During the course of digitisation, many banks are concerned not only with which IT projects show potential in the area of tension between regulatory framework conditions, innovative trends and increasing operational cost pressure, but also with whether the core banking system used is up to the current demands of the business.
In cooperation with the Business Engineering Institute St. Gallen (BEI), in cooperation with the Core Banking Radar of Swisscom, has been monitoring the system support of banks since 2017, and analyses the most common systems in Switzerland at regular intervals using a comprehensive assessment model. However, since the analysis of the systems alone does not show the whole picture, this article includes findings from the survey of four selected customer banks, where three different core banking systems are in use. The results provide information on the current levels of satisfaction with system support from a bank's point of view, and show three basic strategies for the system support of tomorrow.
With increasing customer centricity and the paradigm shift from product-oriented services to demand-oriented services, new challenges have arisen which are leading to a growing need for action within the area of banking IT:
Heatmap - peripheral systems
Interestingly, peripheral systems are often chosen, although the services can generally also be implemented using applications from the core banking system manufacturer itself. Overall, it can be noticed that the use of peripheral systems is more pronounced at the customer interface. One remaining issue here, however, is the lack of a consistent approach by many client banks. Should customer interaction be department-specific (in relation to payments, investing or financing), or does it make more sense to serve customer needs along the contact points of the customer journey based on the specific topic?
The satisfaction level shows how satisfied banks are with the core banking processes offered by their system. The greatest area of dissatisfaction can be seen in the dependence and availability of resources in relation to the manufacturer. It must however be noted that individual feedback was also received with a high level of satisfaction.
Area of tension regarding satisfaction with system support
Most of the customer banks surveyed do not currently offer services in eco-systems, but they did express the goal of positioning themselves as participants within the next three years. According to the current survey, the eco-systems of Living and Financial Provision are particularly interesting according to the customer banks, and preferably in relation to services along the customer journey such as "house purchase and mortgages". Further potential can also be seen in relation to an eco-system in the "retail" sector, which includes supermarkets or e-commerce shops, for example. The main argument for the banks here is the significant volume of transactions and the associated data.
A strategy for system support in the future must be formulated in view of this area of tension between new open business models, such as the one being promoted by the regulators in the EU with PSD2, and the operation of traditional product-oriented banking business.
During the evaluation and development of a suitable strategy, four overarching core questions must be answered: Openness, data, functions and processes. These can be specified within the scope of the survey related to the area of tension of the challenges described above (service diversity, eco-system, low TCO). The answers then point the way to the change required for the future system support:
Basically, three strategies for system support in the future can be derived in relation to the customer bank satisfaction analysis and the core questions of architectural design.
Strategy 1: Core
All functions are covered to the greatest extent possible by a core banking system and/or the extensions of the respective manufacturer ("Best of Suite").
Overall assessment: The strategy is suitable for small and medium-sized retail, universal or even private banks, which pursue a follower strategy and have geared their business model towards traditional banking. This strategy is supported in Switzerland via various operator models.
Strategy 2: Front-to-back
The system support for customer interaction is provided independently by the bank. The core banking system covers as many other areas as possible.
Overall assessment: This is the appropriate strategy for banks that strive for differentiation through technological service orientation and market positioning, and who independently align their customer interface with market conditions. However, the required cultural change is greater than with the first strategy.
Strategy 3: Modular
Modular system support for the entire bank based on requirements ("best of breed")
Overall assessment: This strategy is recommended for banks that are convinced they can use IT to differentiate themselves on the market. It can also be implemented in a community of like-minded banks. Different operator models are also conceivable. This strategy enables technology-supported market orientation - structured according to the bank's own needs. This strategy could well take standard solutions of a core banking system manufacturer into account for one specific area. This approach can be particularly successful and cost-effective if the vision of lean core banking systems with a focus on the function of a "booking engine" is realised.
The needs of the banks surveyed are very similar. With regard to the common functionalities and services, the surveyed banks are satisfied to a large extent with the system support provided for their core banking systems. However, the more complex and less standardised a function becomes, the less satisfied a bank generally is with the out-of-the-box solutions on offer.
All customer banks surveyed see coherent approaches to future customer interaction as a challenge. Should the technological support be specific to each department, or does a digitally integrated approach along the customer journey, or perhaps even the creation of an eco-system, make sense?
The surveyed banks are interested in solutions for the development of the eco-systems Living and Financial Provision. However, it is also apparent that these are not (yet) financially attractive and that the joint use of data often still needs to be clarified.
For core banking system manufacturers, low costs mean standardisation and modularisation. At the same time, banks are increasingly demanding that individual needs be covered.
This requires a strategy. The four core questions covered here support structuring. The degree of openness of a system depends on the services, the partners and the intended data use. The integration of the functions, as well as the degree of process support throughout the system, must be assessed.
Coverage of the core questions with the three strategies (ranges)
With each of the three clear strategies formulated here, the overriding core issues of openness, data management, functions or processes can be supported to a degree. It is, however, important that the banks have a clear strategy for their IT.
This requires flexibility and clear decisions regarding system support, both from the banks themselves and from the core banking system manufacturers. Furthermore, this also increasingly means solutions need to be searched for together, and it requires strong partnership relations in the future.
The Core Banking Radar will continue to follow developments in this area. Another important topic is this regard relates to the Neo core banking systems, which should be able to offer a completely modular approach according to strategy 3 (see above). So stay tuned.
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