Business Process Management for Successful Core Banking Implementations


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Banks must upgrade their business process management (BPM) systems for their core banking systems rapidly and seamlessly, sometimes retaining legacy systems but more often instituting new IT architectures. The four areas to focus on are human processes (and procedures), systems processes, business rules engines and business activity monitoring.

Business Process Management for Successful Core Banking Implementations

  1. 1. • Cognizant 20-20 InsightsBusiness Process Management forSuccessful Core Banking ImplementationsTo successfully apply BPM when implementing core banking systems,banks must think through and conquer four major challenges: humanprocesses, systems processes, business rules engines and businessactivity monitoring. Executive Summary Business Drivers for Core Banking The discipline of business process management Core banking systems are implemented to (BPM) leverages digital tools to create models address one or more of the following business that enable organizations to optimize key requirements: business processes. While this approach may be adequate to cover many IT requirements, it is • Mergers or acquisitions by a bank. insufficient for the complexities of implement- • Need for greater flexibility in an increasingly ing a core banking system. For core banking, it competitive market. is therefore necessary to apply a much wider • Regulatory changes that cannot be adequately definition of BPM. handled by legacy systems. This white paper examines the business drivers Enhanced Customer Experience for a successful core banking system implementa- Mergers or acquisitions tend to complicate tion. It then addresses four relevant dimensions the bank’s business portfolio, adding a slew of of BPM: products and services — many of which overlap • Human Processes: The business processes with one another. The same goes for IT infrastruc- performed by the bank’s users, customers and ture, where multiple core-banking systems collide other human stakeholders. by offering redundant systems and processes. Without a rationalization and harmonization of • System Processes: System workflows, system the product portfolio and IT systems, it is difficult interconnections and human/system interac- tions. to achieve any cost efficiencies or a proper inte- gration between the two blended entities. In • Business Rule Engines: Business rules that this situation, it is common to choose a “to-be” can be automated in a system. core system, which may emerge from selecting • Business Activity Monitoring: Visibility of the one of the two legacy systems or creating a new system processes currently in use. advanced system. The success of such an imple- cognizant 20-20 insights | june 2012
  2. 2. mentation can usually be measured in post-merg- of business process — human processes, systemer cost savings in IT and business operations. processes, business rules engines and business activity monitoring.Many legacy core systems were built in an agewhen a new product launch could take years Considering the millennial culture and itsand inevitably cause business disruption. With increased reliance on mobile and Web tools,increasing sophistication in the front office, bank banks have to rely heavily on effective coreIT departments have supported these operations banking solutions that include multiple sources ofby using a ”surround” strategy where additional accessing customer information — including IVRs,systems like customer relationship management Internet banking, ATM access, etc. These andsystems, loan origination systems, channel other such means enhance the overall customersystems, etc. envelop the core system and require experience and help banks compete in the marketminimal changes to application logic. and deliver an enriched experience to customers. With enhanced core banking solutions, banksWith the advent of entrants from outside the typically provide greater analytics. This leadsbanking industry, traditional banks are finding banks to better understand their customers, thusit difficult to compete in an environment where helping them provide what the customers wanta new product is launched within days rather rather than what the bank has to sell.than weeks or months. Core systems are beingreplaced to bring added flexibility. One provider Human Processesof core banking systems, Temenos, recently Over the last decade, core banking systems havelaunched a highly modular architecture in its T24 grown in complexity and features. Today, a coreenvironment that supports rapid deployment of banking system not only has traditional back-product variants without costly development office functions but also extends to cover inter-efforts.1 Similar features are increasingly available actions between the front office and back other core banking systems. The success of Core system implementations that continue tothese implementations depends on the agility of focus only on back-office functions tend to facebusiness post-implementation. challenges in integrating front-office systems.Regulators are increasingly requiring banks to Core Banking Beyond Back Officeuse modern technology to ensure that regulatory As a leader in core banking, Temenos hascompliance requirements are effectively met. attempted to circumvent this challenge byUpgrading legacy systems often leads to pro- enhancing its product catalog and introducinghibitively expensive coding corrections that can the acquire-retain-cross-sell (ARC) more effectively resolved using core banking This framework brings together a suite of front-systems which are built from the ground up to office functionality that can be delivered from itsaddress regulatory compliance issues. Moreover, core banking system, T24.many compliance mandates are at odds withlegacy systems. Examples of new regulations Another leading quadrant player, Oracle Financialthat require additional IT investments are: RDR Services, has created the Flexcube Connectcompliance in the UK; FATCA compliance in the framework, which allows easy