With the information demands of the 21st century, changing banks’ core systems will be mandatory. With the industry increasingly focused on the remodelling of core systems, one question banks are having to ask is: how do you turn a vertically integrated business that owns the customer process end to end and organises itself around products and channels into a horizontally structured business that wants to provide functionality to the customer at their point of need and organises themselves around the customer’s data?
This question is incredibly important and worth reviewing. First, banks were created to look after the financial needs of people and businesses. They were licensed to live in their own segregated world of operation and completely owned that turf. Everything from taking deposits to giving loans was the banks’ domain and they were organised to do just that. As a result, most banks created operations centred on products: money transmissions, mortgages, cards, loans, insurances and so on. These were delivered through one channel – the branch.
Over time, another channel appeared: the direct sales representative. These sales folk resided in branches and were served by the branch system. Then, a new channel popped up: the call centre. It was similar to one massive remote branch and required a new structure to operate. But the underlying data could be delivered through the branch-based systems, so the new structure was primarily designed to sit on top of those systems, offering scripts for the bank's various products. Call-centre staff struggled with this, sometimes accessing six or more windows onscreen at a time to get a competitive picture of a customer’s needs, but they lived with it.
Then, another channel popped up: the internet. At first, banks thought this could lead to branch closures and started to invest heavily in moving from branch to internet services. However, the underlying data was still held in product silos and the internet was not responsive to customers’ views of the world. Broadband had yet to appear and customers were reluctant to lose their branch connection.
Systems spaghetti
So, the banks left the internet as another layer on top of the branch-based systems, alongside the call-centre spaghetti. Banks had become locked into vertically integrated processes, structured around product silos that were ill suited to the multichannel world they now served. But it was OK. Using middleware, fudge, smoke and mirrors, these processes did the job.
Then, this perfect storm of mobile, cloud and big data appeared, augmented by customers tweeting and socialising 24/7, and most bankers said: “What the heck?”
Now here is the challenge: the bank cannot leverage data; it is locked in product silos. It cannot serve the customers’ needs. Banks layered channels over products. Now, they need to leverage data over mobile. And banks lost the end-to-end process as customers moved to apps and pieces of process and functionality as needed. Now there is a need to organise the bank around customer data and then leverage that data through the cloud to mobile devices as apps.
That is difficult to implement, but there is a way. The old systems need to be ripped out and replaced with new core banking that can service the bank, and therefore its customers, in a way that is appropriate for the 21st century. How do you do that?
Changing core systems is similar to changing the engines on an aircraft at 15,000 metres; you just do not do it. But more and more banks are doing just that. Some are having problems, but this is why banks are changing core systems. You cannot restructure a bank around customer data if you have that data locked in heritage systems that are product-siloed and channel-handcuffed.
