Banking has changed significantly over the last decade. Customer expectations are ever-increasing, competition is fierce, and regulations are tightening. These forces leave banks with a clear imperative: core modernization is no longer optional—it’s critical.
Legacy core systems, often monolithic and complex, are struggling to keep up with the demands of the digital age. They hinder agility, stifle innovation, and create operational inefficiencies. As a CIO, you’re at the forefront of this transformation, tasked with navigating the complexities of core modernization while enabling business growth, ensuring business continuity and minimizing risk. While this may seem daunting, it’s also a unique opportunity to shape the future of banking at your institution.
In this piece, we’ll explore why core modernization is essential for your bank’s success. We focus on the benefits your bank (and its customers) stands to gain, and the five key steps you’ll need to take to ensure a successful transformation
Why core modernization is essential
Customers now expect seamless, personalized experiences across all channels, mirroring the standards set by digital-native companies. People have become used to the click-and-receive models of Amazon, Netflix and Spotify. So why not their bank?
Fintech startups and big tech firms are disrupting the industry with innovative, customer-centric solutions – think Apple Pay’s seamless transactions, buy-now-pay-later credit products, and AI-driven investing platforms. On top of this, regulations often require changes to core systems to capture, track, and report data in specific ways. Legacy systems are challenged to meet these requirements efficiently.
Traditional core modernization strategies, such as rip-and-replace or greenfield implementations, often prove to be costly, time-consuming, and disruptive. An increasing number of proof points reinforce the merits of progressive modernization. This approach allows banks to modernize incrementally, focusing on specific core components and capabilities, while extending the productive life of existing systems.
As noted in the Deloitte report: Digital transformation hits core banking: Understanding a bank’s choices for modernization, progressive modernization increases cost efficiency, offers improved customer experiences and even meets regulatory requirements by providing better data management and reporting capabilities. By focusing on specific core components and capabilities, banks can achieve meaningful transformations without the high risks associated with wholesale changes.
A step-by-step guide to progressive core modernization
Progressive core modernization is not just a technical challenge; it’s a strategic opportunity to bridge the gap between IT and business priorities.
In the short term, IT and Business may seem to have different priorities. With the complexities of simply maintaining the core, IT may be laser focused on continuity, while the business side might be more interested in innovation and opportunity.
But ultimately, the goals are the same – creating a technological environment that can sustain growth with minimal risks. With the right approach to core modernization, IT and business can align and work towards their long-term goals in lockstep, fostering innovation and stability simultaneously
Here’s a step-by-step guide to achieving progressive core modernization that aligns these priorities and sets your bank on the path to success.
1. Assess and Strategize
Deep dive into your current state: Conduct a comprehensive assessment of your existing core systems, including their architecture, functionalities, performance, and pain points. Identify areas where the system is hindering agility, innovation, or customer experience.
Define clear objectives: Establish clear and measurable objectives for your modernization initiative in terms of improved customer experience, faster time-to-market, reduced operational costs, or enhanced regulatory compliance.
Align with business goals: Ensure your modernization strategy enables business objectives. Is there a new product launch or experience improvement that modernization can directly enable?
Develop a roadmap: Create a high-level roadmap outlining the iterative business value that can be unlocked at each phase of the journey. This will serve as a guiding framework for your efforts. This iterative approach reduces risk while delivering quick wins early in the journey.
2. Prioritize and Plan
Prioritize based on impact and feasibility: Evaluate each component based on its potential impact on your business and the feasibility of modernizing it. Prioritize those that offer the greatest potential benefits with manageable risk and complexity.
Consider risk mitigation: Factor in potential risks, such as regulatory challenges or service disruptions, to ensure priorities align with business continuity.
3. Adopt a Best-of-Breed Approach
Explore SaaS solutions: Research and evaluate modern, cloud-native SaaS platforms that offer capabilities in the areas you’ve prioritized for modernization.
Externalize core capabilities: Gradually externalize core functionalities to best-of-breed SaaS platforms. These are functions that have traditionally been handled within core systems, such as product master, rate determination, fee calculation, etc. Externalizing these into best-of-breed solutions simplifies the core, while unlocking new business value such as the ability to reward customers based on their overall relationship with the bank (relationship-based pricing).
4. Ensure Seamless Integration
Prioritize open standards: Select SaaS partners that adhere to industry standards (i.e. BIAN), which ensure interoperability and future-proofing through open APIs.
Develop integration strategies: Work closely with your SaaS partners on data mapping, API integration.
Monitor and optimize: Continuously monitor performance and effectiveness of the modernization.
5. Embrace agility and innovation
Choose partners wisely: Partner with SaaS providers that are committed to continuous innovation and collaboration. This ensures you have access to the latest technologies and functionalities.
Stay agile: Modernization is an ongoing process. Be prepared to adapt your strategy and roadmap as market dynamics and customer expectations change.
Zafin: empowering your modernization journey
When it comes to product management and pricing, Zafin stands out as a trusted enabler of transformation. Its cloud-native SaaS platform empowers banks to externalize core capabilities, enabling greater agility, faster time-to-market, and enhanced personalization. With Zafin, banks can gain a competitive edge by offering innovative products, dynamic pricing, and tailored customer experiences —all while simplifying their core systems
Core modernization is not a one-size-fits-all endeavor. It requires a strategic, phased approach that aligns with your unique business needs and objectives. By adopting a progressive modernization strategy and leveraging best-of-breed SaaS solutions like Zafin, you can lead your organization towards a future of agility, innovation, and customer-centricity.
Remember, modernization is a journey, not a destination. Embrace the change and let Zafin help you create the foundation for long-term success in the digital age.
