The advent of technologies such as artificial intelligence (AI), machine learning and the internet of things (IoT) have transformed the way in which the world operates. Customers now demand personalized experiences and firms that haven’t digitized their businesses must transform in order to compete in this new world. One industry which has found it more difficult to adapt is banking, as many banks are saddled with rigid and core legacy application systems. Large banks and financial institutions continue to remain slow to adopt these emerging technologies which is preventing them from delivering an optimal customer experience, driving growth and keeping themselves relevant in a dynamic market.
Banks must modernize their legacy banking systems in order to compete in this evolving marketplace. A strategy that can help banks modernize their operation is adopting a modular approach to enable an easier digital transformation. While there are many options to modernize core banking systems, success will be elusive unless the legacy infrastructure is broken down into smaller manageable logical parts. This three-step approach focuses on simplifying the core from the outside-in:
Step One: Examine and detail high-velocity customer journeys: Banks should start by listing out all customer journeys that have high velocity interactions with customers. Detail the journey from start to finish through all impacting applications. They should then evaluate the journey in terms of value it delivers to customers, revenue it generates for the bank, level of complexity within the middle and back office and the risk involved. This helps get the scope defined and rated based on the dimensions.
Step Two: Identify what part of these chosen journeys can be moved from the back-office to the reimagined “middle-” (digital) office: For each journey, identify the business logic that needs to move from the back office to the new enterprise middle layer; the digital core. Analyze and evaluate the change in the legacy core for the business logic simplification/hollow out. As a final stage, deliver the scope backlog by looking at the journey, the risk and revenue.
Step Three: Pilot these middle-office operations to select journeys and pilot within a smaller group before rollout: The pilot can be rolled out to internal bank users or a limited set of customers identified to help fine tune through the launch and the change. Certain complex back office logic which may be far too tightly integrated can be de-risked by identifying workarounds.
This modular approach allows banks to execute the fundamental steps of core architecture modernization in a seamless manner, without any unexpected surprises along the way. It uses an intermediary layer to provide the required connectivity, and scale successfully to integrate systems and applications across the enterprise using existing core platforms. The result is the ability to simplify and modernize processes by enabling rapid, continuous change without impacting routine operations.
Benefits of a Modular Approach
Segmenting applications to drive personalization is one benefit of a modular approach as banks need deeper insights into the impact of various applications aligned to different stakeholders in order to transform their core systems and become truly digital. In fact the feedback from leading banks that have adopted an intelligent middle layer such as Xelerate Digital core, has been largely positive with the bank being able to dissociate the customer experience from the system of records. These banks were successfully able to move from a manufacturing architecture to an assembly architecture with the ability to quickly adopt new technologies, add more functionality and capabilities, offer customized products and enhance the customer experience.
It works by helping banks segment their applications landscape and by acting as an intelligent middle office that integrates core back office systems with customer interfaces and external partner ecosystems. The result is centralized information on products, services and pricing across segments and business offerings. When coupled with real-time analytical capabilities, the middle layer enables banks to analyze every customer instantly by synching historical customer data with current patterns to create truly personalized offerings.
Risk mitigation and change management are another benefit. The middle layer allows banks to gradually replace the legacy core system in a phased manner, decoupling engagement channels from systems that store data and records. This keeps the data and key information secure and central, driving increased business agility, and reducing risks associated with core technology transformation.
Revamping core back office systems requires intelligence to interface with new-age front-end applications. The digital middle layer uses built-in intelligence to orchestrate business logic, workflows and processes across multiple systems to drive superior value through increased customer wallet share, as well as to help phase out complexities of legacy core systems.
Creating an agile and customer-centric bank for the digital age
Deploying a modular and flexible middle layer that acts as the digital core helps create a truly open ecosystem that fosters collaboration and innovation, without the cost or challenges of completely modernizing the core. The transformative intermediary layer ensures that the core platform remains strong and resilient, while handling the connectivity and processing required of an intelligent and responsive organization. The outcome: banks can easily transition from being a ‘financial services provider’ to true customer owners for sustained growth and success.
Madhur Jain, SVP & Global Head- Solution Consulting, SunTec