”The bank is renewing its core systems as it prepares to develop new digital banking services”, states one bank.

”The new core system enhances the processes and lowers running costs significantly”, tells another one.

”The value of the deal is approximately 67 million euros”, is in the news of a third one.

Harri Inkinen, Chief Customer Officer, Profit Software

It seems that a few dozens of million euros is small amount of cash when a financial institute is renewing its core systems. But what do you get with that pocket money? And how?

The ROI of this kind of a massive endeavor is often calculated based on lower running costs and enhanced business processes. From a technical point of view alone, there are always a bunch of aspects to consider, integration and data migration, multi-phased go-lives, not to mention extensive testing in multiple points of the project. And one should not forget that you must unplug the old system in a controlled manner, so that the customer experience stays undisturbed. In the end, you will get a shiny new system which just (for simplification) manages and moves the customers’ money from point A to B, while of course complying with all the regulatory requirements. But wait, isn’t this exactly what the old system also did, so what did you eventually get with all that money spent?

Now, this is the time where digitalization joins the discussion. That particular word has been on the surface for a while, especially a few years back seminar after seminar. The financial world was full of ideas what could you do with AI, blockchain, cloud and mobile. Fortunately enough, the wildest of those ideas were touched by a hint of reality, but the discussion still started to turn services into something better than just taking your application forms in to the web or mobile. The accessibility of banking and insurance services have grown rapidly into full variety of applications, allowing the customer to run his/her errands seamlessly through various digital (and still non-digital) channels.

For most companies, the ultimate goal at the moment is to fully automize processes end-to-end for faster and more cost-effective services. All paperwork will be handled electronically, and it no longer requires you to run from office to office. No application forms filled or agreements to be signed by pen and paper. And while you’re at it, the required officials are informed and digital papers stored in the right places. For many parts, this already is reality today.

And now the hard part: that 50+ million euros core transformation project does not resolve the digital challenge by itself. The goal of that project is typically only to replace the base components, which are needed for managing the lifecycle of the actual customer products, for example accounts, loans, payments, investments and insurances. With that massive cost, the old core systems handling those products are replaced with new ones. So, you might think: Why would anyone do that investment, if nothing new is generated for developing the business?

Here’s the catch: Seamlessly functioning digital services are being able to be produced only when you have a modern background system entity, operating in real-time while the customer is tapping the screen with one hand and sipping coffee with the other. Something happening overnight is too slow – something happening in an hour is still too slow. The real challenge is that one fully automated process could involve tens, or even hundreds of background components, discussing with each other, with the customer and with all the external parties involved (for example other companies and the government authorities) in that particular process. Old core systems usually are not designed in a way that allows you to do this, at least not in real time. Of course, it can be technically possible, but implementing the necessary automated processes would be costly, time-consuming and technically speaking, they sometimes require a few ”hacks” to make it work. And those ”hacks” generate so called ”technical debt”.

At this point you might realize (if you didn’t know all this already), that doing things right from the start is the key here. Going in to a project of developing all this with a set of various software products and to integrate it with all the other components out there, there are few things you should consider:

1) Choose the right partners

I recently re-read the key points of Jim Collins’ book Good to Great. As Collins writes: “It is better to first get the right people on the bus, the wrong people off the bus, and the right people in the right seats, and then figure out where to drive.” This applies on multiple levels, for example in a core transformation project: for technical and business reasons, there will be compromises to be made and tough challenges to be resolved during the transformation. With the right, committed and competent people and partners, the challenges will still not be easy, but they are resolved quicker.

2) Look into the future (or allow agility)

It’s time to go through the attic and find your good old crystal ball. The old truth of software development is that a user story will only be 100% described when it’s done and accepted. With good planning and specifications, you might get as high as 60%. But you never know everything until you get to the finish line. When going into a at least 2-year project, you just don’t know how the markets and the regulatory requirements will look like when you are finished and ready to go. The project scope and pull-through model should allow changes to be made along the way, if necessary. With a right architecture you are able to separate heavy background development and the agile front-end service design, so that higher level changes can be made fast without touching the core, or by touching it as little as possible.

3) Manage changes strictly

Referring to #2, being agile is not equal to accepting uncontrolled change. Since the scope is impossible to carve in stone on day one, you must prepare yourself with a process that allows changes to be evaluated, specified and implemented efficiently as you go. There must be no bottlenecks, business nor technical, when you need to make a decision. If you don’t do that, you will face an uncontrolled downwards spin of changes, which inevitably leads to exploding your timeline and budget.

In conclusion: what do you get with those millions you spend? At best, you will build a modern core platform with endurable lifecycle and lots of added value to your business, by being able to generate new services to the market and by doing it faster than others. When you build the platform with modern components and design principles, it will not add technological debt as it grows and develops. Only then you truly have all the elements of concentrating in what is in most cases the true core of your business: not IT, but sustainable, predictable and profitable growth in banking or insurance.