Corebanking Systems

a)   Core Banking Introduction

In a nutshell a core banking system is a centralized self contained system that shall have the benefits of performing multiple transaction activities coupled with scalability and performance sturdiness to name a few benefits.

The market is currently dominated by more than 30 players who together offer about 50 product solution frameworks.

The top 5 vendors occupy more than a third of the market share for CBS implementations.

b)   Typical Milestones in a CBS Implementation Life Cycle

1.       Product Vendor (PV) Selection: - A typical implementation is preceded by a vendor selection exercise involving soliciting of RFI (Request For Information) and RFP (Request For Information). The RFP shall assign specific benchmarks, entry criteria, response parameters, bidding pre-requisites etc. Based on RFP responses, the bank may conduct multiple screenings to finally zeroise on the product vendor. As a precursor to the selection announcement some banks may ask the CBS vendor to conduct Product Walk Through (PWT) and Proof Of Concept (POC) with a full scale demo. The RFP response also details commercials info, costing, implementation timelines proposed, methodology details etc.

2.       System Integrator (SI) Selection:- Some banks especially the large ones opt for a system integrator who shall take the ownership of implementation, liaise with the vendor, ensure timelines are complied, conduct functional acceptance checks / testing on behalf of the bank before migration or go-live etc. As SI teams bring specialized cutting edge skills to the table, the implementation related risks are managed to some extent for the bank.

3.       System Familiarization and Business Requirement (BR) Analysis:- The bank furnished the BR to the PV under advice to SI. The vendor commences familiarization exercise of the new system to the business users. Concurrently requirements are discussed, deliberated and analyzed pursuant to the next step of GAP Analysis.

4.       GAP Analysis: - Based on the BR, the PV prepares the list of GAPs – functional, technical and preparation of Prioritization GAPs List (PGL). As part of PGL evaluation the GAPs are segregated as

a.       Statutory and hence will be developed.

b.      Must have GAPs that the bank feels as compulsory for development as it has critical impact on their business.

c.       Other GAPs which shall be taken up for evaluation at a later date based on availability of time and bandwidth.

5.       Technical Architecture Design: - Normally the SI in joint consultation with PV prepare the technical design and incorporate the same into the bank’s IT architecture.

6.       System Development – Conformance to Requirements: - The SI confirms to the bank once the development is completed that the build is ready to be installed into test.

7.       Integration and Functional Testing: - Integration testing is done to check if all the different components developed independently work in unison as per required / expected functionality in the integration phase. After integration testing is completed a final functional testing (or acceptance testing) is performed to certify that the system developed confirms to the agreed requirements.

8.       Data Migration: - One of the most critical part of the implementation relates to data migration from legacy disparate systems to the new centralized one. The migration tool has to be customized by the PV to the data features / parameters and specifications of the source systems, test migration is done to validate for accuracy, precision and completeness followed by full scale migration.

There are two approaches to data migration.

¨       Big Bang Migration Approach;- Under this approach the entire bank data (branches, overseas operations, support functions, back offices etc) are migrated in one instance / lot to the destination CBS system. This approach is risky and involves managing too many issues in a single tranche. Hence most banks desist from adopting this approach.

¨       Phased Migration Approach: - Under the phased approach the migration is undertaken in a phased manner. A select list of bank’s businesses are taken and migrated initially. Based on the success of migration and quantum of problems / issues encountered, other branches and departments of the bank are taken up.

9.       Post Live Support Mechanism: - Post live support is agreed between the bank and the vendor. Some implementations involve post live support being undertaken by the system integrator. As and when issues are encountered change requests are taken up with the vendor for redressal.

10.   Defect and Change Management Framework: - A framework is designed on managing defects and resolution SLA’s are put in place.

Some of the important factors driving acceleration in the Core Banking System (CBS) replacements market are listed below:-

1.       Compliance Systems – More and more regulators are pressing upon banks to shore up their compliance, reporting and data warehouse systems to align them with statutory prescriptions like Sox, MIFID, Basel  2 , AML  and KYC guidelines etc. This demand having quick, reliable, robust and centralized systems, thus hastening CBS upgrades. Also controls in legacy systems are weak and hence have limited reliability.

2.       Faster go to market – In an era of heightening competition a bank with the fastest go to market strategy always has an edge over its peers. Upgraded CBS systems help to expedite product design, new launches, customer feedback / survey actions, flexible configuration of products etc. In order to survive, grow and excel in the fiercely competitive market, it is essential that banks need to continuously innovate so as to retain the existing customer clientele as well as garner fresh business. Legacy decentralized systems contribute to time consuming and inefficient product rollouts.

3.       Data Mining and Customer Profiling – Banks need to adaptability to change and changing customer preferences wherein they have to offer an array of offerings to clientele with flavor of uniqueness, cutting edge as well as ensuring that the benefits accruing matches with the cost of offering those services.

4.       Cost Cutting and centralization of operations – Having centralized core systems enables banks to undertake tangible cost reduction as well as elimination of risk involved in managing diverse decentralized systems (which is especially relevant in respect of banks with large geographic spread). By centralization banks will be able to harness synergies in terms of costs, scalability etc along with uniformity and standardization of systems.

5.       Maintenance Costs: - High cost of maintaining legacy systems is one more important reason accelerating CBS implementations.

6.       Single Customer View – The bank shall have a single bird’s eye snapshot of their customers which will facilitate in better customer service, customer retention, and clear management information thus directing resources to maximize profits.