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Core Systems Modernization: Risk and Reward

At BAI Retail Delivery 2013, Zions Bancorp CIO Joe Reilly discussed why the bank holding company decided to replace legacy systems.

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

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User Rank: Author
11/11/2013 | 6:08:24 PM
re: Core Systems Modernization: Risk and Reward
A lot of banks are probably taking a wait and see attitude right now. I think they'll keep a close eye on the few banks doing core transformations and see how the results from those projects turn out before deciding on their own projects.
User Rank: Author
11/11/2013 | 5:57:36 PM
re: Core Systems Modernization: Risk and Reward
Yes, banks are finding they can't do all they want in terms of channel integration and 360 view of the customer without core upgrades, which is why Hunt predicts the majority of big banks will undergo core transformation in the next several years.
User Rank: Author
11/11/2013 | 4:28:13 PM
re: Core Systems Modernization: Risk and Reward
I assume the lack of core modernization initiatives in the US is due mainly to a shift in focus to compliance and multi-channel/customer experience initiatives the past few years -- core does not seem to be as hot a topic now as it was a few years ago. But as Rob Hunt points out, sooner or later these projects are unavoidable, especially as non-traditional competitors that are not encumbered by legacy systems become more aggressive in banking. It will be interesting to loop back with Zions in a year (or sooner) to see if they are achieving the benefits they hope to gain from the new system.
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