There are three basic routes to a new banking platform: Big Bang, Build and Migrate, and Progressive Migration.
With 20 years' experience in guiding financial institutions on to new core banking systems, Temenos's decision matrix and implementation methodology will help banks determine which is right for them, writes Mark Gunning
Successful core banking replacement isn't about throwing money at a project, or choosing the newest solution. It is about embarking on a route that makes sense for your bank. At Temenos, we have more than two decades of experience in helping banks on to the right track.
For 20 years we've been guiding financial institutions towards their digital future and today have some 2,000 clients working with us.
Some come to us with a clear idea of how they want to proceed; others want our advice on everything; and there are plenty in between. Sometimes we suggest an alternative route to the one they think they want. But it's always about fulfilling the client's needs.
What are the routes to a new core banking platform
Essentially there are three routes to a new core banking platform:
- Big Bang, which as the name implies involves full replacement all in one go;
- Build and Migrate, where institutions establish a new offering running on the new digital system and gradually migrate customers across;
- Progressive Migration, where business is sequentially migrated to a new platform. Each method has its advantages and disadvantages.
Our experience of assessing these options has been so successful that we are drawing up a decision matrix and implementation methodology to help customers determine which route is right for them, based on a detailed assessment of risks and costs.
The matrix introduces business drivers such as why the bank is changing its core, the nature of its business, its size, level of urgency, risk appetite, number of products and branches. The complexity of its IT is another driver. A simple IT environment running just one or a small number of systems is completely different to a bank with maybe 50 or 100 IT systems, for example. We also quantify the risk of the migration project to the business. If it all goes wrong on migration day, how disastrous would it be for the bank? Finally, we look at the financial impact of the renovation. Does the bank need a fast result at a lower cost but higher risk, or can it afford to take its time and cut risk?
In general terms, Big Bang is appropriate for smaller, less complex customers. The risks involved in shifting the bank's books and ledgers to a new system in one go are higher than a piecemeal approach. But the advantages of a shorter project at a lower cost and with faster payback can be compelling.
It was the route chosen by Bank Oromia of Ethiopia, which has just gone live with its new core – the first bank of its size in the region to follow this strategy. At the conclusion of a four-and-a-half-month core replacement project, it migrated some 2.5m accounts and 256 branches in September. Other successful examples include Bank SinoPac and Bank of Shanghai.
Build and Migrate
Build and Migrate is a relatively new approach, made possible thanks to the modular nature of the software. It takes longer than Big Bang but reduces the risks by setting up the equivalent of a new business that gets built up over time. The time to full migration may be longer but the project's time and costs are more predictable than with a progressive migration. Israeli Bank Leumi with its Pepper brand and Canada's EQ Bank are adopting this strategy.
Progressive Migration is most often adopted by big banks – the Tier Ones. Nordea, KBC, Bank of Ireland and JP Morgan spring to mind. With a lower risk and some early business benefits, it suits complex, large organizations.
Within Progressive Migration, there are many variations to suite the individual bank. Should the migration be by product type (vertical) or business function (horizontal) and if so then which sequence to migration the products or which sequence to migrate the business functions. "Back to Front" replaces back office first and delivers quick value whilst protecting the interaction with the bank's customers. "Front to Back" provides an early upgrade to the customer experience with improvements to operational flexibility and efficiency following.
Again, the decision is usually influenced by the nature of the organization. If the IT infrastructure is complex, for example, vertical migration – that is by product offering – is probably best; if the aim is to swiftly improve customer experience, then use a horizontal approach and start with the front office.
The important thing to note is that our software supports each of these implementation approaches equally well. We favor none over the others, making it purely a business decision for the banks. What is more, we will readily share our 20 years of experience for the benefit of all.
We are proud that our clients are so loyal to us. It's not only because our proposition is best in class; it's because at the heart of our offering – be it the software we write or the advice we give and the experiences we share – we always put the customer's needs first.
Successful core banking replacement isn't about throwing money at a project, or choosing the newest solution. It is about embarking on a route that makes sense for your bank.