RiskTech Forum

Capco: Six steps to a successful Core Banking transformation

Posted: 1 November 2017  |  Author: Michael Fröhlich  |  Source: Capco

Who do you trust with your bank’s heart transplant?

When a financial institution decides to transform its core systems, it is not a decision that is made lightly. It’s like when a person needs a heart transplant – although it is integral to the functioning of the body, it is a highly demanding and extremely complex procedure to undertake. For the financial institution to undergo a ‘heart transplant’ and transform its core systems, it must have identified the critical stages of the ‘‘operation” that will help it survive and thrive.

Specifically, what’s needed is:
- A clear understanding of current situation and potential risks
- A realistic appreciation of just how big this intervention is
- Informed knowledge of what is involved
- Clear, but pragmatic expectations of the outcome

No institution undergoes core transformation until it’s a total necessity. While an individual may take medication, and adjust their lifestyle to compensate for an under-performing heart, the institution has fewer choices. Work-arounds and temporary fixes may address the issue in the short term, but the pressure to modernise, achieve regulatory compliance, deliver innovative services, and compete with more agile organizations will never go away.

Indefinite delay is not an option

In a very competitive market, the more financial institutions delay the inevitable, the further they are going to fall behind the more flexible, modern fintech companies with healthy and agile new systems. The competition is not going to subside in the near future, and for more mature institutions to get ahead of the game, there is only one logical decision to be made.

Rather like when a patient chooses their heart surgeon, when an institution takes the decision to transform their core systems, they need to ensure they have the right partners and professional help to guide them through the procedure. As with any big decision, you are bound to feel anxious about what could happen, envisaging the worst, but the following steps can be used as a checklist to ensure that your institution is fully prepared for what is to come, and to ensure that your worst fears don’t become a reality.

Step 1: Be under no illusions

Getting it right and being prepared from the beginning is key – three or four years of core transformation within a financial institution might equate to a patient’s eight hours on the operating table. It can be a matter of life or death for both.

Step 2: Do not rely on ‘stars’

The star strategist can get badly out of their depth in a practical situation, just like the psychoanalyst who excels with patients on the couch but is totally at a loss in the emergency room. Don’t simply rely on strong reputation and ensure you have more than just one ‘star player’.

Step 3: Find a ‘real’ team

Ensure that those chosen to support the transformation are acting as one team, with the institution’s best interests at the heart of all decisions. When D-day comes around, it is important that they are not strangers, as this can lead to confusion and compromised outcomes, possibly extending the transformation period further, and that they work well together as a cohesive team.

Step 4: Avoid a false sense of security

Don’t expect “a smooth flight’’, and be prepared for turbulence along the way. For the procedure to be successful, you must have a good grasp of the obstacles in your path.

Step 5: Resist the temptation to ‘self-medicate’

Very few financial institutions will have the internal resources needed to fix a complex system. The internal option usually ends one way - badly. Don’t be afraid to bring in external experts where necessary, as they will bring the key skills and the fresh perspective needed to make the transformation a success.

Step 6: Get a second opinion

For any financial institution facing core transformation, a second opinion is vital. Accurate diagnosis ahead of a successfully planned operation is key to ensuring the right issues are tackled in the right way.

In an upcoming blog series, we will look at how an expert second opinion can help make any proposed approaches to core transformation achievable. We’ll also examine the challenges and pitfalls of specific transformation stages, including data migration, testing and vendor management.