Inside Union Bank's development of a new core system

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Union Bank is co-developing and co-engineering a new core banking system with FIS that it plans to deploy over the next two years.

The project is noteworthy because for a bank of this size, with assets of $134.7 billion, core system replacements are expensive, challenging, risky and rarely happen. They're often likened to open heart surgery.

The New York bank has special reason to be cautious — two decades ago, it tried to implement Infosys’s Finacle system as its new core. The project faltered and was shut down in 2011. So why try again, and why now?

“The strategic positioning of the company was the driving factor and motivation,” said Christopher Higgins, chief information and operations officer for the bank, which is also known as MUFG Union Bank. “That and a recognition that regulatory requirements will become more challenging all led us to the fact that from a business perspective, we need a modern demand deposit accounting system. If it’s not modern and not digital, we will not be able to compete.”

This time around, the bank took an approach only a few others have taken. It set up a mostly digital unit called PurePoint that acted as a guinea pig for testing new core technology as well as the use of digital accounts with higher interest rates to attract deposits. It's now using its own technologists to improve on the software, co-creating the next version.

PurePoint as tech innovation lab

Union Bank set up PurePoint in February 2017 as a hybrid-digital bank. It mainly offered an online savings account but it also had a few, paperless branches. It used a new core system at the time, FIS Profile 7, and FIS’s digital banking omnichannel software, Digital One. The idea was to test the new core in a small, contained unit and work out any kinks before rolling it out across the organization.

“PurePoint in many ways was our public innovation lab, without calling it that, to better understand what we can and can’t do, where we want to go and where we don’t,” said Pierre Habis, president of PurePoint. “For a firm our size, we can’t afford to try multiple things and see which ones work, so the safest route for us to think about what tomorrow could look like was to build a public lab and accomplish things at the same time.”

Today, Union bank plans to close the PurePoint branches and maintain the brand as digital only. This is in part to save money, partly because PurePoint has gathered deposits to the desired level: $7 billion worth over 70,000 accounts. At this point, it doesn’t need to grow.

However, some Union Bank branches will become PurePoint-like — paperless and digital savvy. So the PurePoint technology and approach will be ported over.

Co-developing FIS's new core

The PurePoint team is contributing its feedback about Profile 7 into the next version of the software, which FIS has named Modern Banking Platform. For instance, the handling of beneficiary accounts turned out to be a bit clunky, Habis said, so that will be fixed. They will also share work they've done on process and journey mapping and the user interface.

Profile 8 will run in FIS’s cloud, which Habis said will make it more nimble.

Higgins described the bank’s work with FIS as a collaboration. The bank is hiring more than 100 technologists to co-develop the platform. They’ll be based in Phoenix and will sit next to FIS engineers. Hundreds more tech and business staff throughout the bank will be involved in the implementation of the software. The bank will deploy the consumer component of the software, then commercial.

“We’re not just purchasing a platform, we’ve been co-developing and co-engineering this new, modern platform together,” he said. “It creates first-mover advantage for us.”

In choosing FIS, Higgins said security, operations, performance and regulatory compliance all topped the list of criteria. Profile and Digital One support paperless account opening — customers can upload documents from their home or office. They support real-time transaction posting, which is becoming more important as the U.S. shifts to real-time payments.

“The combination of the Digital One platform and Profile 8 positions Union Bank as a digital bank — our customers can interact with us in any manner they wish,” Higgins said. “They can interact online and on mobile, they can call us through our call centers, or they can come in through our branches.”

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Core conversions Core systems Digital banking Mobile banking Software professionals Software development Union Bank FIS