In the fast-evolving landscape of the financial industry, the increasingly competitive landscape and relentless push for innovation have compelled traditional banks to embark on a transformative journey to modernise their legacy systems.
While embracing cutting-edge technology and digital advancements is the clear option and imperative for banks seeking to thrive in the digital era, many traditional banks are uncertain about how to move forward.
In the decision to adopt a modern core banking system and overhaul existing infrastructure, a new strategy has emerged that demands attention and contemplation — the concept of coexistence.
The traditional approach to core modernisation involved complete system replacements, often involving substantial risks, disruption, and significant investments. While the outcomes were intended to be transformative and rewarding, the path to get there was fraught with challenges.
The coexistence approach offers banks the opportunity to strike a delicate balance between past and future, seamlessly blending legacy systems with modern, agile technologies.
More importantly, the costs and complexity of legacy banking are placing constraints on banks’ ability to not only innovate but also in providing the real-time, personalised banking experiences that customers expect.
Moving beyond the Big Bang approach
In the past, typically during the nine-to-five era of banking, the Big Bang migration approach was preferred when moving to a new core platform, a single migration phase in which all product data was extracted, transformed, and loaded in the shortest time possible.
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A Big Bang migration was supposed to have minimal downtime so business could resume as soon as possible. Customers usually end up having to tolerate wait times or outages of some form. Depending on the systems being migrated and their business impact, downtime might not be an acceptable option.
What is more, unexpected issues coupled with a lack of agile project management mean that new issues can be discovered after the migration has been completed. Worse still, if the migration fails, a complete rollback (and additional downtime) ends up being needed, not to mention the regulatory scrutiny that usually follows.
The case for coexistence
A more effective route to success for banks, in this case, would be coexistence or running two or more cores together for a period. The ability to bridge cores allows for a phased transition between the old and the new, along with the added benefit of risk-mitigating deployment strategies.
The coexistence model aligns migration with modern software practices, allowing the bank to deploy, migrate, test, and learn from small tranches of its portfolio in a far more controlled approach.
Naturally, each bank will have its own unique and complex data landscapes, so there is no one-size-fits-all model when it comes to coexistence. However, here are some common lessons that banks’ IT and delivery teams can keep in mind on their coexistence journey.
Embrace coexistence and set up the right team for the job
Recognise coexistence and actively plan for it during your transition state or states.
Set up a central team of experts to ensure comprehensive planning and decision-making. This may be distinct and separate from the business and technical teams that define the target state operating model and architecture.
Also Read: Banks must solve their core banking conundrum – or fail
This central team will set the North Star in terms of coexistence early in the program. From there, they will lay the required implementation path, working through each challenge and finding answers for the coexistence situations as they arise.
This team must also be empowered and have the appropriate senior sponsorship to smooth the working process across the many teams involved. Difficult decisions must be made, often at pace, to keep the program and its stakeholders aligned while moving forward with a holistic change-management strategy.
Use technology to support coexistence better
Gone are the days of stitching together a manual process, which would inevitably place additional pressure on operations colleagues. Instead, utilise the program’s target architecture to enable technology-centred coexistence.
Banks can be safe knowing that any interim builds can more easily be changed as you transition from one state to another with a more loosely coupled architecture. For example, a dedicated service could be set up to serve as the ‘control centre’ for managing coexistence indicators across various systems of record.
Investing tactically in legacy can help, but remember to plan for legacy decommissioning
Changes to the source system or data are likely needed to enable a successful transformation. For example, additional flags or tags may be required on legacy accounts to indicate which have been migrated.
Plan these changes early with the teams supporting the legacy core to ensure that things go smoothly. Equally important is that there are concrete steps in place within the migration plan to decommission the legacy estate, to ensure stakeholder buy-in on the journey, and to recognise the full benefits of the core modernisation program.
Final thoughts
Undoubtedly, the migration of core banking systems is a complex undertaking with inherent risks. Yet, with a strategic mindset, a well-planned approach, and the adoption of appropriate tools, banks can position themselves favourably to embrace the concept of coexistence on their path to a new digital core.
Simultaneously, this approach enhances their prospects of successfully navigating the challenges posed by the dynamic landscape of the next normal. The banks that achieve success in this journey of modernisation will emerge as the leaders in the near future.
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