By Bill Zayas
Executive Vice President & General Manager, Bank Core Systems Group
Harland Financial Solutions
Phone: 800-815-5592
www.harlandfinancialsolutions.com

 

Now more than ever, bankers are looking for new opportunities to streamline operations, grow into new markets, and efficiently minimize risk. Across five generations of computing, the suite of software applications we call “core systems” has served as the heartbeat of financial institutions worldwide. Today, financial institutions have more choices than ever—at a time when business agility has never been more important.

Unfortunately, most financial institutions are encumbered by core systems whose foundations are rooted in the past. If your institution is one of the hundreds seeking a change in core systems, here are four guidelines for you to consider in the process.
   
1. Challenge your own expectations for what core systems can do
It’s a simple fact: core isn’t just core anymore.  The term “core systems” itself was born in the days of mainframes, green-bar reports and extremely limited access to data and business functions.

With the most recent advances in development environments and the widespread adoption of the standards-based approaches like service-oriented architecture (SOA), we’re entering a new age of “core systems.” Functionally, these better core systems need to be thought of as enterprise-scale financial engines-- going beyond just managing the accounts and transactions that have to do with opening and maintaining deposits, loans, general ledger and back office systems.  They also integrate:

•    Sales and service through customer self-service and branch channels
•    Real-time decisioning to support automated deposit and loan opening
•    Product and relationship-based pricing
•    Money-movement and payments, connecting to a network of value added agents and suppliers
•    Embedded compliance practices
•    Data access and business intelligence to drive performance
•    Relational data repositories of transaction, account, and “customer experience” data that allow for quick fetches, consolidated views and on-demand reports

These capabilities are served, not by narrowly defined programs, as in legacy systems, but as a network of distributed, enterprise-scale business services, collapsing the notion of front, middle, and back-office, as well as integrating other line-of-business processing like credit card, trust, insurance, and more.

For bankers, the result is a technology foundation that allows widespread automation, measurably reduces process costs, and delivers a level of agility your competitors will be challenged to match.

2. Beware of the hidden “middleware” costs
Achieving the complete vision described in #1 poses some interesting challenges, particularly for older core systems. Core systems developed in modern languages employ efficient, lower-cost middleware to exchange data across front-end applications and with other core systems. This is accomplished because the middleware easily accesses the wealth of business services exposed in the core.

For older core systems, developed, in some cases, in programming languages originally designed for punch cards, the approaches are limited. Due to the prohibitive expense of a code rewrite, older core systems must build “wrappers” that perform the necessary translations to access the functionality within. Like a fish wrapped in paper, this middleware-centric approach may do the job for a time, but reveal itself in unpleasant ways for your business in the near future.

The most unpleasant is the expense. Due to the inflexibility of older core systems, integration must rely more heavily on costly and complex middleware software that often creates duplicates of the code and data already reflected in the core. The result is higher total cost of ownership and ultimately, higher risk for the institution.

Total cost of functionality
There’s another hidden cost in core systems today—the total cost of functionality. More specific than total cost of ownership, total cost of functionality considers the value of banking capability of a core system in the context of its accessibility. Put more simply: if your core system today can do 5,000 banking functions, but old technology limits exposure to only 500, are you getting what you paid for?

Better core systems will expose all the banking services within the core—and make them available to any channel at any time.

 

3. Align your core system with your customer and employee experience
In a recent global customer experience management study   only 27.2 percent of the respondents said that the definition of the customer experience is well-defined and communicated in their companies. Only 28.8 percent responded that employees have the tools and authority to solve customer problems. How would your institution fare?

Since the invention of the customer information file, core system designers have sought to create an aggregate “experience repository” - allowing any person in the bank to understand the sum of a customer's interactions from a single, role-based view. With ever-rising customer expectations of convenience-and the speed with which customers change their positions in your institution--these capabilities have been made more important than ever.

Better core systems will do three things to manage the customer experience optimally:

Unify. They will unify all customer-related data. Ideally, this means establishing a true customer experience database-integrating transaction, account, personal, image, interaction and other data.

Update. They will deliver updates that impact the customer experience in real time, across every dimension.

Extend. They will allow convenient and secure self-service access from multiple channels at any time of the day.

Another critical link in the customer experience chain is your employee experience. Do your employees have the tools they need to solve customer problems? Better core systems empower employees to interact with and enhance the customer experience using a set of tools and interface standards they are familiar with.

Increasingly, the day-to-day user interface most used by employees is some part of the Microsoft Office suite. Effectively leveraging this already-climbed learning curve can produce real training and process efficiencies for your institution.

Better core systems allow easy access to any account and customer interactions from easy-to-use tools like Microsoft Outlook for scheduling meetings with customers, Excel for data analysis, and even Word for outbound marketing. This integrates the day-to-day life of your employees with access to the data and capabilities so critical to serving customers well.

4. Consider implementing a “core within a core”
It's a myth that core system replacement has to be a “big bang” event. For many institutions, implementing a “core within a core” delivers value to the business in specific ways, allowing you to launch or streamline a line of business while the core system for the rest of your business remains in tact. Specifically, this approach gives you the following strategic options:

Launch a new line of business: Entering a new line of business or launching a new brand may prove daunting if your existing core is ill-fit for the task. The right core system could, for example, allow a private bank to launch an online bank as a separate brand.

Target a market niche: Larger institutions with sunk cost in legacy cores may be unable to serve the needs of a new market. Implementing a core within a core could provide access to new markets like small business-with the people, processes and functionality that market demands.

Automate an entire function or department: Your new strategy may be so focused as to require extreme efficiency across a specific function. Based on the broader definition of “core system” offered here, a core within a core strategy could deliver a comprehensive, end-to-end commercial lending operation. This approach could link credit decisioning, compliant document management, account origination and onboarding, and collections-as a single, straight-through process.

Agility is defined as the ability to start, stop, and rapidly change direction in a moment. For financial institutions seeking true business agility in one of the most challenging markets in history, a better core system-based on modern technology throughout-- can be the firm footing of their business' long-term strategy.

View July 08 digital edition
Harland Financial Solutions—Executive Summary on page 55

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