We've seen a lot of core transformation activity from smaller banks, but much less from bigger ones. What's holding them back?
Wakeman: A lot of us over the last five to 10 years thought there would be more activity in the industry around core transformation activity. I think for a number of reasons -- whether it's been the economy or it's just such a large undertaking -- we haven't seen as much of that traffic. In individual situations, instead of a rip-and-replace or true core systems transformation, some [banks] have addressed the issue in other ways to meet customer expectations without doing a full core system transformation. Some banks have kept their operational costs very low and optimized. That has helped them avoid a major transformation.
If I can spin it the other way around in terms of why some are [undertaking core transformations], you take complexity, aging workforce, skills in managing some of the older technology, mergers and acquisitions, taking a kind of best-of-breed [approach] and, of course, cost. Another [driver] is speed to market.
A few attempts have also made some [organizations] weary. Looking at some of the global systems out there, some [banks] have attempted to work with certain vendors to make their product U.S. regulatory-compliant and have had severe challenges there and weren't successful.
For some who want to explore it for some of the reasons that I talked about, it's a big journey. So the question is, what does that journey look like? Our consulting to our clients is to build a carefully thought-out road map, instead of attacking too big of a scope to begin with, and look for benefits across the road map.
It's obviously more expensive and complex for a bigger bank to undertake a core transformation project. Could you go deeper into some best practices for banks looking to launch this kind of initiative?
Wakeman: It's across people, processes and technology, building out a very solid business case across all of those elements. It's also getting at the heart of the material cost of ownership and laying that out across the road map to see some incremental benefits across that journey. Certainly good governance is needed. Then it's execution, starting with a strategy and a business objective, getting through to requirements, looking at end-to-end processes. And it's not just looking at what's going on in the core, but looking from a process lens and understanding the challenges.
The vendor landscape is certainly interesting when you start to look across who the players are. I think that, depending on the bank's business model, they can be grouped into who the players are fairly well. Each of them comes with some risks and some benefits. Some have more modern tech and the benefits of that, but then have some challenges with, for example, not being U.S. regulatory-compliant.
Chung: I would say that there are three characteristics that successful banks have implemented in the past. The first of those is innovation -- the push for innovation in terms of delivering innovative products to customers and the execution behind how we do that through core banking solutions. The second would be the simplification, meaning simplifying a more streamlined organization through the solution. And the last piece is what Marcia had indicated, which is the strategic/operational/delivery excellence in executing the right business processes, the right planning around this massive undertaking and changing the program across the organization.
You mentioned the vendor landscape. There has been a lot of M&A activity there lately. How do you think that will impact the market? Do you think it could affect banks' decisions to undertake core transformations in the near term?
Wakeman: I don't know that some of the consolidation that happened directly corresponds to the decisions of the bank. I think that the vendors that are out there all come from different places. Some have a more global perspective and have done some great implementations globally. But are they relevant and dominant in the U.S.? The answer is no. So that's one set of vendors. Will someone break through and be effective? That's the question on the table. You have others that offer what I call a "bank in the box" model. They all have something different, so being very careful about the business model you want, and its ability to meet those needs, is important.
But it's taking a careful look across the landscape, understanding and being very clear about your bank's business model and the implications. If you're too big -- the largest [customer] for any of those [vendors] -- or the smallest for any of those in their client base, then you have challenges that could potentially break the vendor's operating model, if you will.
Chung: Banks are dealing with many challenges right now in the market. There's this big push to really generate new income streams, there's retention of customers, there's this ongoing cost pressure. We're seeing these trends in the market, and I think going forward we'll see that there will be a trend in the bigger banks looking at -- or investing more in -- core banking.
Jonathan Camhi has been an associate editor with Bank Systems & Technology since 2012. He previously worked as a freelance journalist in New York City covering politics, health and immigration, and has a master's degree from the City University of New York's Graduate School ... View Full Bio