IBS Journal February 2018
27
The demand for flexibility and personalised, efficient product creation by banks is inherently tied to the addition of third-party features.
Keep it all together
Many of these legacy systems hosted a large number of specific systems, each supporting a large number of clients, taped together by strings of code. This has been one of the ways banks had kept up with change – by changing bits one by one. Plus, banks have realised that endless coding to distribute the business logic is no longer sustainable. As a result of this decentralisation, some other challenges may arise, such as code logic duplication, data duplication, disparate technologies, excessive data transfer or excessive reconciliation, among others. Many of these issues hinder the ability of the bank to scale up and support large numbers of customers and data.
From the perspective of PSD2 and Open Banking, this creates competition among fintechs and API providers, encouraging innovation and customer service. Both banks and bank customers will be choosing based on a digital offering.
To avoid these issues, Temenos set out to design a single, fully integrated stack that encompasses all channels and front office, all the way to core banking systems and analytics. Gunning told IBS Journal that this model reduces operational complexity, avoiding many of the hurdles that would appear otherwise.
“We seek high value from a high level of integration – a single stack simplifies processes when designing and offering products, and bypasses the complexities that come with the interfacing and interaction of disparate systems,” he says. “For features such as data analytics, a single integrated stack means that everything is done in real-time.”
Gunning highlights a series of reasons that should motivate every bank to migrate to new modern and API-friendly infrastructures. As a result of what we have detailed above, legacy systems incur higher operating costs and risks. They also take longer for the bank to adapt to the market – offering a more unsatisfactory customer experience – and their analytics capabilities are outdated, which results in a lower level of business and customer insight.
“We also see many banks that have taken the time to curate their customer-facing interfaces enough that they look efficient and modern, but the back-office systems are simply not there
For features such as data analytics, a single integrated stack means that everything is done in real-time
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Mark Gunning: banks are starting to see successful rollouts of their transformational projects
to support any demanding request, as their legacy systems are outdated and unreliable,” says Gunning. “The Nordics, for example, lead the way in front-office systems. Nordea is a good example of a transformation whose objective was to support a digital and personalised service based on full resilience.”
Pick your MO
In order to mitigate risk and make the most out of the transformation process, there are a few strategies available for banks, which vendors usually advise on. These strategies are picked with the idea of minimising payout time while making the adaptation process manageable and frictionless, and the one picked will depend on the size of the bank and the type of operations it supports.
The most radical strategy for transformations is usually called ‘Big Bang’, a traditional rip-and-replace strategy that replaces all systems in one go, often in a very short space of time, such as a weekend. The migration through this process is complete and immediate, although not suitable for those banks with significant numbers of customers and staff. In spite of the fact that this type of transformation does not incur any excess costs, it is usually too demanding for institutions with a large number of systems and offerings. Gunning quotes the Private Bank of Luxembourg, part of Nordea, as an example of this type of transformation.
The second type of transformation is usually referred to as progressive renovation, an option that reduces risk
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