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Main questions in the selection of boxed core banking systems


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In the previous post, I wrote about the selection of core banking systems in general and reviewed the fundamental conditions and issues of internally developed solutions.

In this article, I will write in more detail about the aspects that proved to be key issues for me when choosing a retail account management system for financial institutions.

Identify suppliers of the potential boxed core banking systems

First of all, it is important to identify all relevant solutions. According to my experience, during the compilation of the longlist and the shortlist, it is worthwhile to consider the systems used by the banks in the region, the reports of the industry analysts such as Gartner and Forrester, and the sales data.

Adding core banking system vendors who do not have the basic competencies to deliver the capabilities we are looking for can waste a lot of energy and time in the selection process. Due to the size of the task if a relevant vendor is not identified in time, sooner or later it will occur that the list of the invited solution providers should be extended. This can cause significant delay during the selection process.

I have also witnessed an occasion, when the entire request for proposal (RFP) process had to be repeated because not a single core banking system vendor could be selected for the shortlist, about which, by the end of the selection process, the client could believe that they are able to meet their requirements.

Andras Breuer

András Breuer

Head of Banking Transformation

András has gained 15+ years of experience in the Financial Sector as a Core Banking Systems implementation expert and project manager.

He is currently leading the Core Banking Transformation Services at MINDSPIRE, while supporting our key implementation projects as lead expert and QA.

He also spent 4 years as a line manager at K&H Bank having been responsible for e-channels, front-end, cards, treasury and investment system analysts.

His main strengths are Core Banking platforms, business and IT architecture design and vendor side communication.

Selection criteria for boxed core banking systems

In my experience there have been several cases when the group headquarters determined for the subsidiary, the system they had to implement. In these cases, end users may not be familiar even with the selection criteria.

It is difficult to execute the selection of such a complex financial system in a way that later many won’t be disappointed in the organization, and think that “we should have chosen the other one”.

No matter how much time and energy we put into identifying the account management system, there may not be a “best” solution. There are a number of core banking systems in the market with similar capabilities and with implementing any of these we usually can’t make a big mistake. More attention should be paid to ensure that only the solutions capable to fulfil the requirement should be added to the shortlist.

Either way it turns out, during the selection (RFI / RFP) process or in case of an already defined supplier, I highly recommend to examine the following aspects in order to support the planning of the task at hand.

MINDSPIRE core banking experience and methodology

Knowledge of boxed core banking systems (such as Flexcube, T24, Murex, CAMS and SMAC).

Proven and customized complex banking transformation methodology package.

We have created standard solutions to the most challenging banking transformation problems.

We use our own tools and templates to help reduce the risks of a classic implementation project.

More details

Proven delivery capabilities

It is a good idea to get as much information as possible from the vendor or from other sources, such as the users of the system, analysts and consultants, about similar implementations that have been delivered in the past. By similar, I mean a successful reference possibly from the same country or region, executed for a bank similar in size within ten years and with the least difference regarding the business scope.

A CIO shared a story with me which I think is a good illustration of why it is important to pay close attention to the details of the references. A few years ago, a European financial institution decided to replace its core banking system. They found a likable supplier who presented a “similar” implementation project that was carried out quickly and successfully, to the greatest satisfaction of the customer in a country in the Arabian Peninsula. The decision was made, the supplier was selected and the implementation of the account management system began.

However, approaching the end of the project, it turned out that the realization of certain standard Hungarian market requirements regarding lending is facing very serious difficulties. As it turned out, the concepts associated with lending at Islamic banks are different from those used in European countries. Thus, the example presented as a reference was only partially suitable to draw conclusions for the implementation in Hungary.

Integrator available in the same country or region

Banks are rarely replacing account management systems (per two to three decades). Therefore, it would not be reasonable for financial institutions to continuously employ professionals who are implementing core banking systems occupationally. Especially not in the numbers that would otherwise be required for such projects.

Core banking system integrator

The consulting team of solution providers typically provides effective professional coordination of the changes required in a given system. However, they are less experienced in integrating it into any bank’s enterprise architecture. This task requires a complex, robust methodology and a large number of seasoned experts.

Due to this, in my opinion it is not worthwhile to start replacing the core banking system without a competent integrator, whose local knowledge also has a significant impact on the success of the project.

By local knowledge I mean knowledge about the organization and architecture of the particular bank, the regulations of the countries involved, and the characteristics of the market primarily. In addition, command of the local language is also important because many banking experts can often only communicate confidently in their native language.

Ideally, there are several integrators available in the country or in the region who have been involved in the implementation of the selected core banking system in this role, preferably within the past five years.

