At a time when financial institutions are under immense pressure to adapt to rapidly evolving regulations and customer expectations, core banking transformation is both an opportunity and a challenge.
We had the opportunity to sit down with Neill Elliott, Chief Product Officer (CPO) at SaaScada, the NextGen data-driven core banking engine, to discuss the challenges and opportunities associated with core banking transformation.
This is a timely topic as new research from SaaScada shows that, for example, in the UK banks are failing to get the full value from their cloud-based core banking systems due to underestimated cultural challenges, poor planning and cloud technology imposters.
The report analyses data from a survey of 150 heads of innovation at UK retail and commercial banks and reveals that while almost all UK banks recognise the need to modernise in the cloud, the road to modernisation is littered with potholes and broken promises – with almost two thirds (63%) of respondents believing that most cloud-based core banking platforms are just the same legacy technology with a new coat of paint.
The interview also touches on the possibility of changing AML/CFT software providers as part of the core banking system transformation process.
Migration to a new core banking system is often seen as a monumental task. From your experience, what are the most common technical challenges financial institutions face during such a transformation?
Indeed, it is a complex process but the key point to remember is that it is a business transformation rather than just a technical exercise. By embracing this, the Financial Institutions can make the most of the exercise, rather than just recreate their old world on new software. On the technical side, data migration is the main hurdle. Banks need to move vast amounts of data from the old system to the new one without any loss or corruption. It’s crucial but challenging.
System integration is another significant challenge as you are changing a fairly major part of your ecosystem. Ensuring that the new core banking system integrates seamlessly with existing applications and services requires careful planning.
Rigorous testing is also essential to identify and resolve potential issues before they impact the whole system and of course, you should never forget security and compliance, given the sensitive nature of financial data. The new system must meet all regulatory standards. Last but not least is scalability – ensuring the system can handle increasing transaction volumes efficiently as you grow as an organisation.
And talking about the operational side, what hurdles do financial institutions usually face?
I would say management of your key stakeholders is the biggest one. When you move to a new system, you need to get employees, management, and customers aligned. If you don’t, you open yourself up to a whole world of pain which can impact the success of the project. It is therefore advisable to get buy-in from all your stakeholders to ensure a smooth core banking transformation process and reap the benefit of the new platform.
Training staff before the transformation process starts is another critical area. They need to be proficient with the new system to prevent errors as well as avoid the cost and timeline impacts of them trying to recreate their old system in the new.
Finally, ensuring you have business continuity throughout the core banking transformation is essential to keep operations running smoothly and minimise the impact on your customers. Managing costs is always a challenge, as is working closely with vendors to ensure they deliver as promised.
You have more than 27 years of experience in systems architecture and integration for financial institutions. Can you share some effective risk management strategies for dealing with transformations such as migration from one banking core to another?
Well, it is always good to start with a comprehensive risk assessment and planning phase to identify potential risks and develop strategies to address them. That should be your starting point. Establish a clear governance structure with defined roles and responsibilities to ensure efficient decision-making and oversight and do not underestimate the power of clear communication.
I have seen so many cases where poor communication has massively impacted a transformation project. Keeping all stakeholders informed will manage expectations and help reduce resistance. Also, although it seems obvious, check and double-check that all staff are well prepared to use the new systems.
On the technical side, rigorous testing and robust data management strategies are essential. Always have a contingency plan in place to deal with unexpected issues, and continually monitor and review progress to stay on track. Work closely with your core banking software providers as this can help manage risk effectively and ensure that they deliver on their promises. It is likely they have done this before so make use of their experience. For example, we have found that operating a coexistence model, with the old and new cores running in parallel for a period of time enables the launch of new products on new technology whilst also delivering controlled migration from the old system. An incredibly effective way of mitigating risk without compromising on innovation.
Changing core banking software is a challenge itself. But does it make strategic sense to consider changing your AML/CFT software provider at the same time?
Yes, it can be a smart move. If you’re already in the process of overhauling your core banking system, the integration of a new AML/CFT solution can be smoother. This approach reduces potential compatibility issues and can be more cost-effective because you’re bundling the implementation. In addition, upgrading both systems at the same time positions your institution to be more adaptable to future regulatory changes and technological advances. This mindset can also be applied to other ecosystem providers (e.g. digital channels, fraud, reporting, etc.) as it offers potential cost savings, improved integration and future-proofing.
However, the increased complexity and risk of implementing multiple new solutions requires careful planning and robust project management. A thorough readiness assessment is therefore required. The rule is simple – if the institution has the capacity to handle the added complexity and manage the risks effectively, this combined approach can deliver significant long-term benefits.
How does an integrated approach to transitioning both core banking and AML/CFT systems improve compliance and operational efficiency?
An integrated approach ensures that both systems work seamlessly together, enhancing compliance by reducing data gaps and inconsistencies. It streamlines operational processes by centralising data management and reducing duplication of effort. The improved analytics and reporting capabilities the new systems offer by working in tandem will provide deeper insights into customer behaviour and risk patterns, supporting better decision-making.
Cost efficiency is another benefit, as managing both transformations together can reduce project management and training costs. Furthermore, a unified system allows for more effective risk management, as data is more accurate and accessible. I have seen a lot of core banking transformations where financial institutions changed core banking platforms and AML/CFT software at the same time, and in most, if not all, cases it was a success.
From your experience – what are the critical milestones in aligning core banking software and AML/CFT systems?
As already mentioned, the process starts with the project kickoff, where it’s important to align all stakeholders on the objectives and milestones. Next, gather detailed requirements from all departments to ensure that both systems meet the necessary needs. The solution design phase involves creating an architecture that ensures smooth integration and data flow between systems. In parallel, the Data migration workstream will ensure accurate, secure transfer of data but will also feed additional requirements for the new systems as the data provides good insights into the existing processes.
Follow this with integrated testing to validate that both systems work together properly and user training to ensure effective adoption. During the go-live phase, manage the transformation to minimise disruptions and schedule sufficient mock runs to firm up your go-live run guide. Finally, conduct a post-implementation review to evaluate performance and make any necessary adjustments.
Could you give some examples when financial institutions decide to change core banking software and AML solutions? And some specific examples of who has done this dual action.
In my experience, this typically happens with financial institutions that have inherited a “tightly coupled” legacy AML solution from a “one-stop shop” core provider or banking as a service (BaaS) offering. When they selected this, they preferred the contractual simplicity of having a single point of contact that owns the ecosystem rather than focus on a highly flexible and future-proof composable banking solution. Over time, some institutions find that it is not a one-size-fits-all solution and they outgrow its capabilities. This invariably stifles their growth as it prevents them from being able to launch new products quickly or benefit from changes in technology. It can also slow down their ability to keep up with Central Bank regulations. When this happens, we will see some move from one such provider to another in an attempt to increase flexibility, reduce operational costs and/or improve customer satisfaction, but ultimately just find themselves with the same issue, further down the line.
Others will take ownership of their ecosystem and benefit from the flexibility of composable banking by selecting best-of-breed providers over contractual simplicity and better equip themselves to compete with the neo-banks. Some examples of institutions that have successfully migrated their AML at the same time as core are Santander, ING, Tesco Bank, Sainsbury Bank, Coventry Building Society, Think Money, Castle Trust Bank and Piraeus Bank. I am sure there are many more, as it makes a lot of sense to do them together to maximise the benefits if you have the staff to manage the added complexity or have no choice.
Thanks for the interview!
You can find out more about our selection of the best core banking systems in another blog post here.
