Parveen Bansal looks at the process of replacing core business systems, which is essential if the industry is to move forward.
The highly competitive market of the financial services industry is driving the need for faster time to market of new products. In parallel, the squeeze on IT budgets and the pressure to improve efficiency and reduce costs are also driving a lot of systems change. And yet another driver, as in the case of Banca Popolare di Milano, is the decision by vendors to withdraw support of a particular solution or platform.
Change is not always desirable and it is even less welcome when it means touching core business systems of which little is known. However, change of core systems is an exercise long overdue for banks in the developed markets. And changing the core systems, if done correctly, can significantly enhance the business, simply by offering business greater flexibility for new products and improving the use of customer knowledge.
Many banks in the emerging markets have already taken the leap and changed their core banking systems. Choosing a core banking solution and hardware is a decision of utmost importance. What is selected depends on various factors such as cost, stability and support for the technology.
Industry first
Banca Popolare di Milano (BPM) decided three years ago that it needed to change its core banking system if it was to remain in the market. While the change of core banking systems is not unique, BPM’s choice of Linux as the platform onwhich to develop its core banking systems, as well as its branch systems, was a first for the retail banking sector.
“The decision to move to Linux from OS/2 in the branch was a consequence of a series of other choices we had to make,” explains Clive Whincup, head of IT at BPM. Other options open to BPM were to either re-engineer the branch systems using another client-server platform, or create a web-based, multi-channel platform.
“One thing we were very much concerned with was to have a very open primary architecture – because we already had experience of dealing with the proprietary OS/2 system, and we did not want to be locked in with any one technology vendor.”
Why Linux?
There were two main drivers for selecting an open systems architecture, one was to cut the cost of maintaining separate proprietary platforms, and the other was customer service. “We were unable to hit the market on all channels at the same time.”
BPM’s decision to move to the Linux platform in 2001 was a brave one as it was unclear how Linux would pan out, and whether it would be supported in the server market. “Our objective was to have a minimum of 80%-90% portability. We have designed the system so that it is completely portable to Intel – because we developed on Intel, but tested and run the solution on mainframe. ”
New architecture
As well as using Linux for its core banking systems, BPM is taking servers out of its 700 branches and using Linux to enable a web-based architecture. Its original IBM mainframe used for running the OS/2 platform has been partitioned to allow Linux to replace the functionality of its old branch servers. The cost savings are clear and significant.
BPM used Jacada’s integration platform to transfer the front office applications to Linux web applications servers on the same IBM mainframe that BPM hosts its back-office applications on. The new architecture allows BPM to integrate multi-channel activities and thus enables a single customer view across all channels. “We had all channels running off different technologies – so one key issue was to consolidate channels,” says Mr Whincup
BPM is also using Linux in the front office. “Although we had the option of Microsoft Office on desktop, it brought with it a series of security issues, and also Microsoft XP in the front office required a link to Active Server Directory, which essentially meant a replication of the applications on both the Linux and XP server and this undermined all advantages of running an easily integrated, open system,” says Mr Whincup.
When asked whether he faced any challenges convincing the executive management team about changing the core systems and choosing Linux at a time when was it was so young, Mr Whincup says that there was really no option for them to refuse change of systems because OS/2 is so obsolete, it was clear to see the benefits of re-engineering the core IT systems, and the business benefits of being able to integrate all channels were also attractive. Mr Whincup admits that the scope and breadth of the project was very large and risky. “We have been careful not to bite off more than we can chew,” says Mr Whincup.
