Retail banks find themselves staring down an outsized challenge: how to drive growth?
The sluggish economy, waves of new regulation and restless customers are just some of the forces hampering revenue generation.
Nearly two-thirds of the retail banking senior executives that our company recently surveyed said they see more shopping around, more price sensitivity and less loyalty among consumers.
Recognizing the need to get into fighting shape, a growing number of banks — both large and small — are modernizing their core banking platforms. Traditionally thought of as a cost management strategy, core system upgrades today are being driven as much by the need to bolster revenue as to operate more efficiently.
For example, banks realize that to increase wallet share, they need flexible systems that can enable relationship pricing, product bundling and customized product features that meet customers' unique needs. Few banks have this capability today because they are hamstrung by aging legacy systems.
Modernization can range from re-engineering existing platforms that enable new capabilities, to full core banking platform replacement. There is no one-size-fits-all approach, as it will depend upon the desired business benefits, budget and risk tolerance of each institution.
Too often, banks think of core banking modernization essentially as a software purchasing exercise. They issue a request-for-proposal without first determining what strategic outcome the modernization program should deliver, and how to use technology to enable that strategy.
A more sound approach is to follow a roadmap with the following milestones:
• Achieve a consensus among business leaders as to what product offerings the bank wants to bring to market over the short- and long-term to help grow profitably. Modernization is a once-in-a-generation undertaking, so these decisions could have long lasting ramifications.
Banks should be asking themselves, for example, whether they envision: using bundling and relationship pricing as part of their strategy; offering market-linked deposit products; and offering more fee-based or transaction-based services. Banks will need to ensure that the platform decision supports its product strategy.
• Determine the most effective way of rolling out these new product capabilities and make sure that they are mapped to the business case created for the program. The implementation plan should be able to demonstrate cost savings (such as lower cost/income ratios) and revenue lift (such as higher cross-sell ratios) associated with these capabilities over the course of the modernization journey.
• Define quick wins in your implementation strategy to sustain executive buy-in. If nothing has been implemented after an extended period of significant investment, the entire program strategy could be called into question. To avoid this predicament, focus immediately on delivering some level of business benefit within the first few months. Examples could include leading with core deposit or other targeted products, developing front office sales tools linked with the core platform, or implementing product bundling.
• Build a strong governance structure so that executive support is sustained across the institution. Often, a modernization program is led by the technology unit while the business organization remains relatively passive until the project approaches production launch or exceeds budget. A dedicated senior executive should drive the overall modernization effort.
Additionally two leaders should align both the business and technology units around common strategic goals. Key business leaders should feel like they have a role in providing input into the program and are getting something out of it. This is critical since core modernization initiatives can typically range from one to three years.
• Keep in mind first and foremost the interests of your customers and to minimize disruptions at every step of the rollout. After all, expanding wallet share is a primary reason that banks are looking to make investments in modernization programs. Thus, giving customers more attention and delivering the right product through the right channel should be the end game.
• Map out the bank's legacy applications and operational processes with the target state environment. This data will be needed both to prepare the business case and prepare the request-for-proposal. Banks should be able to address questions such as: What cost savings are we targeting in back office operations? What interfaces will we need to build? What part of our legacy application environment must remain in place?
• Establish a centralized and transparent project management office function to help drive the initiative forward. This is critical for two reasons: to track metrics and key performance indicators during the program delivery, and to ensure that benefits are tracked and measured appropriately following implementation.
• Clarify the implementation process up front to ensure a smooth execution. Since these programs can be large-scale and time-consuming, the goal should be to maximize predictability with respect to delivery dates and costs.
Driven by the urgency to increase revenues and still manage costs, leading institutions are seizing the opportunity to start laying the technology groundwork for long-term competitive advantage.
Juan Pedro Moreno is global managing director of Accenture Core Banking Services. Fiaz Sindu is an executive and core banking consultant in Accenture's North America banking practice.