digital

core.
a guide on true digital transformation
executive Digital core banking in a nutshell the process of accessing services or even

summary.
Gartner observes that many banks are pursuing just opening an account. Influential financial
core banking renewal. This view is in line with markets commentator, Chris Skinner, has long
the results of our own research, which has held the view that you cannot become a digital
found that the majority of financial institutions’ bank without core systems renewal. The real
existing core technology no longer supports focus of bank technology change needs to be
their needs and will have to be replaced in the on the digitalisation of core banking across the
next few years. We understand that incumbent institution.
banks struggle to react quickly to market
change. In practice, this means re-engineering core
systems and processes so they run on a digital
While this can partly be attributed to regulatory core foundation.
Evolving business conditions constraints, they are also burdened by legacy
in the banking industry and systems and the need to manage a much wider
range of products and services than fintechs,
dynamic changes in the core who can target what BBVA’s CEO recently
described as ‘one very thin slice of what a bank
system market are driving does’ and do it better at a lower cost.
legacy modernisation
Get closer to a customer base
decisions that will dramatically But disruptive technology is not just for
challenger banks – it can also help established
change banking’s technology
banks get closer to a customer base that has
landscape. in some cases become disillusioned with

2
digital core Digital core banking brings flexibility required. The digital banking platform becomes

banking.
Digital core banking will allow a bank to the main customer data storage. Complex CRM,
implement a flexible approach to products facilitated by detailed and interlinked customer

rapid
and platforms, and let them focus on data and analytics, will be the norm. The
customer acquisition and interaction, business traditional core banking system is pushed to

returns. intelligence and analytics, and customer

support and growth.
the back office to become an instrument used
only for transactions and accounting.
Banks understand that traditional core banking Digital banking confines and reduces legacy
restricts flexibility. The introduction of a digital backoffice issues, while simultaneously offering
banking mid platform to complement the proven benefits to banks within a short
tradition core system offers a multitude of time-frame.
benefits.
Many industry observers remark that the future Continual improvement and minimum risk
of traditional core banking lies mainly in data Digital core banking offers a systematic
storage. move away from legacy core banking, yet at
the same time introduces a rapid change in
Customized digital core banking user-associated functionalities and abilities.
Customizable products and services allow a Customizable digital core banking will also
bank to define workflow and orchestration greatly decrease unnecessary banking features
procedures that create a smooth and engaging and services. A competent application and
customer experience. Digital core banking integration of digital core banking ensures
also enables an open API system and feature minimum risk while offering maximum flexibility
integration, offering a bank the seamless and future-proofing.
expansion of products and services as

3
technology Rapid, multichannel digital services have started in the front layer with portals or

driven.
The extent to which banking has become apps. This approach may appear logical since
consumer-centric and technology driven this is the layer that the client sees, but all the

customer-
was one of the core topics discussed at other layers in the system have to be able to
the 2016 British Bankers’ Association digital support it, which has huge cost implications.

centric. banking conference. The author of the

Juniper Research report Retail Banking: Digital
Many banks are running technology that is
decades old, which not only prevents a good
Transformation & Disruptor Opportunities 2017- customer experience, but is also very costly to
2021 refers to record levels of investment in maintain. In addition, there is a time to market
banking technologies, stating that investments issue in that banks have limited flexibility if
in banking technology reached record levels in they are relying on old systems to deliver new
2016 and that traditional banks are expected to services.
focus on digital transformation initiatives.
Core banking systems were initially developed
The report forecasts that by 2021, nearly in the 1970s and 1980s and have been
three billion users will access retail banking continuously modified in order to cope
services via smartphones, tablets, PCs and with changes in business practices and
smartwatches, up 53% from the total for 2017. technological evolution. As a result these
Banks have undoubtedly As consumers increasingly opt for banks legacy systems have become saturated with
offering the convenience of rapid, multi-channel extra layers of functionality, making them even
grasped the importance of digital services, banks will need to focus on more complicated and harder to manage.
providing a more frictionless digital experience Isolated systems can become impractical and
bringing digitisation to their
if they are to remain market leaders. Many the lack of system interconnectivity can inhibit
customers. banks that have tried to digitise their services business growth.

4
The decision faced by banks is whether to
swap out the core banking system for a more
up to date customer experience. Outdated
systems are expensive to run, often leading
to redundant tasks, including excessive
processing and slow system response times.

Information is the foundation

In addition, technological advances mean
customers now want to purchase products
and view accounts using applications as
well as being able to use their information
interchangeably, which legacy systems do not
have the capacity to do. Banks have realised
that information has become the foundation of
many financial products, which requires them
to develop more customer-centric strategies.
However, the lack of interconnectivity between
systems is affecting the creation of new
revenue. These interconnections between
potential products are only achieved when data
is easily accessible from core systems to all
departmental applications, allowing the bank to
quickly adapt to market needs.

