Core Systems: The Foundation of Customer Experience
Of the many challenges banks face as we move into the second decade of the 21st century, dealing with legacy systems is chief among them. Many financial institutions are operating with technology infrastructure from the 1970s or 80s, with decades of updates and layers of coding on top of it that serve as little more than a Band-Aid.
But to serve today’s consumer, banks need core systems that operate in real time, not batch, to be able to have the most relevant and up-to-date data when interacting with customers, experts say. Whereas previously data for each individual customer may have been stored in different silos corresponding to the financial products that customer had with the bank, today institutions need a holistic, 360-degree view of the customer, and technology that will enable that.
That was a prime reason Birmingham, Ala.-based BBVA Compass ($75 billion in total assets) first explored the idea of undergoing a core conversion four years ago, says Toni Gutierrez, director of core information systems. The company implemented Accenture’s Alnova core banking infrastructure across its 716 platforms.
The ambitious $362 million project was completed in steps, says Gutierrez, with the bank replacing its checking and savings deposit platforms, followed by consumer and business lending. The new core infrastructure also was integrated with BBVA Compass’s brand and ATM networks, call centers, and online and mobile banking services.
“What is important for us is that if a customer is contacting us from any channel, that the information our employees see is coming from the same place,” she explains. “One of the things we were struggling with [before the core conversion], that I would say most banks are also struggling with, is the fact that we had many different applications housing customer data in multiple places.”
With the new core technology, BBVA Compass is better able to offer a customer-centric experience, she says. For one, with real-time processing customers can always know they have the most accurate and up-to-date information when they access their bank accounts, she says. Since the bank has a consolidated view of customer data on the backend, it can offer more relevant products and services to customers as well.
Since the conversion, “We have gotten very positive feedback from customers. They are noticing the new experience they are having,” says Gutierrez. The Alnova system is also customizable, she adds, and adding onto it in the future will not be an arduous task. The core conversion has had benefits internally, as well as for customers -- regarding, for example, new hires.
“I think we are finding that as new individuals get onboarded to the bank, training is becoming easier,” she adds. “We don’t have to train them on eight different types of applications -- one system does it all.”
North American lag
BBVA Compass is unique in that most medium- to large-sized banks in North America have yet to undertake the ambitious -- and costly -- project of replacing core systems. But even BBVA Compass isn’t a typical North American bank. It is the US subsidiary of Spanish bank BBVA, which also converted to Accenture’s Alnova core.
However, this trend may begin to change. Christine Barry, research director for Aite Group says that, while core replacements in the US have largely been done by small community banks and credit unions, banks of all sizes are recognizing that they are necessary in order to create an optimal customer experience.
“It’s true that banks in less-developed countries are doing it more, and it’s easier for them as they have less legacy systems to deal with,” she says. “But banks in North America and the more-developed countries are seeing the need to replace their legacy core systems.”
Barry says in conversations with banks she works with, many see technology initiatives such as a core conversion as being customer-focused projects, as opposed to just being about achieving operational efficiency (which is still important in its own right).
“It’s about access to customer information,” she says. “Older solutions are transaction-focused. The newer ones are customer-centric and provide a 360[-degree] view of the customer across the bank.”
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Barry adds that the practice of layering new software over old technology will not prove tenable in the long run. “Banks can put in all the modern technology they want, but if they have old dinosaur systems running in the back end, it prevents them getting the full return on their solutions,” she says.
Ross Wainwright, global head of financial services industries for SAP, says that many of the company’s customers undergoing core transformation projects are based outside North America. But, like Barry, he says it’s a process no bank can put off for long.
“I get a sense that things are changing in the US,” he says. “With the stabilization of the market and banks largely getting their heads around all the new regulatory requirements, they can put more of a focus on driving innovation.”
Cloud-based core systems
He also believes the cloud will play a critical role in the future of core systems upgrades. “I think the real potential [for use of the cloud in core] is in Tier 2 and Tier 3 institutions,” says Wainwright. “Morgan Stanley may not be willing to put all its customer data in the cloud, but for a lot of banks going to the core can drive simplification and efficiency.”
A cloud-based system is not only less costly in terms of upkeep. It can also be easily customized and offer a speedier time to market for new products, he notes.
Luis Martín González, managing director for Accenture Core Banking Services, believes the success BBVA Compass has seen with its core transformation may be a turning point for core upgrades in the North American market -- especially with the increased focus on delivering products and services via digital channels.
“The banks are starting to realize their core banking platforms are an inhibitor for their digital transformation,” he says. “Banks need to deliver a new customer experience similar to what consumers experience in their everyday life with companies like Amazon, Apple, and Google.”
He worked for many years in Europe on bank core transformations before coming to the US. He believes the approach taken by European banks, which often face legacy technology issues similar to those US banks face, will be favored by banks here. That, he says, is a core replacement process that favors a gradual transformation, upgrading new applications step-by-step. This is similar to the approach BBVA Compass took.
Regardless of how they do it, González believes banks in the US can’t put off core transformations any longer. “One of the things we have seen in the North American market is there is much more obsolescence in the technology than in Europe,” he says.
Bryan Yurcan is associate editor for Bank Systems and Technology. He has worked in various editorial capacities for newspapers and magazines for the past 8 years. After beginning his career as a municipal and courts reporter for daily newspapers in upstate New York, Bryan has ... View Full Bio