Planning the digital transformation journey
John Bertrand is industry value engineer, banking, at SAP
‘Oh dear! Oh dear! I shall be too late!’ the old Banker said as the smartphone beeped the time, ‘I must put my bank into the digital age’.
For the new banks now is the chance to disrupt the banking industry. No legacy systems or existing processes or old thinking – they can jump straight to the new, writes John Bertrand.
Except, of course, those new banks that are being spun out of existing banks, where that infrastructure, IT and operations are supported by the current systems of the existing bank. Oh dear! Oh dear! What to do? What to do?
First: look after your clients. They all have mobile phones, so it has to be a seamless end-to-end digital, confidential, personal and rewarding journey for the customer. That is what is expected outside the bank. Once in the banking environment the customer is often not the first priority.
How is this new personal, device and channel independent banking journey going to come about? There are three on the journey: customer, banking regulators and the bank. Who says three’s a crowd?
Before making the transformation, let’s see where the banks are …
Most banks have many copies of different systems doing virtually the same thing. The IT and data landscape has grown over time to meet various banking requirements. There was virtually no overall system architecture for the bank. Each business area had its own micro system to support its own business need. For example retail, corporate and investment banking at the same bank often had their own payment engines, each being different.
As banks grew through mergers and acquisitions, the systems of the various banks were absorbed and left to carry on independently. This has led to many copies of general ledgers. The single source of truth comes after reconciling the many replications of data at the group level. Customers often have different banking services from the same institutions being managed separately.
In addition, those banks with international branches often had completely different systems representing each country. For example one bank found it had eight different core banking systems, from different suppliers including home grown software, across its international network. This coupled with many of the same supplier core banking systems being on different releases resulted in not one branch being an exact replica of another.
In the past, banks grew the IT and operations staff to handle the complexity of their legacy architecture. Many opting to build the banking functionality needed in house. One bank wryly noted: “We should put all our on premise systems on an inaccessible host. That way our IT people, who change our on-premise systems, cannot get at the software. Changing software is in their DNA and they simply cannot help themselves”.
Hosting software through a third party, is rapidly becoming mainstream. Again many banks built their own data centres often specifically supporting just one line of business. Consolidation of data centres is underway, especially now that third party companies offer competitively priced and certified data centre operations.
Consolidation of data centres is understandable. Banks see it straight away and the actions needed rarely impact the customer. The consolidation of core banking and payment systems, general ledgers, and data warehouse and customer front ends is far more customer-centric.
Information in the digital world, with new regulations, requires data to be handled in a much different way. Historically, data for a large deposit amount from an unknown customer was virtually zero. Now Know Your Customer and, increasingly, Know Your Vendor are mandatory. KYV requirements by the US Office of the Controller of the Currency are particularly relevant for banks trading in US Dollars.
The smartphone has also increased the expectations of banking. This is especially true in payments where immediate payments programmes are now being established in many countries. Ironically it was the UK regulators that fostered this innovation. The banks find customers really like to pay electronically. This makes perfect sense to the younger generation not infused with old banking norms.
The old days of banking when the bank would immediately take the money out of one customer’s account and hold it for days before crediting to the beneficiary are fading. It is time to meet the markets needs.
The question is how hard the digital transformation will be. It is different for each bank. The banks with the most single homogeneous infrastructures will have the simplest journey – best establish what the bank’s legacy looks like and plan the trip.