interconnectiv-U.S.; mandatory chip cards in Canada; etc. The ity of legacy front-office systems to Flexcube,cost of implementing these regulatory changes Oracle’s core banking system. This integrationin legacy systems can be as expensive as imple- feature is extremely valuable to banks that havementing a new core system that already has already invested in a surround strategy aroundthe technology to support these regulations. their legacy core banking system. Migrating fromThe success of such implementations is usually a legacy system to Flexcube can be accomplishedmeasured by a reduced risk of compliance failures. without disturbing the entire IT landscape, thereby significantly reducing risks in a coreMany of these business drivers cannot be banking implementation program.2addressed by studying only the systems that arebeing replaced or by analyzing the new and old Over the last decade, international standardssystem differences. To succeed, the implemen- have started focusing more on process rathertation process must cover multiple dimensions than procedure. ISO 9000:2000 saw a far more cognizant 20-20 insights 2
  3. 3. liberal use of the concept of “process” rather than small group to allow the free flow of thoughts. “procedure,” which was more prevalent in ISO In our experience, a group with more than 10 9000:1994. persons in a room leads to inordinate cross-talk and minimal output. Break up large complex With increased coverage of With increased core banking, it is necessary processes involving multiple departments into smaller processes to keep the team small. coverage of core for banks to have a view of banking, it is how their human stakeholders • Send invitations to workshops early and share pre-reads to familiarize everyone with perform their tasks – not only necessary for in the systems but even on the methodology and terminology to be used banks to have a manual processes outside the in the workshops. It is also useful to have pre-workshop sessions to help participants view of how their systems. understand workshop objectives and terminol-human stakeholders Human Processes ogy. Encourage participants to reach out to perform their tasks Vs. Procedures other team members and become familiar with all aspects of the as-is process. – not only in the Most medium-size and largesystems but even on banks have fairly detailed docu- • Use the workshop to define the to-be human mentation around their policies process. The as-is process continues to remain manual processes and procedures. But there is in focus during discussions, but the final outputoutside the systems. very little in the form of human should revolve around the to-be process. This process documentation. One of cuts down the cost of human process docu- the common challenges in doc- mentation by at least 50% (sometimes more, umentation and analysis of human processes is if there has been a recent merger). the risk of losing track of the distinction between human process and procedure. A practical way to • Have visual representation of the to-be process created during the workshop. (Sticky differentiate between the two is as follows: notes work; white-boards and computer slides are effective as well.) This allows the partici- • “Human process” describes what the human pants to become familiar with the eventual stakeholders in an organization do. output, reducing challenges during sign-offs. • “Procedure” describes how the human stake- This also reduces dissonance during the holders accomplish these processes. eventual implementation of business change management during implementation. Documenting Human Processes The first step in analyzing and improving human • Ensure that all stakeholders understand processes is to document them. Based on our that the documentation of to-be human experience, a core banking implementation in processes is an iterative exercise and may a mid-sized bank typically impacts 400-plus need two to three iterations before it is processes. It is therefore extremely expensive to finalized. Encourage them to attend multiple create “as-is” process documentation, followed by workshops, if needed, on the same subject. “to-be” documentation for all 400 processes. A • Get early feedback on the visual models for pragmatic approach is to use the following steps: to-be processes as they are built rather than waiting for them to be completed. Use appro- • Select a tool and terminology that is easy priate tools to ensure success of this feedback for banking operations staff and front-office phase. As an example, Software AG has the sales staff to understand. As an example, event- ARIS Publisher, which allows the model design driven process chains (EPC) have terminology team to publish its models to a wider team for that is easier to understand than the business feedback. process model and notation (BPMN) standards. Software AG’s ARIS is an excellent tool, in our Optimizing Human Processes experience, to capture the human processes The eventual aim of documentation of the human in EPC format. processes is to optimize these processes and • Invitestakeholders from all departments reduce the number of hand-offs across depart- involved in a process to the business process ments. This kind of optimization should be done workshop. It is also important to keep the by a team that has adequate experience in both number of people in a workshop to a reasonably the banking domain and the core banking system cognizant 20-20 insights 3
