Core Banking Transformation: Solutions to Standardize Processes and Cut Costs

Saket Sinha – Global Core Banking Framework Leader
August 2010

Core Banking Transformation

© 2010 IBM Corporation

Building a smarter planet

There are dramatic forces of change across
financial institutions

Economy Trust

Competition Regulation

Clients Capitalization

2 © 2010 IBM Corporation


Core banking systems today are outdated,
expensive to maintain, inflexible and unable to
support growth and innovation
Cannot support complex, Cannot accommodate
BANKS’ DISSATISFACTION new and more complex
highly interdependent WITH CURRENT CORE
products and relationships risk management
SYSTEMS’ ABILITIES frameworks
Customer Data
43%
Analysis
Do not provide multi- Do not provide the
dimensional customer views necessary information
New Product 40%
or management information Time to Market required for today’s banking
control environment
Efficiency 40%
and Cost
Are inflexible due to reliance Do not support an efficient
on old technologies, single- Integration With
29% and flexible environment
purpose design and high Other Systems
leading to higher cost of
customization Incorporating maintenance
Regulatory 33%
Requirements

Require a lengthy Do not integrate easily
development period to 0% 10% 20% 30% 40% 50% with new applications,
introduce and support % DISSATISFIED third-party packages and
new products other IT assets
Source: IBM Institute of Business Value



Banks have began to realize the importance of
Core Banking Transformation
Core Banking IT Spend Analysis  Complexity in core banking
Complexities of
core banking
system can result in almost
system can almost
add ~30%-40% to
30%-40% overhead on the
the operating cost
total operating cost of the bank
Non IT
Spend
 Old legacy core banking
~95%
Discre-
systems almost Consume 90%
~10% tionary
Total
Operat-
Other
IT Spend of core banking spend
~50%spend
ing
Cost  Siloed and fragmented
architecture of the old systems
~50%Core ~90% BAU results in around 20% revenue
Banking Spend

~5% IT
Spend leakage through the door
Spend

Source Datamonitor Group, Forrester and IBM Client analysis


Today’s banks are looking to grow top-line
revenue by deepening customer relationships

Yet they also need to reduce
costs in response to increasing
margin pressures.
The solution?
Re-architected core
systems that can capture
and analyze the data
generated by every
transaction—continuously providing
the insights to drive new products
and services and to increase
efficiency throughout the enterprise.


Core Banking transformation has three key
control points. Architecture led approaches have
proven to be more successful in the past
Define Determine appropriate Make application
Architecture-led architecture first platform based on decisions based on
architecture decisions architecture

1. Architecture 2. Platform 3. Applications

Traditional Operating System Package
(Based on Legacy
architecture, e.g.. CICS/ &
& or
or
COBOL)

Database Custom
or
or
&
& or
or
Next Generation
Middleware Service
(Based on new
technologies; open
architecture) &
& or
or
Programming A Hybrid Model
model

Progressive transformation: Framework and/or ISV Core
IBM’s Banking Industry Dynamic Infrastructure &
Banking transformation
Framework for Core Banking z/Platform Growth
Framework / ISV Strategy
Transformation

Architecture largely Make platform
Select package Package-led
defined by package decisions based on
applications selected package selected



IBM core banking transformation approach
is based on progressive renovation—
Helps to modernize existing assets with a well defined
transformational roadmap

 Step orderly approach
Traditional vs. progressive approach that can be paced up
and down
Traditional Replacement Project
 De-risks implementation
Market Requirements

Progressive Transformation
 Change for course
possible if the market
Market gap
factor changes
 Allows banks to pace
the investment
Months to Realize ROI
 Focuses on architecture
first before applications


IBM’s approach provides multiple entry points
to banks to pursue transformation of their core
banking systems
High Progressive Renovation Objectives

x
1. Quick Fixes 2. Application 3. Enterprise 4. Operating model
Modernization Architecture Transformation
Cost

X’ Modernization

Business Transformation Focus
Change The
operating model
and the way we
do Business
Volume
1. Quick Fixes 2. Application 3. Enterprise
Modernization Architecture
Modernization
Degree of Strategy & Architecture Focus
Complexity

1. Quick Fixes 2. Application
Modernization
x Application Area Focus
X’ Different entry points
Reduce
for progressive
Cost

FTE,
minimize 1. Quick Fixes renovation
overlap,
improve
control Tactical Focus
Volume
8 Low Time © 2010 IBM Corporation


IBM’s progressive renovation focuses on

 Transformational Planning
 Foundational Architecture
 Legacy Modernization
 New Capability Development
 Package Implementation
 Execution based on
industrialized factory concepts
 Governance and change control



