Modernization – To do or not to do?

By: Venkataraman Balasubramanian
November 7, 2023
3 min read

…. That is the question! In their July 2022 article, “Should US banks be moving to next-generation core banking platform?” 1, McKinsey argues that banks will likely need to take two simultaneous tracks: hollow out their existing core while experimenting with multiple next-gen cores to ultimately selecting one. While the selection activity is unique to each bank (given their strategic and technical fit as well as target state architecture), I have written extensively about the hollowing activity as it is a critical first step.

The criticality of the hollowing-out activity has been understated by research analysts and management consultants alike as the focus on the “shiny” object of neo-cores had taken afoot. However, the need for short-term results has shifted the focus to more realistic and achievable hollowing-out activities. I have postulated that product and pricing externalization serves precisely to achieve that type of hollowing-out of the core that yields near-term results and de-risks the subsequent modernization program. This point was also alluded to by Thought Machine when they claimed that “‘Hollow out the core’ is rapidly becoming the de facto strategy, and involves pulling the product engine, along with other key capabilities, out of the core.” 2

The necessary first step

The highest value in this hollowing out process results from the externalization of the product (and its related functions, such as pricing). It is, therefore, natural to begin that process as a necessary first step in any progressive modernization of an existing core banking system. This externalized product can then serve as a “cross-product” layer across any number of core systems a bank may have – thus allowing for propositions (that incorporate multiple products spanning multiple core systems) to be created, priced, and offered in a marketplace.

And the answer is……?

A resounding YES!

As McKinsey indicates, modernization via hollowing out is typically carried out in conjunction with the ultimate selection of a next-generation core. This approach creates the need for producing near-term results which, in turn, requires a necessary first step in terms of the creation of a cross-product layer. It is in this externalized cross-product layer that the existing core gets hollowed into (in terms of product, its pricing and other related functions). In both during the experimentation with next-gen cores and the selection of an ultimate core system, this cross-product layer services to provide products and propositions to all the connected core systems, thus reducing or eliminating the need for products and pricing in the newer systems. This alone helps de-risk both the experimentation and the ultimate selection from a product and pricing perspective which is a significant value for the bank. Furthermore, the real value to the bank is that product innovation is not put on hold as the bank experiments to find the right solution – this is a time-consuming task that can significantly hamper the bank’s revenue stream as well as its competitiveness in the marketplace.

While “to be or not to be….” was an existential question for Hamlet, “to do or not to do….” is certainly an existential question for any bank. At Zafin, we help banks not only prepare for the journey but also help them all along the way. We are that essential first step. The time is now. Let’s DO!


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Founded in 2002, Zafin offers a SaaS product and pricing platform that simplifies core modernization for top banks worldwide. Our platform enables business users to work collaboratively to design and manage pricing, products, and packages, while technologists streamline core banking systems.

With Zafin, banks accelerate time to market for new products and offers while lowering the cost of change and achieving tangible business and risk outcomes. The Zafin platform increases business agility while enabling personalized pricing and dynamic responses to evolving customer and market needs.

Zafin is headquartered in Vancouver, Canada, with offices and customers around the globe including ING, CIBC, HSBC, Wells Fargo, PNC, and ANZ.

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