  4. 4. that will eventually be implemented. This will reduce costly physical document transfers acrossensure that they will recommend changes with organizations.higher benefits than costs. Processes Contained Within a Single SystemGiven this synergy, most of the leading core Once a system is selected, it is useful to look atbanking vendors have their own framework and the processes supported by the system to depictteam to model human processes. Temenos uses these processes rather than trying to define theits proprietary TOPS methodology using ARIS. system processes. This approach reduces costlyOracle has its Process Framework for Banking, changes to the system. However, it is useful towhich uses Oracle Business Process Architect make some changes for better management of(derived from ARIS). the system:However, a product vendor on its own is usually • Link the human processes with the systemnot the best choice to handle overall optimization processes (e.g., depict each system process byas it is unlikely to address challenges outside its a function box in the human process, showingproduct. It is recommended that the bank should the human-system interactions). Ensure aengage a system integration partner to conduct common terminology (i.e., follow the bank’sthe optimization process, with active involvement terminology rather than the system vendor’sof the product vendor. This will allow the bank terminology in the system process).to learn from worldwide best practices of theSI partner while keeping in mind cost consider- • Use a tool that will allow ease of maintenance (e.g., Software AG’s ARIS, or the core bankingations that can be addressed by the core banking system vendor’s chosen toolset).product vendor. Processes for Interface AcrossSystem Processes Two or More Internal SystemsFrom our perspective, system processes fall under A core banking system implementation projectfour types: usually involves significant changes to other• Processes that involve interaction of humans systems within the bank and multiple applica- with systems. tion interfaces from the core banking system to these other systems. It is useful to define a• Processes that are contained within a single system. standard manner of interfacing across all the systems instead of trying to design point-to-point• Processes that involve interfaces between two interfaces. Standard techniques can be used like or more systems. service-oriented architecture and/or middleware• Processes that require interfaces with external to connect all systems together. It is common systems. to use BPMN notation to depict the system processes, especially workflows, which can beProcesses for Human-System Interaction implemented in standard BPM tools.The optimized human processes can be used asan initial guide to identify the interaction points Most core banking systems support nativebetween humans and systems. Using ARIS (or a workflow tools. While these are not as powerful assimilar tool), it is easy to depict system interac- standard BPM products, they are quite useful fortions with humans in the same EPC models by medium to small banks which may not have theattaching the systems to the functions being need or the experience to support a BPM product.performed by a human within a process. Reports It is important to remember the trade-offscan be pulled to provide a clear indication of the between the two approaches and arrive at anumber of touch points where user interfaces are decision that is useful to the bank in the long run.required. The reports also depict which systems Process modeling for the bank’s system processeswill require direct usage by customers and will be helpful in either situation, and thereforewhich systems are used only by the bank’s own can be started in parallel to the selection processemployees. It is also possible to identify systems for workflow tools. The process models can bethat can be opened up to business partners of used effectively as starting points for proof ofthe bank (e.g., credit bureaus, title search agents, concepts that can be requested as part of the tooladvocates, etc.) to improve turnaround times and selection process. cognizant 20-20 insights 4
  5. 5. Processes for External Interfaces is extremely important to look at frameworks forA core system implementation requires devel- rules engines as part of the core banking systemopment of interfaces with several third-party implementation. Standard toolsets are recom-systems. The most common external systems are mended for large implementa- tions. But for smaller banks, it ispayment systems and check clearance systems. extremely important to evalu- It is extremelyInterfaces with these systems require carefulanalysis of interface specifications provided by ate the proposed benefits that important to lookthese external entities and developing interface are expected to be achieved by at frameworks for purchasing separate systems foradapters for the core systems. these activities. In many situa- rules engines asCore banking vendors increasingly prepackage tions, it is more cost-effective to part of the corethese adapters with their system for easier inte- use tools provided by the core banking systemgration. Temenos has standard adapters for banking system vendor ratherSWIFT messages. It also has country-specific than purchasing additional tools. implementation.adapters in the form of country model banks thatsupport interfaces with the common third-party Business Activity Monitoringsystems. As an example, its Canada model bank Business activity monitoring (BAM) is a combina-makes it extremely easy to interface with credit tion of business processes with operational intelli-union centrals, Interac and other Canada-specific gence (see Figure 1) that can help in three distinctentities. ways:Business Rule Engines • Comparing activities in the day-to-dayBusiness rule engines are at the heart of any processing with established standards andcalculus associated with banking operations providing alerts in case of variances andand form a core element for most back-office in a typical banking environment.Rule engines involve calculations, which are • Providing online help in the form of trend analysis and operational intelligence bysometimes extremely complex. It is one area performing data mining that can enable a userwhere there is much sensitivity, as well as lots to respond to the alerts during day-to-dayof cross-departmental interests. For example, a operations.rules engine may scan a loan lifecycle trying tofirst evaluate if an application needs to be filtered • Gathering information during daily operationsor can be processed, if qualified, for the eligible and feeding it back for trend analysis and dataloan amount, tenure, rate of interest, etc. In a mining to enable stakeholders