8 things banks should be considering before a core transformation

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The banking landscape is changing rapidly. In today’s digital society, it was always inevitable that the FS industry would need to switch up its traditional methods to stay relevant in the global economy. Then came along covid and suddenly online banking skyrocketed. This, along with the rise of FinTechs and Neobanks, has only sped up the need for innovation within big banks and financial institutions.

Unfortunately, core transformation within the banking industry is no easy feat. There are multiple factors to consider from business cases to budget constraints, and from vendor choices to the impact on BAU. Fortunately, we’re here to help.

We decided to combine our knowledge on this subject with the experts at Quantum Six. As a consulting business who specialise in helping their FS clients navigate the core transformation space, they really know their BaaS from their SaaS.

Together, we discussed the factors a bank should be considering before embarking on a core transformation or a core modernisation project.  Here’s our top 8.

1. Communication is key (so have a comms plan!)

When talking about core modernisation, many people’s minds would jump straight to technology. However, it’s very important to think holistically and consider the organisation as a whole, not just the techy stuff. Banks will be competing with agile startups and well-established financial institutions in a market where consumers have so much choice. As such, putting together a solid communications plan is key. Quantum Six's Chief Client Officer, Martyn Wallen said:

“It's so critical to bring the organization along on the journey. And what I mean by that, it's both the business and the IT. And it's important that you've got a communications plan in place.

“Before you start any transformation or modernisation, a real key thing is to ensure you have the right pillars for success. So, is the organization and structure in place to deliver? Do you have the right governance? Do you have the right communication? And that's bringing all parties to the table. They all understand what good looks like and they understand what the outcome is because without that you're going to fail to deliver.”

2. Put together a strong business case

In addition to a communications plan, it’s imperative to build a strong business case to gain buy-in from a BAU perspective to support the modernisation program. Martyn said:

“We see a lot of friction when a bank or a financial institution embarks on a core modernisation, and they haven't got that buy in from the business to release them to support the project because that they're under pressure to support the BAU. So, it's really, really important that they're set up right from the start.”

When putting together a business case, it’s important to exploit the assets that already exist where possible. This can enable faster time to market, while de-risking the program and supporting the BAU. This doesn't mean to say the bank can never change its core. It buys time to simplify now, deliver some early business value and then revisit the core at a later date or as and when the business case will suit.

3. ‘Uplift the core’

This brings us to our next point – uplifting the core. Gone are the days of ‘rip and replace’. Instead, FI’s are choosing to enhance and modernise what already exists in the organisation. Going greenfield comes with high costs, big risks and the problems that come with dual running for a period. Martyn says this is why many banks are opting for ‘uplifting of the core’ instead:

“What we're seeing is a lot of organizations looking to break the program down. So rather than look at a two or three hundred-million-pound project that's going to be delivered over three or five years, nobody's going to sign up for that anymore.

By uplifting the core, you're simplifying what's there. You give the business a lot more agility in terms of launching products, and reducing cost, etc.”

Modernising the core means banks can quickly update their processes to compete with the ‘greenfields’ that are coming through. However, this doesn’t mean never getting around to replacing the core, simply delaying it. Martyn explains:

“So… uplift…and then at some point you can address the core if you want to replace it one day, because you've already simplified it, but you don't have to do it all at once. So, it's all about taking more of a progressive approach to the modernising action.”

4. Don’t hinder customer experience

When embarking on a major transformation project, some form of impact to BAU is almost unavoidable. However, it’s vital to continually keep the customer in mind and ensure that the impact to BAU does not affect customer experience.

“There will be an impact in terms of the amount of change that you can accommodate in the existing world versus what you want to build in the new. So, where you are focused on trying to move to a more updated, a more flexible banking solution. Something's got to give. You do need to keep the lights on, but it's really key that you're not affecting customer experience. So it's very much the focus of how do you get off the old onto the new?”

 It's also key for banks to consider customer experience when making decisions on what their service offering will look like post-transformation. How can performance be improved? How can processes be simplified? Could the design be enhanced? Can customers interact on their preferred devices?

5. Know the right way to ‘innovate at pace’

The market is evolving at such a pace that some banks are struggling to keep up. Smaller FS companies and Fintechs are a lot more nimble with no legacy to really think about. Bigger banks have many more factors to consider and much more red tape to navigate, slowing the process down. So, what’s the answer? Quantum Six believe the answer lies in banks and fintechs working together to create a quick, seamless customer journey:

“Another interesting area, particularly with some of the larger banks, is that they struggle in knowing how to innovate at pace. At Quantum Six, we share the view that the bank of the future will be assembled and it won't be built, so that may be creating a bank by bringing many fintechs together.”

This may involve creating new customer journeys by methods such as embedded finance.  For example, embedding a customer journey or user experience that doesn’t necessarily finish with the bank, it might cut across a number of different partners or parties. But what it’s delivering is a financial transaction as part of a user journey. That’s becoming very popular in today's market. It delivers what the bank ultimately wants and it delivers what their partners want. So, who’s losing?

6. Pick the right vendors

Once a bank has settled on an agenda, built a solid business case and gained senior buy in, the next challenge is navigating the vendor landscape. Ten years ago, a bank may have gone to one core banking vendor and bought a full solution front-to-back. In today’s market, there’s a plethora of vendors to choose from, all offering tailored services to meet different business demands. The key to choosing the right ones lies in your strategy and in innovation.

“When it comes to vendors, how do you identify the right solution that dresses your organisation's strategy? There's so many vendors out there that will all profess to be best of breed in this certain business line.” Martyn says.

“So, how do you find the right one for you that's perhaps already integrated with the rest of the ecosystem that you settled on? That’s a real challenge and innovation is key. We’re seeing some of the larger banks again turning to partnerships allowing other organisations to come in and do that innovation for them.”

It’s also important to select vendors based on what the business requires, not based on what other banks are choosing. Be brave in decision making. Picking the wrong vendor can cost a lot of time and a lot of money.

7. Select the best service model

In addition to selecting the right vendor, picking the right service model is also crucial. Quantum Six says: “Be sure to consider the broad range of options that exist in the market. There’s a vast ecosystem out there but you've got a massive shift in terms of service models that are being offered. 

SaaS, PaaS, infrastructure as a service, what's right for you as an organization and that could be a mix of both. So, you need to look across the entire landscape in terms of what fits you as an organisation and what's addressing your transformation drivers.”

Looking for a faster time to market and simplified collaboration? Consider PaaS. Looking for a scalable and cost-effective solution? Consider SaaS. There are so many possibilities and as said by Quantum Six, it’s possible to have a blended service model to meet all business requirements.

8. Get the right people on the job

In the way that banks select the ‘best in breed’ when it comes to vendors, the same should be applied with selecting consultants. Rather than signing a multi-million dollar deal with one consultancy, why not look at the different options available and pick and select the right individuals for the particular job at hand. It’s not about the number of consultants you have, it’s about having the correct people on the ground.

Quantum Six gave a solid use case:

“Enterprise architecture is a great example. You need an enterprise architect at the start of a project, looking at a target operating model. However, they don't need to be engaged for six, nine months of a program. They need to come in and support design authorities, for example.

You may find in some of the larger consultancies will allocate an enterprise architect for the first nine months of the project. But are they really needed full time? This is where the agile nature of Quantum Six really comes to the fore, which allows us to do this fractional resource model, which offers the flexibility that some of the larger organisations would probably struggle with.”

Want to learn more on this subject?

This whole conversation was recorded as part of our ‘Beyond the Document’ podcast. Listen below, or follow the link to the podcast series here.

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