Integration, further development capabilities and operation

It is important that the core banking system to be selected supports the industry standard integration solutions. Here I am thinking of SOAP, REST, MQ, file or Apache Kafka-based communication standards as an example.

An equally important question is how it is possible to extend the built-in capabilities of the account management system. What can be achieved with parameterization or configuration, how to insert a new field, table, business logic next to the built-in ones. To illustrate the above with a real-life example, it is irrelevant for a financial institution to have many Java coders if the application can only be developed in a special BASIC language. Such peculiarities and limitations can narrow the range of resources that can be involved.

In addition to the above, the level of automation of development and operational processes can also be an important factor. Nowadays, it is recommended to request the system installation material in a container (such as Docker, Kubernetes, or OpenShift) and to enquire after the built-in options for moving the account management system’s application logic, parameters, and configuration between environments. For example, how to move parameters from one environment to another, how to compare the parameters and configurations of two environments, or how to automatically extract parameters from the core banking system in a way that can be interpreted by business users. What is the level of support for lifecycle management of the account management system, are there standard devops solutions, is it possible to create an automated environment and issue management?

Why is all this important? At least seven parallel environments must be maintained on a typical account management system replacement project. However, it is not uncommon that more than twenty environments have to be maintained in parallel for different purposes. The branching of code and parameters, and the merging and synchronization is an extremely complex task, which is easy to fail with a manual solution.

It is my firm belief that the synchronization of different core banking systems should not be done manually, without a proper support tool. That’s why MINDSPIRE Consulting’s core banking system experts have developed a solution called the MINDSPIRE Oracle FLEXCUBE Parameter TRANSPORT Tool.

The TRANSPORT Tool has been used in a number of significant and complex core banking system replacement projects in the region in recent years. In addition, our consultants and clients continue to use the tool to support live operation of parameter changes.

Discover the capabilities of the MINDSPIRE Oracle FLEXCUBE Parameter TRANSPORT Tool solution!

The supplier’s previous and planned developments

It is worthwhile to examine the recent R&D investments of the core banking system vendor, and the tangible results of these. It is also recommended to review the development plans and directions for the account management solution.

Analyses of such boxed core banking systems are also being conducted by industry research institutes such as Gartner and Forrester.

It is essential to learn about previous and planned developments because there may be regulatory or technological challenges in the future that can only be addressed through a major overhaul of the account management system. For some vendors with active and planned enhancements, it is likely that after a version upgrade the new requirements can be met with minor changes and customizations. However, if a supplier no longer allocates sufficient resources to keep a core banking system up to date, that solution will lag behind the market in terms of technology and functionality both. Maintaining such account management solutions and adapting them to newer and newer changes and challenges will be a much more serious task for the bank.

All this is especially important because financial institutions rarely change their core banking systems, and always face serious difficulties whenever they do, therefore they have to try to select a suitable system looking 20 years ahead.

Actual total costs of boxed core banking systems

I previously participated in an account management system selection project in a bank where only the immediate licensing costs of the solutions were compared. But I also worked on a task where a fifteen-year TCO (Total Cost of Ownership) was calculated, taking into account not only the price of the license but also the support fees and implementation costs.

Total cost of a core banking system
I suggest that in terms of costs try to explore as comprehensively as possible the items that are expected to be associated with the implementation of the core banking system, in order to reduce the elements of surprise in the future. Here, it is also worthwhile considering elements such as the cost of the computers that will be used for the project. This includes the cost of hardware, the operating system, all designated development and test systems, application and database servers. All other components to be licenced that are required for the operation of the system due to the requirements of either the supplier or the bank (such as an ESB), and the support fees for all of these. As the implementation of the account management system for the financial institution takes years in itself, I recommend a time horizon of at least 15 years for the calculation of the total cost (TCO).

Ending thoughts

The account management systems of banks are the most deeply integrated systems of financial institutions with complex internal logic. The replacement of these solutions is slow, complicated and expensive, which is why the preparation of the tasks is of particular importance.

On the one hand, it is important to clearly see the long-term goals and expectations associated with the task.

On the other hand, significant experience has accumulated in the industry during the past few decades regarding the selection of the target system, which is worthwhile considering for such a task.

The experts of MINDSPIRE Consulting have extensive experience in identifying goals and selecting systems as well. Based on this unique knowledge, we undertake the implementation and support of various tasks related to the replacement of core banking systems.

As I mentioned in the blog post about the next generation of core banking systems, we have accumulated considerable methodological experience in the last decade, so we are happy to participate in similar projects as well.

If you would like to compare the emerging thoughts, ideas and challenges about replacing the core banking system with industry experience in a casual discussion, please contact our experts!

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