Top 6 Reasons Banks Are Upgrading Their Cores

More core banking migrations are under way this year than the industry has seen in a decade. But the goals behind the initiatives are as varied as the banks themselves. We offer a few of the most popular, based on recent conversations with bankers and analysts.

1. To provide integrated, real-time customer data and service across the board. "Our stated strategic goal as a bank is to be No. 1 in customer service -- to provide the best service to customers possible and leverage that to benefit all parties," says Dave Curran, program director of Commonwealth Bank of Australia's core banking modernization initiative. "Unless you have a genuine integrated customer service solution, no matter how much you address culture and customer interface points, you still have breaks in your process."

As part of its core banking migration to SAP (Walldorf, Germany) for Banking, Commonwealth Bank of Australia has moved to real-time, 24/7, seven-day-a-week transaction processing, which has greatly helped the bank's customer service goals, according to Curran. "If you do a transaction on Saturday, we run it live on Saturday, which is a customer service value proposition." he says. "If you walk into a branch and open a new savings account, you walk out with the account open and can start transacting on it straightaway. ... It's immediate, which is good customer service. Also, if you're in a real-time environment with everything there at your fingertips, and the customer comes in with a problem, you can solve it there and then. That's something we never articulated in our use case, but feedback from the front line is that it's something our staff really appreciates."

2. To improve operational efficiency. Banks should think of core banking projects as a business process reengineering exercise as well as a technology migration exercise, advises Bart Narter, SVP of analyst firm Celent (Boston). Research has shown that half of the savings banks get from a new core system are operational savings and half come through IT. For example, the bank is more likely to achieve straight-through processing.

This was part of the reasoning behind the core banking migration project at Deutsche Bank, which is upgrading its existing core banking platform for global transaction banking to TCS BaNCS, from Tata Consultancy Services'TCS Financial Solutions, in 30 countries. "We currently have platforms in place that do what we expect them to do; however, to get to the next step in efficiency, productivity and time to market, we believe it's necessary to do a full replacement of that platform," says Rudiger Schmidt, head of core banking international at Deutsche Bank.

3. To comply with upcoming regulations. New systems are thought to be more nimble and easier to adjust; many also have certain compliance features built in. And for international banks, being able to standardize on one platform across the globe means changes (say, to accommodate Basel III recommendations) can be made centrally and executed around the world. "We're leveraging the IT replacement to do product harmonization across the various countries in which we operate," Schmidt relates. "Our principle is global by design, local by necessity. We want to reduce local customization as much as possible."

4. To reduce the system support burden. Many legacy core banking systems are 30 to 40 years old. At one large U.S. bank that recently upgraded its core, all the people who built the original homegrown core system reportedly had retired or died. IT staff running the system were getting nervous about its ability to come online every morning after the overnight batch. There can be operational risk to such systems, especially if they're poorly documented. In addition, older platforms often are written in Assembly or COBOL and are difficult for younger programmers to rewrite.

Silicon Valley Bank had built or bought several business applications, such as back-office applications for trade finance and asset-based lending, over the years that were attached to the bank's core platform. According to Bruce Wallace, the bank's head of global services, by switching to a newer system -- Redwood Shores, Calif.-based Oracle's Flexcube -- the bank will be able to get many of those features on a single core and retire several legacy business apps.

5. To harmonize products and systems around the globe. "We're leveraging this IT replacement to do product harmonization across the various countries," says Deutsche Bank's Schmidt. "We want to reduce local customization as much as possible and restrict it to clearing interfaces, regulatory reporting and maybe some local product on an exception basis." Although Deutsche Bank already has centralized customer data and the ability to provide banking services, such as cash management, across the globe, "We believe our internal efficiency will be much better based on a new and standardized platform," Schmidt adds.

6. To facilitate growth in general. Commonwealth Bank of Australia has been experiencing organic and inorganic growth. "Unless you have agility and efficiency, you can't act like a small bank when you're a big bank, and frankly, you need to," the Commonwealth's Curran notes. "If you want to grow organically, you have to have offerings that are better than everybody else's." To experience inorganic growth (by acquisition), he adds, the bank needed a platform that also would help it integrate other banks.