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The better the question. The better the answer.
The better the world works.
Digital Disruption and Innovation in Financial Services
Extend or Shrink the Core?January 2018
Page 2 Digital Disruption and Innovation in Financial Services Page 2
Changing Financial Services Landscape
Business focus and approach needs to change as well as the technology to enable the change.
Build a Value Network
Customer Experience Management
Real Time Offers
Individualisation
Service Offering
Digital as Primary Channel
Part of a value chain
Customer Relationship Management
Marketing Campaigns
Customer Segmentation
Product Offering
Branch as Primary Channel
Commoditisation of Banking Services
Lack of differentiation in product offerings
Increasing costs of Banking Services
Banks under pressure to show improved ROE
The Digital Age Mobile in particular
Real time access to everything
Increasing Customer demand for Service
Simplification of the value chain reduces turnaround times
Omni-Channel DigitisationCustomer CentricService OrientatedExtended
Value NetworkIntelligent
Business Process Centralise information
DRIVERSThe convergence of suppliers of goods and services and payment mechanisms has emerged largely due to the perfect storm of 4 major factors and the response by the market to them.
ARCHITECTURE The architectural principles for the Bank needs to align the business drivers with the Architectural outcome.
BUSINESS RESPONSE Business focus and approach needs to change as well as the technology to enable the change.
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M a j o r d r i v e r s f o r c h a n g e
B u s i n e s s f o c u s s h i f t
A r c h i t e c t u r e P r i n c i p l e s
Page 3 Digital Disruption and Innovation in Financial Services Page 3
The pace of innovation in banking is also highly unpredictable
Source: EY Playbook
SMS Banking
First smart phones hit the
market
Mobile banking apps appear on smart phones
Mobile account for 7% of total bank usage
186 million mobile app uses
per week
$2.9bn transferred per week using
mobile apps
Page 4 Digital Disruption and Innovation in Financial Services Page 4
… underpinned by four catalysts of change
Technology
Combinations of
individually powerful
technologies
Regulation
Acceleration of
innovation through
new regulation
Ecosystems
Increased
collaboration with
peers & competitors
Platforms
Aggregation of data
onto a single platform
through APIs
Page 5 Digital Disruption and Innovation in Financial Services Page 5
Technology: Disruptive technologies are converging
Individually powerful…
…collectively disruptive
Internet
of
thingsRobotic
Process
Automation
Artificial
Intelligence
Advanced
Analytics
Blockchain
Digital
Transformation
Smart
Contracts
Page 6 Digital Disruption and Innovation in Financial Services Page 6
Platforms: Products offerings are being aggregated onto a single platform
Utilities
Retailers
Asset
Reseller
Air Time
VNO
Fintech
GovernmentEntertainment
Health
Care
Education
TransportTravel
Social Media
Cards
Insurance
Traditional Banking
PaymentsTransactionLoan
Disaster
b
Page 7 Digital Disruption and Innovation in Financial Services Page 7
Regulation: Open banking regulations are accelerating innovation
Under incoming regulations, financial institutions must build standardised infrastructure
to support a new set of “foundational” capabilities
Banks will need to open their platforms via APIs enabling access to data and account functionality
MENA Client Roundtable – Digital Disruption
Requirements for banksData
portability
Payment
initiation
Product
reference data
Payment system
access
Requirements for payment
systems (for further
clarification)
Further considerations1 Digital
identity
Page 8 Digital Disruption and Innovation in Financial Services Page 8
Ecosystems: A new ecosystem is forming
MENA Client Roundtable – Digital Disruption
Financial institutions End users of finance
Serves
White-labeled services
Corporate clients
Serves
Embedded services and
products
Other clients
Serves
Collaborating competitors
provide broader coverage
Fu
nd
ing
Fu
nd
ing
Venture capital
funds innovation
Thin spine of core
bank infrastructure
Extensive use of PaaS
and managed services
Venture
capital
Industry
utility
Vendor
platform
Collaborating
competitor
Collaborating
FinTech
Bank of
the future
Managed Service
provider
Market
infrastructure
Page 9 Digital Disruption and Innovation in Financial Services Page 9
1. Closed Architecture
(Limits meeting business requirements)
HOWEVER: Existing Core Banking Platforms are architectural challenged to
support Digital and Innovation
2. Performance Issues
(Potential business downtime)
3. Long development cycle
(Delayed business benefits realization, cost overruns)
4. Scalability issues
(Challenges to meet enhanced business
requirements)
5. Limited business analytics capabilities
(Incomplete and inconsistent analytical views and
redundant effort)
6. Limited digital capabilities
(Hinders business aspirations of Innovation Driven
Growth)
7. Limited integration and interfacing capabilities
(Hinders business growth aspirations, cost overruns)
Page 10 Digital Disruption and Innovation in Financial Services Page 10
Based on EY research and experience these include….
