Core banking conversion projects — in which banks swap out their 20-to-40-year-old transaction processing engines for newer systems with modern architecture — are few and far between, for reasons ranging from integration complexity to lack of vendor compliance support. But core conversions can be done. A case in point is North Shore Credit Union, which switched to Temenos's T24 core software last year.
CIO Fred Cook did not have a hard time selling the idea of a core conversion at his credit union, he says, because there was unanimous agreement. "Our business strategy was shifting into a whole new focus and our old banking system was becoming a technology island; it was actually becoming a hindrance," he reports. "Also, our vendor had just been bought out by another vendor, so things were changing and we wanted to make sure we were driving the change, not a vendor."
The credit union was facing three key issues: one was rising development costs with little opportunity to reduce operational cost. A second was that adding new functions and features was becoming difficult. The third was, the bank's other suppliers were out of step with the older core system. "Our tech roadmap and our old system were becoming an island, we had a slow speed to market strategy, and we didn't have the open access to our data sources that we wanted," he says. "And in our banking system, we wanted more real-time connectivity and more data flow between our enterprise content management system, our business process system, and our CRM engine. The core could no longer support our business strategy and was lacking as a strategic business tool. So we were losing business opportunities, or we would soon start losing them in the future because of that".
The core system didn't integrate well enough into the credit union's CRM system to feed real time information back and forth and thus enable customer and product segmentation. "We segment like crazy in our strategy," Cook remarks.
Consequently, the business side was able to see this as a corporate project, "rather than as a technology wanna-be project," Cook says. Where often IT work is the plumbing that people don't see, "a core system is first and foremost a business tool, and it should be thought of that way."
Pre-core-replacement preparation at North Shore included putting off the selection of certain secondary tools that will be affected by the new core, such as a new IVR and a collection system, but going ahead and buying other tools and infrastructure components that could take advantage of the new core, such as a new CRM system. By going from client/server to browser-based CRM, the credit union was better positioned to have it harmonize with the new core. "The key thing is you can't forget as you build out your governance and charters and set expectations, how much change you're going to handle and how much you're locking down so that you maintain control over any type of project creep. In a banking system, that can obviously get out of hand."
Internally, the credit union put together needs analysis sessions with the business teams and their subject matter experts. "They were seen as driven by the business right at the start, so it wasn't like we went out there and picked something and forced it on them," Cook says.
These sessions allowed both sides to take a fresh look at the functions and features the business units were using in the existing banking system, which had been in place for some time. "You don't always get that opportunity to step back and consider the things the system was supposed to do and never did, or did but we changed the way we wanted it to work," Cook says. "It was a good opportunity to find out what was working and not working, what was costing the credit union in back-end processing time and efficiency, and what business opportunities our business teams were missing."
The bank then sent out requests for information to several vendors. "The document required them to think about how they'd approach a solution," Cook relates. "It required some added explanation and development of why or how they took that approach." The credit union tested the core vendors' philosophies toward computing. For instance, North Shore starts account relationships in its customer relationship management system, rather than in the core. Some vendors were threatened by this because they sell based on their front-end capabilities. The only vendor to raise no objection was Temenos.
Its ability to support choices like these and open standards won Temenos this deal. "We have our sandbox and our strategy, and whatever banking platform we have we want to be able to play well within that, with an ease of integration and access," Cook says. "Some banking systems don't want to play in a sandbox, they are the sandbox."
Temenos was not an obvious choice; no other Canadian financial institution has deployed it. "When I told people what we had selected, it wasn't a household name by any stretch of the imagination," Cook says. "But I used to tell people, there isn't safety in numbers. If you pick a solution just because everybody else is picking it, all that means is there are a few more lemmings going off the cliff and you get to spread the blame around." North Shore had to "Canadianize" the product before it could start its conversion. For instance, the credit union's registered retirement tax products had to be written into the program.
One benefit of keeping the existing CRM system was the ability to minimize training and provide staff with a familiar user interface even though the entire core system was being replaced. "No matter what system our users are in, they can intuitively navigate through, even if it's an area in which they've never been before," Cook says. "Our ultimate goal is they won't know they are in CRM or core banking, they will just conduct their business. That's part of our journey."
The core project had its bumps. "It's a roller coaster ride," Cook acknowledges. But through good governance and relationship management, it came to a safe landing. "It's like a marriage," he says. "No one can tell me that a marriage doesn't have its hiccups. But with communication, understanding of where you're getting to, and having the same drivers and focus, you're going to make it."
The new core has survived five regulatory audits. "We like to think it was just a matter of timing, but when you have a new system, a lot of people want to come in and poke around to make sure you've done the right things," Cook observes.
The new system provides real-time transaction processing across online banking, mobile banking, branch banking and ATMs. Temenos is bringing out new features the credit union wants to deploy. North Shore hopes to be able to start offering products offered by clients of Temenos and the credit union's other major vendor partner, Microsoft, in other countries such as Germany, Austria and the U.S. "One advantage I wanted was to get away from the idea that we have to invent everything here," Cook says. "If something's been defined in Australia, the U.S. or Singapore, I'd like to find an opportunity to put a new twist on that, Canadianize it and bring it to market."
What advice does Cook have for other bankers contemplating a conversion? "Half the battle is getting the institution into the right frame of mind, that there are enough drivers to make that change," he says. "We stressed from the CEO on down that this wasn't just a technology project but a corporate project." Everyone knew the core replacement would affect the credit union's enterprise content engine, its CRM system and business intelligence software, thus the project presented risk to the whole organization, Cook acknowledges. However, "risk is a cost and companion of change," he says. "A project like this is going to deal with things today but set you up for tomorrow's success." Many banks, in his observation, fail to enter into this frame of mind before a conversion.
Another thing banks need to do before replacing a core system is find out exactly what the old system is doing, not doing and preventing them from doing, Cook says. "It's that cart before the horse thing," he says. "Before they can decide what they want from a banking platform vendor, they need to understand what the institution requires from a banking platform."
