SEPTEMBER 202319nimble and adapt to changing market dynamics quickly without needing large-scale transformation programs after every few years.HDFC Bank is not alone in this journey. Several global banks, including JPMorgan Chase, Lloyds Banking Group, Westpac, and Intesa Sanpaolo announced partnerships with modern cloud-native core banking players. The coreless initiative propelled by Banking Industry Architecture Network (BIAN) has many leading banks as members, including Citi, PNC Bank, and Bangkok Bank.Challenges that Bank FaceAs outlined above, moving to a coreless approach with modern cloud-native core banking systems can provide benefits around better customer experiences and operational efficiencies. However, the core modernization journey can be challenging for large banks because they have relied on these systems for several decades. And any change to the core will impact the entire banking operations and customer transactions!If not done correctly, the downside is high - both from the perspective of customer experience and regulatory scrutiny. For example, TSB Bank in UK was fined £48.65m by UK finance regulators for failures that led to unavailability of services during the migration of millions of customer accounts between banking systems.Cost and time overruns are also common. For example, a leading Australian bank saw its cost of modernization skyrocket to over 3x the initial estimate! A related challenge is the difficulty in ascertaining the returns on investments upfront. Too often, IT teams drive core modernization efforts, and they may not have the tools and measurement frameworks to link business benefits to modernization activity.The Five-pronged StrategyDespite the benefits, the challenges above are a reason that large banks are cautious about modernization. However, stalling modernization is not an option, given the increasing demand from customers for great experiences, pressure from competitors, and the cost involved in not only maintaining the legacy but also to add new features. Moreover, the large, monolithic systems in play today are coming to an end of life. Soon there may not be people around to manage these!So, what can banks do to mitigate these challenges? We recommend the following five phased approach to transformation.1. Start with a Clear Ambition, a Business Case & Executive Leadership Involvement: Senior leadership team of the bank should understand and commit to the core modernization program ambitions from the outset. Start by creating a clear north-star vision for the modernization effort. Then build an investment case validated by the CFO and identify prioritized use cases for modernization based on the overall strategy. Following this assign accountable owners to drive the modernization program, bringing in the right combina-tion of business, functional, & technology capabilities.2. Choose the Right Partners: Since coreless modernization can be a long-drawn effort that involves multiple vendors, banks should prudently evaluate partners across four dimensions. Firstly, they should consider the functional expertise of the vendor analyzing the depth and breadth of functionalities they support. Gaurav has over 20 years of experience in Finance industry. His key corporate expertise is Financial Planning & Analysis, Controllership, and Offshoring Strategy, Financial Planning, and more. He has extensive experience in strategic planning and analysis, organizational re-design, providing strategic oversight to the finance leadership, and more.Gaurav KalaniSenior Director-Business Consulting
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