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Core Banking Transformation: Solutions to Standardize Processes and Cut Costs


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IBM Banking Industry Framework for Core Banking Transformation (CBTF) has many assets, tools, methods and accelerators to help banks standardize and link core processes seamlessly and reduce point-to-point interfaces to cut cost and complexity.

Published in: Economy & Finance

Core Banking Transformation: Solutions to Standardize Processes and Cut Costs

  1. 1. Saket Sinha – Global Core Banking Framework Leader August 2010 Core Banking Transformation © 2010 IBM Corporation
  2. 2. Building a smarter planet There are dramatic forces of change across financial institutions Economy Trust Competition Regulation Clients Capitalization 2 © 2010 IBM Corporation
  3. 3. Building a smarter planet Core banking systems today are outdated, expensive to maintain, inflexible and unable to support growth and innovation Cannot support complex, Cannot accommodate BANKS’ DISSATISFACTION new and more complex highly interdependent WITH CURRENT CORE products and relationships risk management SYSTEMS’ ABILITIES frameworks Customer Data 43% Analysis Do not provide multi- Do not provide the dimensional customer views necessary information New Product 40% or management information Time to Market required for today’s banking control environment Efficiency 40% and Cost Are inflexible due to reliance Do not support an efficient on old technologies, single- Integration With 29% and flexible environment purpose design and high Other Systems leading to higher cost of customization Incorporating maintenance Regulatory 33% Requirements Require a lengthy Do not integrate easily development period to 0% 10% 20% 30% 40% 50% with new applications, introduce and support % DISSATISFIED third-party packages and new products other IT assets Source: IBM Institute of Business Value 3 © 2010 IBM Corporation
  4. 4. Building a smarter planet Banks have began to realize the importance of Core Banking Transformation Core Banking IT Spend Analysis  Complexity in core banking Complexities of core banking system can result in almost system can almost add ~30%-40% to 30%-40% overhead on the the operating cost total operating cost of the bank Non IT Spend  Old legacy core banking ~95% Discre- systems almost Consume 90% ~10% tionary Total Operat- Other IT Spend of core banking spend ~50%spend ing Cost  Siloed and fragmented architecture of the old systems ~50%Core ~90% BAU results in around 20% revenue Banking Spend ~5% IT Spend leakage through the door Spend Source Datamonitor Group, Forrester and IBM Client analysis 4 © 2010 IBM Corporation
  5. 5. Building a smarter planet Today’s banks are looking to grow top-line revenue by deepening customer relationships Yet they also need to reduce costs in response to increasing margin pressures. The solution? Re-architected core systems that can capture and analyze the data generated by every transaction—continuously providing the insights to drive new products and services and to increase efficiency throughout the enterprise. 5 © 2010 IBM Corporation
  6. 6. Building a smarter planet Core Banking transformation has three key control points. Architecture led approaches have proven to be more successful in the past Define Determine appropriate Make application Architecture-led architecture first platform based on decisions based on architecture decisions architecture 1. Architecture 2. Platform 3. Applications Traditional Operating System Package (Based on Legacy architecture, e.g.. CICS/ & & or or COBOL) Database Custom or or & & or or Next Generation Middleware Service (Based on new technologies; open architecture) & & or or Programming A Hybrid Model model Progressive transformation: Framework and/or ISV Core IBM’s Banking Industry Dynamic Infrastructure & Banking transformation Framework for Core Banking z/Platform Growth Framework / ISV Strategy Transformation Architecture largely Make platform Select package Package-led defined by package decisions based on applications selected package selected 6 © 2010 IBM Corporation
  7. 7. Building a smarter planet IBM core banking transformation approach is based on progressive renovation— Helps to modernize existing assets with a well defined transformational roadmap  Step orderly approach Traditional vs. progressive approach that can be paced up and down Traditional Replacement Project  De-risks implementation Market Requirements Progressive Transformation  Change for course possible if the market Market gap factor changes  Allows banks to pace the investment Months to Realize ROI  Focuses on architecture first before applications 7 © 2010 IBM Corporation
  8. 8. Building a smarter planet IBM’s approach provides multiple entry points to banks to pursue transformation of their core banking systems High Progressive Renovation Objectives x 1. Quick Fixes 2. Application 3. Enterprise 4. Operating model Modernization Architecture Transformation Cost X’ Modernization Business Transformation Focus Change The operating model and the way we do Business Volume 1. Quick Fixes 2. Application 3. Enterprise Modernization Architecture Modernization Degree of Strategy & Architecture Focus Complexity 1. Quick Fixes 2. Application Modernization x Application Area Focus X’ Different entry points Reduce for progressive Cost FTE, minimize 1. Quick Fixes renovation overlap, improve control Tactical Focus Volume 8 Low Time © 2010 IBM Corporation
  9. 9. Building a smarter planet IBM’s progressive renovation focuses on  Transformational Planning  Foundational Architecture  Legacy Modernization  New Capability Development  Package Implementation  Execution based on industrialized factory concepts  Governance and change control 9 © 2010 IBM Corporation
