Core systems need to reflect the reality of digital banking, but the pay off is significant: Accenture
Core banking systems are complex, difficult and expensive — the very antithesis of digital agility. Yet banks that want to embrace the digital revolution have little choice but to power ahead. The good news is that there is an opportunity to realise an 18 to 25 per cent return on equity by 2020 from investments in core system renewal, according to a report from Accenture.
In a company blog entitled “Is Your Core Banking Platform Inhibiting Growth?” written by Luis Martin Gonzalez, Managing Director of Accenture Core Banking Services, North America Lead, and coinciding with the release of the report the management consultants say a properly executed core banking transformation can drive a ten per cent improvement in efficiency ratios, or more.
Gonzalez suggests that “Banks that want to meet the digital age head-on and perhaps even become an Everyday Bank need a modern core banking system that is a highly efficient, high-transaction-volume, just-in-time engine.”
The good news, however, is that transformation doesn’t always mean implementing a radical change, says Gonzalez. He suggests that either a gradual or a transformative approach might work, depending on the unique circumstances of each bank.
The report identifies five different starting points from which to evolve to next-generation core banking:
- Data as the core. Adding new technologies and capabilities to be used across informational, operational and commercial layers, with predictive models and real-time analytics that enable better storage and analysis of massive data with simpler Business Intelligence stacks;
- Omni-channel platform. An end-to-end process-led orchestration, providing capabilities hollowed out from the core and designed to deliver a differentiated customer experience;
- Customer digital ecosystem. Extending the customer database to embrace the new digital customer concept, helping to complement and enhance existing capabilities to collect, analyse and use data on customer experiences and share information internally and externally;
- Gradual core banking transformation. An intermediate approach, focusing on gradually building new digital functions and capabilities that enable core banking to improve on-line real-time capabilities, provide the next level of automation and digitisation, be more granular to reinforce service reusability and flexibility, and provide a new distributed transaction model;
- Modernisation to cloud. A more disruptive approach, building a just-in-time transactional factory on top of a fully automated platform as a service software and hardware stack.
According to the report, “Digital banking is here — everything from online banking and mobile payments to direct mortgages and trading. As digital drives a customer experience revolution, it is creating a new strategic part for banks to play in the digital world — what Accenture calls The Everyday Bank.”
The authors of the report say The Everyday Bank focuses on forming much closer relationships with bank customers, being present in their everyday lives, and satisfying a broad range of life-cycle needs. And it assumes three distinct, digitally-powered roles to achieve this aim: Advice Provider, where it recommends specific, targeted buying suggestions; Access Facilitator, where it provides access to financial services and non-financial services partners; and Value Aggregator, which it delivers through real-time, dynamically priced offerings.