CORE BANKING SELECTION

CHALLENGES & APPROACHES

A TIER 2–3 BANK PERSPECTIVE

In collaboration with
Contents

1 Context | Setting the big picture   3

2 Envision | The end state   5

Aligning objectives   5

Determining initial shortlist of suppliers   5

Scoping the program   6

Prioritising requirements   7

3 Evaluate | The way forward   8

The evaluation process   8

Aligning stakeholders expectations   9

4 Execute | Determine the best fit partner   10

Finalising the solution partner   10

5 Conclusion | Making the right choice   11

1 Context   Setting the big picture

Context  Setting the big picture

The Core Banking System is considered as being the heart of every bank. One of the most critical factors in the successful mod-
ernisation of the technology backbone is choosing the right solution and supplier, to complement the bank’s strategy, business
needs and values. The choice of an inappropriate solution partner may lead to both short-term and long-term implications.

Looking at the way forward for a bank typically needs a number of questions answered.

Where does the bank see itself in five to ten years?

Which channels are more likely to be used for customer engagement in the future?

How is the customer experience likely to be enhanced?

What are the products to be offered in the medium to long term?

Therefore, what are the implications from a technology standpoint?

It is imperative that the choice of the system is aligned with the bank’s aspirations. More importantly, ensuring that the supplier
is the best fit partner is key to a successful way forward.

Core Banking replacements by geography

and bank types (2017-2019)

12%
What is changing?
Middle East &
Africa There are significant changes that banks are experiencing
around the world. These changes are driving banks to adapt
48% and improve their competitive positioning. Fast-evolving
23%
customer expectations, the push for digital banking and the
Asia & Australia Americas need for collaboration with fintech players, all means that
most banks need to look at how to modernise their tech-
nology. A robust technology platform powered by a modern
17%
Core Banking System is imperative to navigate through this
Europe ever-changing environment.

The trend in Core Banking modernisation is evidenced by

the fact that there have been more than 1500 replacements
over the last three years alone. Interestingly, almost two-
thirds of these replacements were that of Tier 2 – 3 banks.

63% 37%

Tier 2 – 3 Banks Tier 1 Banks

Source : IBS SalesVision

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 1 Context   Setting the big picture

It is important to acknowledge that the challenges faced The emerging practices in the selection of Core Banking
by Tier 2 – 3 banks tend to be somewhat different from solutions may be summarised across the
their Tier 1 counterparts. While Tier 1 banks typically have
significant financial wherewithal and access to expertise, E3 FRAMEWORK:
Tier 2 – 3 banks are relatively constrained. More important- E N V I S I O N , E VA L U AT E A N D E X E C U T E
ly, the margin for error is much more limited in a Tier 2 – 3
bank context where resources are considerably more fi- Envision the end state of the bank’s objectives.
nite. Therefore, there is a need for Tier 2 – 3 banks to be Evaluate based on business requirements, technol-
that much more sensitive about both the process and its ogy aspects and supplier credentials.
outcome. Effective execution is not just about doing things Execute structured processes for the selection of
right, but also about doing the right thing. a best fit solution partner.

The typical challenges faced by Tier 2 – 3 banks when This paper is a reflection on these challenges faced, their
changing Core Systems fall in five broad buckets: implications, and the potential approaches that may be
adopted across the three stages of the E3 framework.

KEY CHALLENGES

1 Aligning strategic objectives

Non-alignment of strategic objectives leading to partial / not achieved results.

2 Limited knowledge of supplier landscape

Limited market intelligence leading to potential opportunity loss or inappropriate short listing.

3 Balancing between the breadth & depth

Ineffective balancing between breadth and depth while making selection choices.

4 Incorrect prioritisation of requirements

Incorrect prioritisation of requirements, resulting in gaps only being identified at an advanced stage.

5 Identifying the right evaluation criteria

Vague evaluation criteria, resulting in potential wrong conclusion and selection.

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 2 Envision   The end state

Envision  The end state

Aligning objectives

As customers demand change, banks also rethink their roadmap. A lack of alignment typically results in gaps that
strategy. Banking products, channels and processes are get discovered later. In order to avoid those gaps, the end
continuously evolving. Therefore, the expectations from a state objectives will need to be articulated well and reflect-
Core Banking System are also expanding. Unless these are ed in the selection process.
defined and crystallised, it is hard to align the technology

1 CHALLENGE : Aligning strategic objectives “In preparing for the selection

of a Core Banking System,
CONTEXT : Banks are reinventing themselves with specialised offerings.
Technology has to be in alignment with the changing business needs it is important to understand
the financial ecosystem of
Implications  Approach to be adopted the bank and the customer
segments that the bank
Non-alignment of the bank Articulate the business
systems to the bank’s strategy expectations appropriately in intends to target. The bank’s
the selection process
position in this ecosystem is
Non-alignment of business expec- Drive the enterprise architecture in important for rationalisation
tations with the requirements line with the business direction
of portfolios and systems”

Vaibhav Sakorikar, Chief Information

Officer, PT Finance, Vietnam

Determining initial shortlist of suppliers

There are 80+ Core Banking suppliers around the world. now to consider solutions that have been proven elsewhere
However, the awareness levels tend to be generally limited and can be a potential fit for the bank. The points of ref-
to the suppliers in the region where the Tier 2 – 3 bank oper- erence for drawing up a well-represented shortlist are typ-
ates. Invariably, this results in a significant opportunity loss. ically analysts’ reports supported by inputs from external
In an increasingly flat world, there are more opportunities research consultants.

