In the introduction to a recently released Forrester Research report on core banking technology, report author Jost Hoppermann, VP, principal analyst, argues that bank tech executives involved in delivering their firms' banking platforms will need to have, among other things, "a sound perspective on how the future of banking and the related applications systems will play out." Fortunately banks do have some insight into their future, and more specifically, the future expectations of their customers.
As consumers from every demographic grow increasingly comfortable conducting business on the Web, new standards are emerging regarding the customer experience. When dealing with Internet giants such as Amazon and PayPal, consumers conduct transactions in real time, or at least close to it.
Many banks' core systems, however, can't offer that same convenience. "There are a lot more interactions on the Internet, so a core system is going to have to handle a lot more requests and traffic. It's also going to have to respond with greater speed," contends Erich Litch, SVP and GM, consumer services, at Fiserv (Brookfield, Wis.) Electronic Banking Services.
"A user doesn't want to wait 10 seconds for a balance request," he continues. "Some core systems, given the workload, just aren't able to handle that kind of continuous access and requests for information."
Customers' online expectations are influencing their demands across channels, notes Chris Tattersall, a London-based managing director with SMART Business Advisory and Consulting. "You have a situation where a client calls you and asks you, through your call center, to do something," he says. "When he gets to his office and looks into his online banking system, he expects to see the results of what he did when he was on the phone call. The multichannel system requires the core banking system to update immediately so the client can see immediately what's going on."
Jim Sizemore, CIO, bank solutions, Fiserv, adds, "A customer's expectation is that they have a consistent experience regardless of the channel. That means when they go to a teller, ATM, branch, Web site or mobile device, they see the same results."
But consumer preferences can change quickly, meaning many banks' aging core systems limit their ability to adjust. "A lot of the core systems that banks have are [built on a] very, very old architecture," observes SMART's Tattersall. "As they modernize -- for example, when they start to create more online capabilities -- they will struggle to integrate those into the old architecture on which the core system was originally built."
A Flexible Future
In order to be prepared for wherever consumer tastes may go, as well as for an equally uncertain regulatory environment, flexibility has emerged as a key driver behind many banks' legacy system replacement initiatives. Columbus, Ohio-based Nationwide Bank certainly placed a premium on flexibility when it implemented the Profile core banking system from FIS (Jacksonville, Fla.).
As a de novo bank, Nationwide Bank wasn't shackled by a 20-year-old legacy core system, but it needed a platform that could grow along with the bank, notes Chris Plescia, the Nationwide's CIO. "We didn't have a core system," he points out. "We had a trust company at Nationwide [the insurance company], and the decision was made and a charter was signed to become a bank. As part of the process, we had to pick a core system."
Nationwide, which has just two physical branches, is primarily an Internet bank. As such, secure and easy online access, online bill pay and money movement capabilities, and online financial tools were all necessary components, Plescia relates. "That's table stakes in the online banking world," he says. "So solutions that offered those capabilities -- that were tolerable out of the box but quickly customizable -- were some of the criteria we looked at."
The bank was given just seven months to install a core system and integrate it with other best-of-breed solutions to build out its end-to-end platform, Plescia recalls. Implementation started in May 2007 and the FIS core system, which is operated under an outsourced model, was up and running before the end of that year, according to Plescia.
"We didn't have time to build out a whole [custom] Web banking front end. We had to take what was there [for now]," he says. "One of our rules was to customize as little as possible so that down the road we could have flexibility in other areas and be able to make upgrades."
That flexibility has helped the company build $3.2 billion in assets in less than three years. Since the initial rollout of the core system in December 2007, Nationwide Bank has made numerous updates to its customer-facing capabilities, Plescia explains. For example, the bank launched a credit card origination system featuring real-time decision making and instant issuance and enhanced fraud-detection and security measures.