5
addressing Our view is that rather than focusing on what The 2015 World Retail Banking Report states

the issues.
the customer sees, it is more effective to focus that the back office is an area of banking
on all three layers of the core banking platform that has failed to keep pace with the digital
– front, mid and back - or as we describe them transformation occurring elsewhere in the
the presentation layer, client and orchestration sector. Many banks have multiple back-ends
layer and product layer. for different types of product, which makes
it difficult to achieve a single view of the
Customers increasingly expect a seamless customer and to provide them with a single
customer experience from their bank. view of all their accounts.
Innovations in mobile technology and
Presentation Layer smartphones enable banks to simplify their
services on mobile devices, as a convenient
channel providing a host of self-servicing
Client &
Orchestration facilities to customers. But no amount of
Orchestration
Layer
Layer social media, mobile services or cloud-based
infrastructure will make a difference if banks
Product Layer
cannot leverage that technology to innovate
and ultimately improve business performance.

6
addressing Only APIs can provide the flexibility that is We have already seen Zopa partner with Metro

the issues.
needed in the front or presentation layer. Bank to allow the bank to lend its funds on
With services exposed to the ‘outside world’ the P2P platform and we will see more banks
anybody can in principle access the services connecting to third party ecosystems to add
and (depending on their role) gain access to value for their customers.
certain data and functionality. In this scenario
the bank has moved beyond omni-channel to We believe the banking industry is moving
omni-access. towards a more interconnected model where
banks will use the services of their competitors
At the client and orchestration layer, APIs to fill gaps in their offerings.
unlock the potential of the fintech world,
enabling customers to make use of providers Current processes for client onboarding
developing niche services for KYC or data employed by many financial services
analytics, for example. organisations involve collecting documents
In this environment, banks and fintechs provide or individually engaging credit reference
customers with access to products and agencies to verify customer identity against
services from other providers as well as their other independent data sources on their behalf.
A true digital core banking own, interconnecting via open APIs. However, this can be a lengthy process that
is costly for the bank and frustrating for the
system takes this process a customer.

stage further by using APIs

rather than screens.

7
addressing This is especially true for small and medium This is where non-coded configuration comes

the issues.
sized businesses where the presence of in. Processes are adjustable in the client
multiple directors/owners increases the KYC and orchestration layer and products are
workload and complex product portfolios make configurable in the back layer, meaning banks
the creation of a single digital service channel can make changes and introduce new products
effectively impossible. and services in a matter of weeks rather
than months. Banks can only be digital if all
A multichannel service approach through APIs operations - front to back - are digitalised.
and third party solutions is therefore required,
with a single client view being even more This involves the automation of a large number
important now different parties are serving the of processes with many activities needing to be
client. performed to make sure that clients can access
a bank via any channel.
With this system there is no need for repeated
onboarding of the same customer, which also By adopting a layered model that moves the
improves the customer experience. focus from presentation to orchestration, banks
Fintech partners are able It is tempting for banks to wonder how they can can deliver an omni-access digital service that
to better serve banks’ ever update their ‘spaghetti’ of legacy systems truly works for customers.
and to be concerned that by the time they
customers through streamlined have updated their systems, the technology will
already be obsolete.
onboarding and more efficient
authorisation processes.

8
conclusion.
We have outlined some of the reasons why These new entities are often managed by The platform acts as the middle layer to
digital transformation on legacy systems is a young, talented people with a mandate to combine the data and functionalities that
flawed strategy for large banks. The answer deploy new technology. In many cases are related to the client. One of the most
lies in the greenfield approach that a number they operate out of different buildings and valuable advantages of the Matrix Digital
of large banks have adopted, setting up new have direct reporting lines to the executive Banking platform is the easy adoption of
operations alongside their existing businesses. board in order to not be influenced by any loosely coupled (new) services or applications
While this requires some significant upfront organisational legacy, which can be even more to the system. With the upcoming app store
investment, the authors of Oliver Wyman’s limiting than IT legacy. five°degrees also introduces a trusted
Beyond Restructuring: The New Agenda report The objective is that new customers will marketplace for banks where partners can
note that the cost is often a fraction of the eventually onboard themselves from the old provide their innovation and add-ons to the
budget allocated to legacy IT re-engineering to the new bank. It is clear that there is more Matrix platform.
and that this approach gives banks the long to being a digital bank than having a great The Digital Banking Platform becomes the main
term potential to operate at a radically lower website or app. customer repository, driving sophisticated CRM
cost point, as well as increase the potential for It also requires the implementation of next based on detailed data. Tangible business
advantages of scale. generation software in the mid and back benefits are gained in a short timeframe without
Several greenfield digital banks are targeting layer to provide the customer experience that the high-risk, high-cost multi-year ‘rip and
cost-to-income ratios of 30% or lower and customers already expect – and receive - from replace’ projects of yesteryear.
while there remain uncertainties about other service providers.
when and if they will reach these ambitious five°degrees offers with the Matrix Digital
targets, digitalisation is already enabling cost Banking platform, a platform where all the client
efficiencies elsewhere. related functionalities are centralized.

9
Matrix fintech
flavours
With Matrix platform you can launch a new proposition, and achieve a fast time to market with any of the products depicted below:

Robo Advisory FX Proposition

3 MONTHS 8 MONTHS

Mortgages/Lending Private Wealth

5 MONTHS 5 MONTHS

10
for more
information
and a demo.
fivedegrees.com
+31 880086400
[email protected]