Key's call: To modernize consumer lending, it had to strip systems to the core
Replacing core systems can be an expensive and risky proposition for banks, but KeyCorp has decided the time is now to replace an antiquated legacy system.
The $138 billion-asset bank announced at the Oracle Industry Connect conference in New York this week that it plans to ditch its existing lending platform in an effort to digitize and modernize the lending process.
Key is focusing on its consumer lending portfolio, which currently runs on three systems, and is consolidating them into two: an Oracle platform to run non-real-estate loans and a system from Black Knight to handle real estate loans.
The Cleveland bank determined it had to start replacing legacy systems now to position itself as a leader in the future, Chief Information Officer Amy Brady said in an interview after the announcement.
“You don’t go into a project like this to do it just for the sake of doing it,” Brady said. “Normally you don’t want to touch these [systems], but to give clients the digital experience and self-service they are asking for — we felt there was a business case to do this.”
Brady said the idea first came up when Key was integrating systems after its acquisition of First Niagara Financial Group and noticed many were quite old and had been implemented by people who had long left the company.
“It was pretty clear [some of] these legacy systems were going to be more difficult to work with than others,” Brady said.
The new technology will be phased in, with mortgages being the first area to be implemented this year and the entirety of the work expected to be completed in 2019. While Key did not disclose a dollar amount for the investment, the scale of the project is massive; the bank expects to migrate about 1 million loans onto the new systems.
Brady said customers will get a more contemporary user experience that employs “predictive modeling to help them manage finances, and present them with proactive offers.”
For example, if a customer continually pays a loan 15 days after the due date and that is simply because of the cycle on which he or she gets paid, the new system can spot that reason and send a notification asking if the customer wants to change the due date. There will also be more creative and “dignified” options for repayment for those who go into default than currently exist, Brady said.
The new technology will also provide a big efficiency boost, Brady added. Consolidating from three systems to two will streamline operations, as will getting rid of the largely manual work needed to operate the legacy technology.
“It will really simplify the environment,” Brady said. “A lot of back-office processes will move to digital, eliminating manual steps and paper in the workflow.”
Key’s investment in lending is part of a larger digital strategy at the bank; about six years ago it made the decision to make a big investment in data and analytics which continues to this day, and in the last two years it has made several investments in, or acquisitions of, fintech firms.
“It’s about digitizing the enterprise,” Brady said. “It involves investing in technology as well as partnering with fintechs. For those of us [banks] that are going in this direction now that get it right, it will be a big differentiator."
Projects such as Key’s new lending systems will be necessary to compete with fintech startups as well as tech companies such as Amazon that are becoming more involved in financial services, Ron Suber, a former president of the online lender Prosper Marketplace and an investor in several fintech companies, said during a presentation at the conference.
“Agility and use of data are extremely important,” he said. “Banks have the data, but it’s stored in four different databases, so they don’t have agility like fintechs have. Incumbents used to compete only with each other; now they compete with big tech and fintech and other agile innovators.”
Big technology companies like “PayPal, Google, Facebook … are absolutely going after banks,” Suber said.
Suber added that banks have to sort out their technology as well as culture issues, since there are often conflicting viewpoints internally.
“Big tech firms are unified,” he said. “Banks have these warring factions. … Everyone’s got the same business card, but nobody wants to work together.”
Industry attitudes are starting to change, however, as competition increases.
“Customer-centricity is the holy grail of how financial services companies would like to run their business, but progress until now has mostly been more lip service than reality,” said Chet Kamat, a senior vice president with Oracle Financial Services. “But now with the disruption happening [from fintech], there’s a lot more interest in putting the customer at the center of a better user experience and delivering better customer outcomes.”