Banks start off with well meaning intentions and aspirations when it comes to core system replacement. This is often reflected in the request for proposals (RFP) and the initial wish list of must have functionalities and requirements from the new system planned to replace the ageing legacy core system. Often, one of the most important reasons for introducing a new system is to provide the bank with a customer centric solution. The ambitious wish list of a customer centric solution would, among other things, encompass:
- A single view of the customer, no matter where and in which country they may have their relationship.
- The rationalisation of the static data for the customer and nostro relationships.
- The reduction in costs and efforts associated in reconciliation and messaging.
In short, all the benefits of introducing a robust solution for the bank with the associated benefits of centralisation and standardisation. So why then is the customer often not at the focus of core systems replacement? This can be caused by:
- the rush to complete the project in the earliest possible time avoiding cost overruns;
- the scope and efforts involved and risks associated with changing and introducing radically new things, such as rationalising the different customer bases and accounts in the different countries for the same customer relationship;
- the need to ensure that user productivity is not adversely affected by the enthusiasm to introduce the new system; and
- the different conflicting expectations of the different stakeholders of the project.
Approaches to Implementation
Unless the banks make a conscious effort to stay the course, by the time the system is implemented and starts functioning in the new environment most of the items on the wish list fade into the background and it is the customer that comes last in the long list of priorities. The reasons for this are found in the approaches to implementation. As the project progresses different stakeholders emerge who take responsibility for implementation. The financial control team have a very important role to play in ensuring that the financial balances and the bank’s books are converted properly from the old system to the new system. (As this is a non-customer facing requirement, it will not be discussed as one of the key risks in this article.)
The two major stakeholders who have a major impact on the customer benefits are:
- The technology or IT department of the bank that is expected to act as a catalyst for the whole process.
- The operations area comprising the users who have the responsibility of testing the solutions and indirectly representing the interest of the customer during the implementation phases.
Analysis of key risks in relation to customer benefits result in different scenarios, for example:
- The most desirable situation would be if risks were fully managed (operational and implementation) with a customer centric approach providing high customer benefits.
- Medium to high risks (operational and implementation) with high customer benefits (customer centric approach with limited risk mitigating controls).
- Very low implementation risks, high operational risks with low customer benefits. In this case, implementation project schedules, interface systems within the bank, conversions and technical aspects are well managed but the customer is out of focus.
- Very high implementation risks but low operational risks with medium to low customer benefits.
- Very low residual risks for both the key risk areas (operational and implementation) but with medium to low customer benefits – this is the most likely scenario (the reasons for this are explained in the section below on ‘Conflicting Priorities’).
- Medium to high residual risks (operational and implementation) with low customer benefits. These are hasty implementation plans with little regard to risks or controls. This is the one that is least recommended or desirable.
Conflicting Priorities
The IT department of the bank is usually charged with most of the responsibility for core system replacement. What allows the IT department to implement the project with the least risk and a high degree of certainty dictates the priorities. Hence, the items that get higher priority and importance, at times, conflict with the main purpose of the project.
The core users from the operational areas of the bank, who need to use the system extensively, come next in the pecking order and have a major say in the whole process of transition. They then come up with a list of priorities of their own, which includes keeping functionality changes to the bare minimum while ensuring ease of use.
Senior management from the operations side of the business then highlight their priorities, which focus more on productivity improvements to ensure that they can show considerably higher payback from the project in the initial years and justify the investment in the new system. This is often addressed with additional investments in the area of business process reengineering (BPR). Given the continuous pressures to move operations from high cost centres to low cost centres, it is only natural to expect senior operations management to look at how the increase in straight-through processing (STP) and automation of manual processes will result in direct head count reduction.
This is then followed by the requirements for compliance, regulators and auditors who must be convinced that there is no risk to the franchise or that there are no operational risks associated with the introduction of the new system.
It is only after the expectations of these different stakeholders are addressed, that we get to the marketing people who should represent the interest of the customers. In practice, however, they are represented within the bank by the bank’s operations team, whose agenda doesn’t necessarily reflect market expectations. These key users are the people who test the systems and are often motivated by STP rate improvements, productivity gains and least risk to the testing cycles. Hence, in the absence of a clear customer centric focus, the functionality that is usually introduced gravitates towards existing usage and, in most cases, the old procedures are embodied in new software in a new technology environment.
Customer Requirements
Often, the relationship teams are approached with requirements for customer specific changes, such as content and look of the new customer statements; revised customer interest liquidation and accrual cycles; interfaces with the customer facing front end systems; ease of use for customer service teams; and flexibility for introduction of newer products.
All of these efforts are made to ensure that the new system does not take away some of the existing functionality, or at least leaves the customer in a situation of status quo. If the banks have been progressive they would have provided their large corporate clients with terminals at the customer site, to enable them to initiate transactions from their end. This would not only provide the customers with quick and easy access to their own accounts and transactions but would also help them in processing their own transactions. This would considerably reduce the costs to banks and, in turn, result in increased overall efficiency.
Taking all these factors into account, what was expected at the beginning of the project, i.e. implementing a customer centric solution, is not necessarily the end result. Often, immediately after the implementation efforts are completed, it is clear that the solution still needs work to bring the customer back into focus.
The real benefits to the customers only accrue when the dust and storm of introducing the new system has settled and hard questions are asked about the main benefits of the implementation. This is often when customer expectations start surfacing again. The focus then shifts back to the customer – the real reason for all the changes – and who should have been at the core all the time. That is when the bank starts reaping the real benefits by way of increased market share and growth and progress in business and revenue. This does not mean that there is not much to be gained by addressing the requirements of the technology, core users and senior operations team, compliance and risk and regulators in that order. It only means that when the bank fails to stay close to the customer, the main benefits to the customer only accrues a few years after the main phases of the implementation are completed.