Core Systems Modernization: Risk and Reward

Joe Reilly, EVP and CIO at Salt Lake City-based Zions Bancorporation, says the measured short term risk of a core systems replacement is worthwhile to achieve the long-term benefits that come from a modern core solution.

"There is a big technology risk (to not pursuing core modernization)," Reilly said during a panel discussion at BAI Retail Delivery 2013 in Denver this week. "Legacy systems are old technology, supported in many cases by an even older staff," he added, somewhat jocularly.

Reilly, a 2012 Bank Systems & Technology Elite 8 honoree, said the core systems Zions' affiliate banks were running were only still active in "a handful of banks" and he believed that there was long-term vendor viability risk by continuing to stay with the legacy systems.

"We didn't want to eventually be the last bank using these systems, and risk receiving minimal or no support," he added.

Reilly also noted that the commercial loan servicing system at Zions, which is a bank holding company that oversees eight separately chartered affiliate banks, wasn't meeting its business needs and decided to replace those as well as part of the overall core modernization strategy.

Reilly said one key for a successful core replacement project is for the whole organization to be involved. He noted that every affiliate bank was involved in the vendor selection process, and as the implementation is ongoing. Reilly also cited strong executive support as another key, with the board level actively involved in the process as well. "We've had very bold support from the top of the house," he added.

Zions sent an initial RFP to eight vendors, and as Zions reviewed the RFPs those involved realized that the decision to purse a "modern, integrated system" would take them outside the U.S. vendor community. Zions eventually went with a solution from Mumbai-based TCS. Reilly also stressed the importance of a good vendor relationship when undergoing a core replacement project, which he says Zions and TCS have. For example, he says TCS has been proactive in adding U.S. compliance expertise to their staff in order to better assist Zions. "It's equally important to TCS as to Zions that this be successful," he says.

Reilly says once the project is completed, Zions will achieve several benefits. Risk mitigation is one such benefit, and the ability to be more agile. Reilly also expects to see operational efficiency gains due to the reduced complexity of the new system, significantly reduced time to market for new products, and a 360, holistic view of the customer.

Rob Hunt, senior research director with CEB Tower Group, who moderated the discussion, said core systems replacements like the one Zions is going through are rare in the U.S. He joked that in the last 15 years of covering the core market "I had to spend most of my time in Asia and the Middle East because there was virtually nothing going on in North America." However, Hunt predicts that over the next decade "the majority of large banks" will undergo core modernization projects, as existing legacy systems will prove to be too much of a hindrance to pursuing innovation.

Bryan Yurcan is associate editor for Bank Systems and Technology. He has worked in various editorial capacities for newspapers and magazines for the past 8 years. After beginning his career as a municipal and courts reporter for daily newspapers in upstate New York, Bryan has ... View Full Bio