with data thattypical banking scenario there could be different can aid strategies and plans for the future.departments handling this. While the evaluation BAM is complementary to data warehousingmay be done at the front end, the actual loan (DW) and business intelligence (BI) solutions andamount, tenure and rate may be decided by the is not meant to replace them. Most DW and BIback office. Hence, there are cross-departmental solutions help create data points based on pastinterests involved, making this process extremely experiences that can help prevent errors in thedelicate from an implementation perspective. future; however, BAM helps create data points inMore often, rules engines are black boxes for real time, thereby enabling error-free processingusers since there is little to no documentation in real time.available. One of the most common experiences Simply put: a BI and DW engine helps provideis to expect reverse engineering of the code and periodic alerts, while BAM helps to deliver themdocumentation by bank SMEs before evaluating in real time.whether the rules should be used as is from theprevious system. A significant amount of time Most core banking systems run a large numberwill likely be consumed before all stakeholders of batch jobs during their end-of-day processing.agree to any changes/deletions/additions to the With increased competition, it is necessarybusiness rules. to reduce the time window available for such processing. Planning for an effective BAMBusiness rules engines are normally not associat- solution early in a core banking implementationed with BPM in a conventional sense. However, it cognizant 20-20 insights 5
  6. 6. BAM at a Glance BAM Provide Real-time Alerts to Users Analyze Real-time Data Users Standard Real Time Compare Data from Data BAM DB Banking Operations Generate Alerts for Deviations Loan Processing Payment Process Receive Real-time Bank Data as Input BAM Database Account Opening Capture Statistical Data from DB Stakeholders Display Data to StakeholdersFigure 1allows for an efficient run-time management of Most standard core banking product vendorsthe system (see Figure 2). Once again, there are allow banks to purchase additional moduleschoices available between standard BAM software so that the core banking system can continuepackages such as Systar and the core banking to process financial transactions even duringvendor’s built-in mechanisms for monitoring batch runs. This is a powerful feature thatbusiness performance. For any bank with an allows banks to run their ATMs, mobile bankingambition to operate in more than one time zone, systems and Internet banking systems 24 hoursit is useful to deploy a solution that includes both a day, seven days a week. But this increases thethe core vendor’s internal monitoring tools and complexity of the IT infrastructure and dependen-standard BAM software. cies on end-of-day processing significantly. It is imperative to use independent software for BAM in such a complex situation.BAM to the Core Core Banking System BAM Database DW Business BAM Intelligence Tools Conventional BI Model BAM provides Real-time Generates Periodic Alerts to the User End User Reports for UserFigure 2 cognizant 20-20 insights 6
  7. 7. Conclusion more than the traditional feature-driven approach. The approach will help banks signifi-We have seen how critical the processes are for cantly reduce key challenges that are faced duringimplementing a core banking solution. Increas- implementation.ingly, banks and product companies are movingtowards a process-led implementation approachFootnotes1 tion%20December%202011.pdf (slides 8 through 11)2 the AuthorsAnirvan Saha leads the Core Banking Solutions Practice at Cognizant Business Consulting. He has morethan 13 years of experience across the banking spectrum including retail and corporate banking as wellas leading the execution of complex consulting engagements on core banking. Anirvan holds a bachelor’sdegree from IIT Kharagpur and is a management graduate from the Indian Institute of Management,Calcutta. He can be reached at Kudav is a Manager within Cognizant Business Consulting. He has more than 11 years of experiencein the area of retail and corporate banking. Rohan has led numerous core banking consulting engage-ments over that time period. He is a commerce graduate from the University of Mumbai and holdsan associate membership with the Institute of Chartered Accountants of India. He can be reached CognizantCognizant (NASDAQ: CTSH) is a leading provider of information technology, consulting, and business process out-sourcing services, dedicated to helping the world’s leading companies build stronger businesses. Headquartered inTeaneck, New Jersey (U.S.), Cognizant combines a passion for client satisfaction, technology innovation, deep industryand business process expertise, and a global, collaborative workforce that embodies the future of work. With over 50delivery centers worldwide and approximately 140,500 employees as of March 31, 2012, Cognizant is a member of theNASDAQ-100, the S&P 500, the Forbes Global 2000, and the Fortune 500 and is ranked among the top performingand fastest growing companies in the world. Visit us online at or follow us on Twitter: Cognizant. World Headquarters European Headquarters India Operations Headquarters 500 Frank W. Burr Blvd. 1 Kingdom Street #5/535, Old Mahabalipuram Road Teaneck, NJ 07666 USA Paddington Central Okkiyam Pettai, Thoraipakkam Phone: +1 201 801 0233 London W2 6BD Chennai, 600 096 India Fax: +1 201 801 0243 Phone: +44 (0) 20 7297 7600 Phone: +91 (0) 44 4209 6000 Toll Free: +1 888 937 3277 Fax: +44 (0) 20 7121 0102 Fax: +91 (0) 44 4209 6060 Email: Email: Email:©­­ Copyright 2012, Cognizant. All rights reserved. No part of this document may be reproduced, stored in a retrieval system, transmitted in any form or by anymeans, electronic, mechanical, photocopying, recording, or otherwise, without the express written permission from Cognizant. The information contained herein issubject to change without notice. All other trademarks mentioned herein are the property of their respective owners.