2 CHALLENGE : Limited knowledge of supplier landscape

CONTEXT : There are over 80 Core Banking suppliers in the market, however not all may be known at the point of selection

Implications  Approach to be adopted

The opportunity loss due Review analysts’ reports providing holistic

to limited awareness of global views on solutions available
suppliers
Engage with external research consultants

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 2 Envision   The end state

Scoping the program

Tier 2 – 3 banks typically have about 30-40 applications as Additionally, the options available to the bank in terms of
part of their enterprise architecture. A Core Banking trans- supplier selection approach are:
formation does not necessarily mean that all the applica-
tion areas need to be modernised. It is important to deter- A. An end-to-end (integrated) solution supplier who could
mine which of these areas need to be transformed based address all (or a large proportion) of the needs or
on a review of the architecture. The considerations are as
follows: B. A combination of suppliers who are specialists in their
specific areas (best-of-breed).
1. Can the application be retained as is?
The kind of implications that the above questions pose
2. Is there a potential opportunity to upgrade? can be interesting. Can both corporate and retail banking
functionalities be addressed by the same solution/suppli-
3. Does it need to be replaced by a new/different system? er? Can both wealth and credit functions be covered by the
same solution or would they need specialist applications?
Usually, the applications that fall under the ‘Replace’ and Can both digital banking and branch banking be part of the
‘Upgrade’ categories form the scope of the modernisation same solution stack?

and subsequent evaluation process.

Banks will eventually need to decide between choosing a
single solution partner or specialised solutions for each
area. The consideration set for making this decision in-
cludes the system functional coverage, the profile of the
supplier(s), the ability of the internal technology teams to
coordinate with multiple suppliers, cost implications and
opportunity loss/gain for the bank.

3 CHALLENGE : Balancing between the breadth & depth

CONTEXT : The choice between selecting a universal banking solution with “There should be
end to end breadth of capabilities in some modules or specialist solutions
a balance drawn between
with deeper functionalities in specific areas
the number of systems in
Implications  Approach to be adopted
the application landscape
Choosing a universal banking Drive a balance between and the capabilities required
solution supplier may result in the two, taking into consideration
by a bank. This needs to be
dealing with a single supplier, profile of the supplier, the ability
potentially leading to end to end of internal IT teams to engage done without complicating
breadth of functionalities with multiple suppliers, the
the integrations while ensure
opportunity loss/gain and cost
Choosing multiple suppliers implications ease for future ensuring”
for specialist solutions may result
in access to deeper functionality
in specific areas Paul Cazaz, GM Core Banking,
ME Bank, Australia

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 2 Envision   The end state

Prioritising requirements

Every system evaluation needs to have the bank’s requirements documented clearly for a granular evaluation. The degree of
detail may vary. While in some cases, the requirements range from 1000 to 2000 line items, the more detailed ones may run
up to 5000 lines. In order to ensure that the evaluation is done with the same sense of criticality, it is also helpful to classify the
requirements into three broad buckets.

• Must have
Where requirements are typically mandatory and “Ensuring that the evaluation focuses
cannot be compromised
on the ‘Must have’ is very critical as
• Need to have one can easily get carried away by
Critical requirements that are essential for running
the bank what suppliers present which may not
always be what the bank needs”
• Nice to have
Not so critical requirements but would be good
Fouad Baalbaki, Chief Information
if available. Officer, Bankmed, Lebanon

Classifying the requirements helps to make the evaluation

process more granular as it distinguishes between the sys-
tems that meet most of the ‘Must have’ against the “Nice to
have”.

4 CHALLENGE : Incorrect prioritisation of requirements

CONTEXT : Right prioritisation of requirements enables banks to distinguish

between suppliers who address most of the ‘Must have’, as compared to those
who do not

Implications  Approach to be adopted

Unless banks prioritise Prioritise requirements

the requirements, as ‘Must have’, ‘Need to have’,
the ability to compare ‘Nice to have’
& contrast solutions
is diluted Focus on the ‘Must have’
requirements

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 3 Evaluate   The way forward

Evaluate  The way forward

The evaluation process

The evaluation needs to cover functional requirements, technology aspects and the credentials of the supplier. While the func-
tional requirements deal with the specific areas of business, the technology aspects include scalability, agility, interoperability,
open architecture, and modularity, amongst others. Additionally, it is also critical to evaluate each supplier’s implementation
track record, sales performance, management profile, financial health and other non-technical factors. These include support
and team profiles that are key to ensure the best supplier fit with the organisation, size and culture of the purchasing bank.