What Are The Objectives of Progressive
Modernization?
Legacy World Progressive Modernization Modernized World
Step By Step Modernization
Green Screens (COBOL to JAVA AND/OR COBOL) GUI Screens
• Business Domain By Business Domain
Monolithic Applications • Application By Application Modular Application
• User Interface Constructs
Inflexible Architecture
• Multi-Channel
Reusable Business
Multiple Point to Point • Application Architecture
• Integration Services via ESB
Interfaces At
Application & Data • Data Modular & Flexible
Levels • Governance Architecture
Embedded Business Develop new capabilities in Message Broker
Rules modernized world Mediated Interfaces
• New Development to meet
Embedded Data Access business requirements Exposed Business Rules
Logics That Are Re-Usable
Migrate existing capabilities into Across Applications
new environment
• Code conversion Integrated Data View
• Data Conversion
• High Cost of Maintenance • Application Retrofit • Lower Cost of Maintenance
• Higher Operating Cost • Lower Operating Cost
• High Time to Market Harvest existing capabilities • Lower Time to Market
• Business Inflexibility from legacy environment • Improved Business Flexibility
• Poor Efficiency & Productivity • Embedded business logics • Higher Efficiency & Productivity
• Reduced Ability to boost & business rules • Significant Ability to boost
revenue & Growth • Product Engines revenue & Growth
10 • Data models © 2010 IBM Corporation


IBM’s Banking Industry Framework
A combination of assets, tools, accelerators, methods and software
products that help banks modernize and run their core banking systems

1. Process, data, & service Models
2. Master data templates for customer, product and contract
master
Core Banking 3. Solution templates for overarching banking processes
e.g. account opening, product bundling etc.
Transformation Analysis 4. Reusable service components to aid application build up
& e.g. fees & charges, rate calculation etc.
Design 5. Reporting templates and services for analytics
6. Common application level IT foundational services
Integration 7. Integration message models
Optimization 8. Legacy analysis & discovery tools
Customer Analytics Payments 9. Architectural work products
Care and Collaboration and
Insight Security Securities 1. Integrated banking transformation workbench
Resiliency 2. SOA service components development infrastructure
Develop 3. Integration tools with support for mediation &
transformation
4. Legacy extraction & transformation tools
5. Business rules development
Integrated Risk 6. Integration tools for Master Data Management
Management
1. Runtime infrastructure and software products
Runtime 2. Banking extensions and bundles
3. System management tools
The framework gives you speed, flexibility and choice
in deploying solutions while reducing cost and risk!


IBM’s Core Banking Transformation Framework
offers key benefits
Accelerates core system transformation while minimizing risk
and disruption.
Key Benefits:
Core Banking  Faster deployment
Transformation
 Lower Risk
Integration
Infrastructure
Transformation
 Support for adoption of open
Optimization
Analytics
& industry standards
Collaboration
Security
Resiliency
 Offer choice of business
Process
applications from IBM & its
Agility
partners
Application
Modernization  Simplified enterprise
architecture


Examples of framework assets and accelerators
for Core Banking Transformation include

 IFW  Services Components
Building Blocks
 Banking Data/
Message Model  Solution Templates
 Banking Extensions  Banking Transformation
for Master Data Workbench
Management
 Design Rules
 Common Shared
Services



IBM’s Core Banking Transformation Framework
enables banks to undertake one
or more approaches to modernization based on
strongest alignment of business needs with IT
transformation efforts
Facilitated by Framework
Top Down

Modernization
Identify new “To Be” process
models, service components
Approaches
& architectural constructs
Implement Package

Design “To Be” architecture Re-Write / Develop Modernized
Strategic
for modernization Banking
Priorities
Legacy Modernization Environment

Determine how legacy can be Hybrid
harvested and/or migrated to
support “To Be” model

14 Bottom Up © 2010 IBM Corporation


IBM Core Banking Transformation Framework
enables organizations to start with any solution
and build upon it over time to achieve a simplified,
strategic infrastructure

1 Chooseand
project
a 2 Build on previous 3 Achieve a
value of
the
simplified,
implement it projects, reusing strategic
to achieve assets and infrastructure.
immediate ROI. implementation
patterns.


Banks benefit from added speed, choice and
flexibility, and the support of a vast IBM Business
Partner network
 Speed: Pre-configured solutions can be implemented faster
than ever
 Choice: Banks choose the solutions that provide the most
value to them, in the order and at the pace that makes the most
sense.
 Flexibility: Techniques built on business process management
and service-oriented architecture means easier deployment
and interoperability of solutions.
 Lower risk: Incremental projects, each with a defined payback
period, are more easily scoped and implemented—and build on
infrastructure deployed in previous phases.
 Business Partner network: An array of powerful applications
integrate seamlessly with IBM middleware.

Core Banking Transformation: Solutions to Standardize Processes and Cut Costs

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