The Clint Eastwood movie, Sully, has received excellent reviews for depicting the reality of decision making under intense pressure. It would have been a different movie if Sully had had the option of climbing onto the wing and swapping out the engines while the plane was still in the air. In banking, the analogue of the bird strike is the rise of digital competitors and rapidly changing customer expectations—and the engine decision facing many CIOs is whether to attempt to swap out the core banking system to enable a more modern customer experience. The alternative is to try to muddle through in the hope that you don’t have to tell your shareholders that you are ditching in the financial services version of the Hudson when your customers desert you for those who have upgraded their engines and are flying high.
Most banks know they need to upgrade their core to stay competitive. Clunky batch-driven deposit and credit systems don’t perform well in a multi-channel, multi-product and multi-segment banking model. Configurable products, contextual ‘in the moment’ advice and seamless experiences across channels need back-end systems that are real-time, agile and component-based.
But the issue for most banks isn’t the knowing—it’s the doing. The digital bird strike may have damaged the current engines, but the plane is still in the air, and the concern that many bank CIOs have is that if you start tinkering with the core mechanicals of the bank it a) is going to be very expensive and b) could inadvertently cause who knows what kind of damage.
So how should banks approach this complex transformation in the smartest, most cost-effective, low-risk, fast-to-business-value way possible… without having to land the plane?
Fortunately, there are good options available. The first step is to assess what capabilities are vital to enable your business strategy. Sometimes a complete engine replacement is required and a brand new core is created alongside the old. This is the comprehensive approach taken by top performers like Commonwealth Bank of Australia and BBVA, and it’s the path Nordea is now on to create a single bank across 5 countries.
For others with fewer challenges or resources, an engine overhaul may suffice. These middleware solutions can add specific product or channel capabilities to improve performance. They can add a few more years of engine life, but ultimately the underlying system will still suffer from fundamental limitations if it is not a modern digital real-time core.
Even as banks consider these two options, they also need to be aware that engine technology is constantly improving, and that in the next 5 to 10 years we may see innovations like blockchain-based books and records completely replacing traditional database technology.
If the bird strike of digital innovation is causing a bank’s engines to sputter, just like Sully, they need to grasp the nettle and develop a calm and measured response.
Accenture’s experience is that the best way to start that journey is to define clear business outcomes you want to achieve rather than just focus on technology choices. What are the priorities across channel integration, faster product launch times, higher cross-sell ratios, simpler operations, lower costs and product rationalization and how do those outcomes shape the technology requirements? Only by having clarity on these outcomes can you decide whether it is time to replace, upgrade or take the risk that you can pull off a successful water landing.
I invite you to read more in The Core Banking Helmsman on the Banking CIO Outlook website. Also, see how BBVA Compass is benefiting from its modern core banking system.