$and$Pyrrhic$victory
at$best.
Most$banks$are$bound$to$legacy$systems,$where$data$is$siloed$and$moving$data
between$those$silos$obstructed.$Data$sKcks$together$like$any$good$baAalion,$and
banks$have$built$layers$upon$layers$onto$those$legacy$cores$to$support$mobile$and
digital$channels,$but$that$data$sKll$remains$rank$and$file,$bound$by$business$line
silos.$Result:$no$full$view$of$customer$needs,$poor$customer$experiences,$no
champions$for$customer$hearts$and$wallet$share.
TAKING'AIM'AT'INFLEXIBLE'LEGACY'SYSTEMS
Guerrilla$style$market$wars,$though,$are$quickly$becoming$the$norm.$Going$up
against$new$challenger$banks$like$Starling,$Atom,$Fidor,
Monese,$Mondo$and$Secco$requires$a$nimbleness$on$the$baAlefield,$and$a$set$of
tools$in$the$arsenal$with$names$like$innovaKon,$flexibility,$realRKme,$speedRtoR
market,$allRdigital.$
Modern$core$systems$are$architected$to$be$open,$flexible,$and$let$data$move
instantly$and$ubiquitously.$TradiKonally$siloed$business$lines$now$flood$data$that
help$the$nimble$neobanks$build$connecKons$with$customers$through
personalizaKon,$nuanced$pricing,$and$faster$customer$service$resoluKon.
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2. 1/22/16, 2:30 PMIBS Intelligence - Blog: Banking is a battlefield
Page 2 of 4http://www.ibsintelligence.blogspot.co.uk/2016/01/banking-is-battlefield.html
Legacy$systems$are$fundamentally$incapable$of$keeping$those$tools$sharp,$let$alone
ready$to$wield.
RALLYING'THE'BANKING'BATTLE'CRY
To$date,$U.S.$banks$have$had$a$regulatory$moat$protecKng$their$territory,$but$the
baAle$cry$hasn’t$gone$ignored,$and$American$customers$are$also$demanding$beAer
services,$products,$and$experiences$from$their$banks.$Here’s$where$a$good$offense
is$the$best$defense$when$it$comes$to$encroaching$digital$challengers,$and$American
banks$should$study$the$U.K.$market$for$clues$to$drawing$up$aAack$plans.
The$basKon$of$legacy$technology$invites$problems:$recent$failures
from$Westpac,$HSBC,$NatWest,$and$SunGard$prove$this.$When$the$enKre
foundaKon$of$the$technology$supporKng$the$bank$is$old,$creaking,$prone$to$failure,
inhibits$innovaKon$offerings,$and$leaks$revenue,$it’s$Kme$to$stop$debaKng$the$merit
of$upgrading$or$enhancing$core$systems;$it’s$Kme$to$act.
The$high$risk$of$a$core$replacement$project$is$well$documented;
industry$skepKcism$for$replacement$ROI$is$also$high.$But$new$strategies$have
emerged$that$address$miKgaKng$the$risk$of$a$ripRandRreplace$approach$–$all$of
which$first$and$foremost$address$what$the$definiKon$of$a$core$system$ought$to$be.
Reduced$to$its$most$basic$funcKonality,$a$core$system$is$a$record$keeper$for
transacKons,$updater$of$the$General$Ledger,$and$manager$of$balances.$But$industry
and$customer$demands$have$put$the$onus$on$core$systems$to$be$all$things$to$all
people,$and$over$the$last$20$years$core$providers$have$tried,$unsuccessfully,$to
meet$that$demand.$In$a$recent$post,$banking$systems$analyst$MarKn
Whybrow$predicted$that$core$soluKons$that$componenKse$their$systems$will$see
those$component$markets$invaded$by$new$niche$suppliers,$because$a$single$core
panacea$offering$is,$well,$rather$mindRbogglingly$complex$and$unlikely.
One$core$upgrade$risk$miKgaKon$strategy$is$to$layer$nonRcore$API$funcKonality$onto
the$base$core.$The$Open$Bank$Project$and$even$regulaKon$such$as$PSD2$have
supported$the$adopKon$of$alternaKves$to$hardRcoded$(limited)$core$funcKonality,
especially$when$those$products$and$applicaKons$are$in$such$demand$by$the$end
customer.
Challenger$banks’$core$systems$are$architected$from$scratch$to$componenKse
funcKonality$outside$of$the$tradiKonal$core$system:$no$longer$is$every$product
managed$and$priced$from$the$core$where$any$product$change$requires$a$team$of
coders$to$make$updates$in$mulKple$systems$before$the$new$aAribute,$term,$or
price$can$go$into$effect.$Private$comments$from$banks$confirm$the$lengthy
campaign:$500$days$to$make$a$single$price$change.
Due$to$the$absence$of$silos,$the$magnified$data$aggregaKon$also$translates$into$a
sharpened$pricing.$Pricing$opKmisaKon$becomes$a$rapier$weapon,$and$miKgates
the$downward$pressure$on$margins,$both$from$diminishing$fee$returns$(the$new
cap$on$interchange$fees$for$card$payments$in$Europe$being$the$most$recent
example,$and$in$the$US$conKnued$pressure$to$revisit$DoddRFrank,$and$repeal$the
Durbin$amendment),$and$compeKKve$offerings$from$new$entrants.
This$componenKsed$funcKonality$means$the$core$does$what$it$does$best:$it$credits
or$debits$the$general$ledger$(GL).$The$components$do$what$they$do$best:$manage
products,$facilitate$pricing$opKmisaKon,$aggregate$business$intelligence,$facilitate
analyKcs,$process$payments,$and$support$digital$channels.$It$also$means$the
operaKonal,$KmeRconsuming$burden$of$perpetual$core$updates$is$eliminated.$The
core$baAalion$remains$strong,$but$guerilla$groups$are$responsive,$flexible,$nimble.
Response$to$customer$demand$can$be$swic.$CompeKKve$relevance$is$restored.
Core$modernisaKon$does$not$necessarily$dictate$a$replacement,$but$it$does
demand$extracKng$funcKonality$–$like$pricing$–$outside$of$the$legacy$core.$Even$in
fullRfledged$core$replacements,$American$banks$can$approach$a$system$overhaul$by
creaKng$that$external$funcKonality$as$the$first$step$in$a$core$migraKon$path,$gaining
flexibility$right$from$the$start.
The$industry$has$recognised$that$the$old$definiKon$of$a$core$system$should$be$just
that:$a$legacy$lec$behind.$By$reRscoping$and$redefining$what$a$bank$core$system
can$and$should$be,$harnessing$technology$as$modern$tools$–$even$as$weapons$in
the$baAle$for$wallet$share$and$customer$loyalty$–$banks$can$shed$the$mantel$of
anKquated,$strengthen$their$services,$and$head$in$the$right$direcKon.$It’s$a
baAlefield$out$there.$It’s$Kme$to$revamp$the$arsenal.
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Banking is a battlefield
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3. 1/22/16, 2:30 PMIBS Intelligence - Blog: Banking is a battlefield
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4. 1/22/16, 2:30 PMIBS Intelligence - Blog: Banking is a battlefield
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