Yet Another Core Banking Proposal

I'm seeing a steady stream of requests for proposals from well-established retail financial services companies looking to replace their core banking platform; front to back - channel to core back end. I’ve been involved in a fair few such transformations over the years as a client, a vendor and an advisor. Across the industry we’ve all seen some success stories and a spectacular number of high profile and often very costly failures.

“We understand why core banking transformations fail”

Usually the first slide that a consultant takes off the shelf to include in the proposal. I took mine off the virtual shelf this morning, one aspect in particular drew my eye and started me thinking…

Apparently as many as three quarters of core banking transformations fail, some very high profile implementations achieve nothing, burn lots of money and fizzle out quietly. That leaves only 25% successfully implemented but many of these are at a significant cost - either they don’t realise the expected benefits or we see extreme time and cost overruns.

Fine, and not hard to argue with. Let’s hit paste on that one. Next up is…

“Evaluating and selecting a core banking product that meets an organisations business requirements is a crucial step in the software engineering process”

At this point with my mouse hovering over paste I stopped and started to reflect on this in the context of:

• A world in which technology is changing at breakneck speed
• Customers across all industries demanding a customised and more personal user experience; and
• At the same time demanding access to their own ‘personal bank’ at a time of their choosing, from anywhere and through a device of their choice

Received wisdom is to recommend adoption of out of the box processes and resist customisation to contain costs and minimise complexity. Of course for vendors this vanilla system is easier to manage and upgrade, bringing benefits for both supplier and client.

When I first started working in the core banking space around 20 years ago protecting the functional integrity of the core platform was sacrosanct. Modifications to configurable fields were resisted at all costs, it was often felt better to introduce manual work around or new code and integrate separate software solutions rather than customise a product that was built for and around the needs of product owners in the Bank.

As the pace of change started to pick up across the industry this functional driven approach to design became unsustainable and we saw a trend towards process led design and implementation. Core banking platforms introduced stronger workflow, process and rules engines built around the product and processing silos of the core platform. This was a big leap forward and yet whilst vendors have re-architected their software and introduced increasingly process and rule capability leveraging the ability to configure, one thing hasn’t changed…

Analysis and design is traditionally the preserve of analysts, architects and SMEs, drawn from both the client bank and the software vendor. Teams are usually experts in industry and client banking processes. The message from all sides is strong, “avoid blue sky thinking”, “customisation is bad…vanilla is good”.

We know that the pace of change in today’s world is frenetic and as customers we all want a bespoke and personalised service. Software vendors are reacting to this and also to market / regulatory pressures, typically in the form of PSD2 and the drive to Open Banking that underpin it. Conversations are increasingly centred on ecosystems, FinTech and disintermediation of the banking industry.

Importantly, Human Centric Design techniques are also becoming much more mainstream. So we now have an approach to design that is focused on customers, identifying what they really want out of their banking experience, understanding what pain points we really need to focus on, that will ultimately lead to solutions that are informed by customers rather than the technology and software that underpins it all.

Human Centric Design principles are not the single magic bullet for your core banking replacement but it feels like the future. I’m certainly starting to think about how we can build this thinking into our approach to complex core banking transformation.

Building Human Centric Design into Core Banking Replacement:

• Involve customers up front when evaluating strategic platform options. Understand what is important to customers in choosing a bank i.e. trust and security…there are more dimensions
• Make customer focus groups an integral part of analysis and design and encourage human centric requirements gathering. Consider both current and future customers
• Encourage and reward the right culture with your team and suppliers i.e. embrace bold blue sky thinking, you can always work backwards from that
• Work with suppliers who are like minded i.e. software vendors that also talk to real customers and find out how they have built this into their product
• Don’t stop once you designed your platform. Consider how to involve customers into product testing and ongoing reviews in the run world. Embrace and act on their feedback
• Be realistic, no one core banking platform exercise is the same. The cost, time and quality pressures still remain. Agree how much weight you want to put on real customer requirements and bake that into your design governance.

Now on with the proposal I mentioned at the start of this piece…