Potential issues and possible solutions during Core Banking System replacement projects

Identifying the right problems and solutions

In my experience failed core banking replacement projects often derive from a series of problems and wrong solutions.

One less successful transformation project I witnessed, started with the managers of a local banking group’s subsidiary reporting to HQ that (Problem 1:) their account management system (or core banking system as we refer to it at Nova) was outdated and that (Problem 2:) the developers were already beyond retirement age.

Therefore, according to their views, the account management system should be upgraded or replaced (Wrong solution 1), but (Problem 3:) either solutions would be such a shock to the organization. So they would rather postpone the project (Wrong solution 2).

Finally, after receiving repeated signals about the issue, it was decided unilaterally at group level that an account management system selected at the center should be implemented at the subsidiary bank immediately (Wrong solution 2). So, for the problem raised, a drastic solution was decided without a detailed investigation. which did not necessarily address the original problems completely and correctly.

During the introduction of the new account management system, it was a significant challenge for the project team to measure the fulfilment of the business objectives for the replacement, since they were neither clearly defined, nor fully communicated to them. Ultimately the project ended with partial implementation success.

Lesson to be learned:

For me, the lesson learned here was that it is critical to first accurately identify the problem before responding with a solution having the complexity, cost and turnaround time of a core banking system replacement. In my view, it would have been possible to find a significantly cheaper solution targeting the identified discrepancies for certain specific challenges.

Another lesson is that without unambiguous and comprehensible reasons it is very difficult to manage such a complex and costly project in accordance with its objectives. In addition to this, there is a significant risk that the existing political consensus will evaporate during the preparation or implementation phases of the core banking system replacement project, and the endeavour will fail, resulting in a semi-implemented and partially replaced system.

In order to create true value, my suggestion is that the focal points of the project should be identified based on a high-level business and IT strategy before embarking on a costly task.

Otherwise, it will be very difficult to answer the following simple question: Why do we plan to spend millions of euros on a project that slows down or makes it extremely difficult to execute our other business objectives and operations?

Setting clear boundaries for the new core banking system and using standard vocabulary

Before replacing the core banking system (CBS) of a bank, it is important to determine what the scope of the new CBS will be, and what functionality will we cover with other systems.

It is important to address this issue in time for a number of reasons:

1.) It can help us a lot in precisely defining the expectations of the new system.

2.) Defining functionality can also be the basis for a more general architectural renewal.

3.) The realization of capabilities beyond the functionality of the future core banking system can be initiated independently of the CBS replacement project.

End-to-end business processes, products and services and high-level business capabilities may also be worth to consider when defining the boundaries of a new core banking system.

Employing a standard vocabulary can be very helpful during this task, as misunderstandings about the concepts used in the project can be avoided with its use.

BIAN is currently the most popular such standard. Positive features of BIAN include that it incorporates a business capability-, a service- and a data model as well, and besides the largest CBS vendors, a number of smaller ones, as well as many banks are also members of the community. Its disadvantage is that in certain areas the details are defined in varying quality.

Earlier I was part of a CBS replacement project in a bank, where questions about the boundaries of the solution were formulated correctly, before the task began.

Despite that, during the project, among others, it was unfortunately not determined whether the BI solution, the unified front-end, the loan origination, the collateral management or even the collateral allocation should be implemented as part of the new core banking system, or as part of another or several other applications.

As a result, the smallest and largest possible scope of the project differed drastically, which also meant a high degree of uncertainty during design and implementation phases. As a result, the different functional areas have been developed in varying detail. While detailed GAP analysis was executed for the most basic functions, for other, integral but only sketchily examined areas, even the identification of alternatives was not truly begun.

Due to the high degree of uncertainty, the focus slowly changed overtime. Although the project name still remained ‘Core banking system replacement’, in reality, the purpose and the mission had changed.

The original core banking system is still in use in the bank even to this day.

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