1 2 3

Functional Technical Supplier Credentials

PRODUCTS ARCHITECTURE MANAGEMENT PROFILE

PROCESSES INTERFACES FINANCIAL BACKGROUND

USER EXPERIENCE SYSTEM CONFIGURATION GEOGRAPHICAL RELEVANCE

REGULATORY REQUIREMENTS EXTENSIBILITY IMPLEMENTATION PLAN

BI, MIS & REPORTING FUTURE PROOF TRACK RECORD

The evaluation process is usually carried out in two stages:

1. Supplier’s capability to align with requirements: “The focus of the selection should be
this is used to rank the initial fit. based on functional and technical fit
2. Supplier responses validation: this is carried out while ensuring the shortlisted systems
through product demonstrations, resulting in deeper and supplier align with the bank’s
insights and the final scoring. strategy. Commercial discussions
The scoring needs to be weighted across functional, tech- based on products and services should
nical and supplier credentials criteria in order to have a bal-
anced perspective of both the solution and partner. be done later in the process.”

Shahzad Anjum, Chief Information

Officer, Gulf Bank of Kuwait

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5 CHALLENGE : Identifying the right evaluation criteria

CONTEXT : Different criteria are applied at various stages of the selection process

Implications  Approach to be adopted

Selecting a supplier who may not Strike a balance between business

fit the bank’s medium and long- requirements, technology aspects and the
term strategic objectives supplier credentials

Aligning stakeholders expectations

One of the typical outcomes of the evaluation process is the gap analysis. In most situations, these gaps tend to be viewed as
additional customisations which also results in cost escalation. Most successful banks have been able to minimise customi-
sation by aligning key stakeholders in adapting their requirements and processes to that of the selected system rather than
reinventing the wheel. In simple words, “the lesser the customisation, the more effective the implementation”.

“A key success factor is ensuring

the engagement of the management
from the start of the transformational
phase, which helps in adopting the
new system’s capabilities rather than
building customisations.”

Chief Technology Officer,

A leading bank in Malta

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 4 Execute   Determine the best fit partner

Execute  Determine the best fit partner

Finalising the solution partner

Once the solutions get scored and ranked, there are typi-
cally three other elements to be reviewed in finalising the
right partner.

A B C
Determining the Finalising Validating strategic
Implementation Partner commercial fit and cultural fit

A. Determining the implementation partner C. Validating strategic and cultural fit

Any decision on an implementation partner should also take Prior to signing up with the solution partner, banks would do
into account the experience of the partner in implementing well to validate the supplier’s credentials with leadership-lev-
the particular solution, as well as the implementation part- el interactions and also seek key reference feedback from
ner’s knowledge and experience of the banking sector and existing customers of the finalised solution partner. This
geography. feedback is critical to make a qualitative judgement on the
supplier. Both implementation experience and long term
B. Finalising commercial fit support commitment get sufficiently reassured through
this exercise, as are the “soft skills match” – how does the
The total cost of ownership (TCO) for any Core Banking supplier’s management philosophy and flexibility align with
program includes the costs for the product licenses, im- those of the bank.
plementation, migration, training, project management,
system integration etc. Additionally, all indirect costs such
as hardware/hosting charges, database, operating system
also need to be considered. The maintenance/AMC charg- “The R&D budget of the supplier,
es are over the next 5-10 years are also integral in a TCO
the speed in launching new
estimation. Not to be forgotten either is what it will cost to
keep the Core Banking System updated over that time as functions and features & most
the supplier releases new versions. Some banks selectively
importantly the voice of a
also include the cost of internal resources. The TCO helps in
a holistic comparison between suppliers for thorough budg- Tier 2 – 3 bank in the supplier’s
etary planning and effective decision making.
roadmap or strategy plays an
important role in the selection.”

Shahzad Anjum, Chief Information

Officer, Gulf Bank of Kuwait

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5 Conclusion   Making the right choice

Conclusion  Making the right choice

The replacement of a Core Banking System is akin to changing the engines at 30,000 feet. Choosing the right partner and most
appropriate solution are obviously the key success factors. Adapting the right selection process is therefore the foundation
for that success.

In conclusion, the key principles to be adopted for an effective selection can be summarised as below:

Do’s Don’ts

Determine solution Do not be limited by short term

and technology requirement imperatives. Core Banking investments
in alignment with way forward strategy. should address medium
to long term needs.

Build a holistic view Do not limit evaluation to already

of the enterprise architecture before known suppliers alone.
starting on an evaluation journey. Scan the marketplace
before an RFP is circulated.

Ensure requirements are prioritised and Do not judge a solution by

are holistic across functional, technical commercials before they are ranked
and supplier credentials criteria. for their functional and technical fit.

Validate strategic Do not drive the selection just by the

fit of supplier with leadership level technology team. Having business
interaction and reference feedback. users engaged is key for ownership.

Choose the supplier(s) Do not miss out on also focusing on

based on breadth of offering the System Integrator/ implementation
and depth of specialisation. partner, which may be key
for effective implementation.

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