  10. 10. Building a smarter planet What Are The Objectives of Progressive Modernization? Legacy World Progressive Modernization Modernized World Step By Step Modernization Green Screens (COBOL to JAVA AND/OR COBOL) GUI Screens • Business Domain By Business Domain Monolithic Applications • Application By Application Modular Application • User Interface Constructs Inflexible Architecture • Multi-Channel Reusable Business Multiple Point to Point • Application Architecture • Integration Services via ESB Interfaces At Application & Data • Data Modular & Flexible Levels • Governance Architecture Embedded Business Develop new capabilities in Message Broker Rules modernized world Mediated Interfaces • New Development to meet Embedded Data Access business requirements Exposed Business Rules Logics That Are Re-Usable Migrate existing capabilities into Across Applications new environment • Code conversion Integrated Data View • Data Conversion • High Cost of Maintenance • Application Retrofit • Lower Cost of Maintenance • Higher Operating Cost • Lower Operating Cost • High Time to Market Harvest existing capabilities • Lower Time to Market • Business Inflexibility from legacy environment • Improved Business Flexibility • Poor Efficiency & Productivity • Embedded business logics • Higher Efficiency & Productivity • Reduced Ability to boost & business rules • Significant Ability to boost revenue & Growth • Product Engines revenue & Growth 10 • Data models © 2010 IBM Corporation
  11. 11. Building a smarter planet IBM’s Banking Industry Framework A combination of assets, tools, accelerators, methods and software products that help banks modernize and run their core banking systems 1. Process, data, & service Models 2. Master data templates for customer, product and contract master Core Banking 3. Solution templates for overarching banking processes e.g. account opening, product bundling etc. Transformation Analysis 4. Reusable service components to aid application build up & e.g. fees & charges, rate calculation etc. Design 5. Reporting templates and services for analytics 6. Common application level IT foundational services Integration 7. Integration message models Optimization 8. Legacy analysis & discovery tools Customer Analytics Payments 9. Architectural work products Care and Collaboration and Insight Security Securities 1. Integrated banking transformation workbench Resiliency 2. SOA service components development infrastructure Develop 3. Integration tools with support for mediation & transformation 4. Legacy extraction & transformation tools 5. Business rules development Integrated Risk 6. Integration tools for Master Data Management Management 1. Runtime infrastructure and software products Runtime 2. Banking extensions and bundles 3. System management tools The framework gives you speed, flexibility and choice in deploying solutions while reducing cost and risk! 11 © 2010 IBM Corporation
  12. 12. Building a smarter planet IBM’s Core Banking Transformation Framework offers key benefits Accelerates core system transformation while minimizing risk and disruption. Key Benefits: Core Banking  Faster deployment Transformation  Lower Risk Integration Infrastructure Transformation  Support for adoption of open Optimization Analytics & industry standards Collaboration Security Resiliency  Offer choice of business Process applications from IBM & its Agility partners Application Modernization  Simplified enterprise architecture 12 © 2010 IBM Corporation
  13. 13. Building a smarter planet Examples of framework assets and accelerators for Core Banking Transformation include  IFW  Services Components Building Blocks  Banking Data/ Message Model  Solution Templates  Banking Extensions  Banking Transformation for Master Data Workbench Management  Design Rules  Common Shared Services 13 © 2010 IBM Corporation
  14. 14. Building a smarter planet IBM’s Core Banking Transformation Framework enables banks to undertake one or more approaches to modernization based on strongest alignment of business needs with IT transformation efforts Facilitated by Framework Top Down Modernization Identify new “To Be” process models, service components Approaches & architectural constructs Implement Package Design “To Be” architecture Re-Write / Develop Modernized Strategic for modernization Banking Priorities Legacy Modernization Environment Determine how legacy can be Hybrid harvested and/or migrated to support “To Be” model 14 Bottom Up © 2010 IBM Corporation
  15. 15. Building a smarter planet IBM Core Banking Transformation Framework enables organizations to start with any solution and build upon it over time to achieve a simplified, strategic infrastructure 1 Chooseand project a 2 Build on previous 3 Achieve a value of the simplified, implement it projects, reusing strategic to achieve assets and infrastructure. immediate ROI. implementation patterns. 15 © 2010 IBM Corporation
  16. 16. Building a smarter planet Banks benefit from added speed, choice and flexibility, and the support of a vast IBM Business Partner network  Speed: Pre-configured solutions can be implemented faster than ever  Choice: Banks choose the solutions that provide the most value to them, in the order and at the pace that makes the most sense.  Flexibility: Techniques built on business process management and service-oriented architecture means easier deployment and interoperability of solutions.  Lower risk: Incremental projects, each with a defined payback period, are more easily scoped and implemented—and build on infrastructure deployed in previous phases.  Business Partner network: An array of powerful applications integrate seamlessly with IBM middleware. 16 © 2010 IBM Corporation