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Banks -- and Their Core Systems -- in Survival Mode

Amid an economic downturn that is only beginning to show signs of a bottom, banks are reexamining their core systems, with a priority on phasing in capabilities to cope with new realities around risk, regulation and customer retention.

To support this kind of componentization, MasterCard built a service-oriented architecture (SOA) with the goal of creating a flexible global infrastructure capable of accommodating various payments channels over time, the firm's Kelly relates. As an added benefit, developers were able to reuse many services during its core conversion utilizing SOA and standardized processes, she reports.

Using an SOA is critical when taking the piecemeal route to upgrading core systems, according to Jim Dempster, an SVP with Milwaukee-based Metavante. "SOA leads to strong integration that connects diverse pieces of technology," he says.

Another approach that can help banks efficiently extend their core systems is the concept of software as a service. Although SMART's Barba believes SaaS is still rapidly evolving, he sees great potential in the model. "SaaS can help a bank in crisis mode by offering pieces of a solution that you use and pay for as needed," he explains.

Pilot programs, according to Don Russo, group VP, financial services global business unit, Oracle (Redwood Shores, Calif.), also are a good way for banks to kick-start core systems transformations while keeping implementation risk at a minimum. "This is part of the challenge of the financial crisis," he says. "I'm seeing a number of banks look at pilot projects because they realize they have to start something. These are projects to prove out new infrastructure that will then be rolled out across the entire enterprise."

The Customer Is at the Front of the Line

While a phased implementation of core technology can help ease the pain related to resources and risk, the success of a core transformation largely hinges on which systems a bank chooses to replace. And like the rest of financial services, many banks are placing the customer at the center of their strategy and reengineering systems with a customer-data perspective.

Given the present state of banking and the economy as a whole, as well as the inevitable rush of new regulation facing the industry, requirements around reporting and transparency will factor greatly into every bank's technology decisions. Many of the experts interviewed for this article believe that creating a better customer information system is critical for financial institutions to cope with the new compliance and customer service climate.

To that end Mahesh Makhija, associate VP of banking and capital markets with Bangalore-based Infosys, says the areas that will see the most investment likely will be around branch infrastructure and channel integration. "In this environment it's important to increase customer trust," he asserts. "So although there may be a little reprioritization around where banks are spending money, you'll see more of a focus on customer-facing systems."

TowerGroup's Hunt agrees, noting that the customer information file (CIF) is the one place where everything comes together. "There is so much information in the customer system," he says. "A new dynamic is in play that's driving banks to look at the customer information system as the piece of the core to replace."

Hunt says measures such as the Patriot Act and Know Your Customer guidelines have placed increased scrutiny on the CIF. "This is highlighting the structural problems with the old CIF systems," he explains. "But if you replace your customer system first, you can see the relationship, the risk. This is also a good way to move to a real-time environment. You have to look at what replacing the customer information management system gives the bank in terms of compliance, risk management and regulation."

Hancock Bank, which uses the core solution offered by Jacksonville, Fla.-based Fidelity National Information Services, understands the importance of focusing on the customer in the current business environment. According to Hancock's Loper, in addition to efficiency plays, the bank's technology investments will be aimed at strengthening customer service and boosting retention. "We'll look at projects to improve customer touch and tools that help us analyze how we're doing with the customers," he relates. "You have to make the case for immediate ROI today. That's why [Hancock] will focus on projects that deliver a return very close to the expenditure."

Fostering Transparency With a Transactional View of Data

Metavante's Dempster suggests that core projects centered on gaining a total view of the customer are likely to provide the biggest bang for the buck. "These days banks need to demonstrate safety and soundness in an overwhelming way to their customers," he says. "Banks need [a total view of the customer] to do their risk assessment of customers and to gain the transparency that you just can't get from the point of view of one transaction. [The data] has to be integrated throughout the systems."

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