• Increasing cost to support the current branch network . Multiple systems to access
information for the 1 customer
• Lack of data (insight and intelligence): major issue in building out customer
strategy:
• Simplicity /complexity of current infrastructure
Take months to get anything done, “in particular core”
Limits agility
• Inconsistency of user experience across channels.
• New customer requirements cannot be met due to legacy and “ spaghetti
architecture
• Lack of automation of core processes .
• Unable to support new digital and emerging technologies channels
Page 11 Digital Disruption and Innovation in Financial Services Page 11
Changing landscape of the Financial Services Eco-System
Core Banking Platforms need to support the new way of working
Utilities
Retailers
Asset
Reseller
Air Time
VNO
Fintech
Government
Entertainment
Health Care
Education
TransportTravel
Social Media
Cards
Insurance
Traditional Banking
PaymentsTransactionLoan
New Product Offerings
Disaster
► Developing an Eco-System around Banking enables banks to take to market more compelling offerings.
► This can also be said for the rest of the eco-systems ability to leverage financial services.
► The eco-system provides different benefits for different market segments.
► In more affluent markets it provides improved service and customer experience
► In the lower end of the market (Inclusive, under banked, unbanked) it provides mechanisms to reduce the overall cost of banking.
Page 12 Digital Disruption and Innovation in Financial Services Page 12
Approach to Defining the Digital Offering
Personas
Deliv
ery
Desig
n
Personas – Identify and describe the persona examples of who
your target market is. This includes understanding there
preferences from a product, service and experience perspective
Product Development – The product offerings are defined based
on the needs and benefits of the personas in the target market.
This would include the development and collaboration of the eco-
system.
Channel Strategy – The personas will also identify the preferred
channel usage as well as the desired customer experience.
Customer Journey – Define the customer touch points to the
organisational capability to service the customer. Align channel
strategy and desired outcomes per touch point.
Process Design – Design the organisational processes to support
the customer journeys. This must include operational processes
and regulatory processes.
Technology Solution – The technology solution needs to
appropriately meet the needs of the operations and customer
journeys.
Product
Channel
Customer Journey
Processes
Technology
Page 13 Digital Disruption and Innovation in Financial Services Page 13
Conceptual Digital Banking Architecture
The banking architecture that can enable a truly Omni-Channel capability needs to be Simple in the
Core, Agile through the separation of concerns and Service Orientated in every Layer.
En
terp
rise
Se
rvic
e B
usData
Integration
Core Banking
VNOAsset
ResellerInsurance
Enterprise Business Process
Air Time
ResellerSocial Media
Pricing Loans Transactions
Presentation – Common look, feel and experience
across all Channels.
Business Rules – Execution and management of
products and services
Integration – 3rd Party real time integration builds the
value network
Data – Single source of data enabled by ECM, MDM
and In-Memory real-time analytics
Process – Common process across enterprise
enables omni-channel usage. Including new
processes to enable value network.
Payments
CollectionsSettlementServicingOrigination
Customer
On-
Boarding
Retailers
Card
Omni Channel
Smart Phone USSD Browser POS ATM Call Centre BranchVideo
Big Data AnalyticsECM Customer
ESB – Enable Service for consumption across the
business. Process as a service, Data as a service,
Channel as a Service, Core as a Service
Cloud Services
EY ResearchLessons Learned in replacing Core Systems
Challenges and Success factors
Page 15 Digital Disruption and Innovation in Financial Services Page 15
Core banking challenges
When replacing core systems, there are challenges in 5 main areas to consider
Definition of clear business goals for the project Understanding the solution complexity and impact to business processes Definition of business requirements prior to vendor selection
Choosing a vendor aligned to your strategy Definition of a partnering strategy for both development and maintenance Development of delivery strategy (e.g., Big-bang, Phased, by Product, by Customer) Right resources for the right job at the right time
Understand architecture alternatives to support both current and future needs Understanding of solution architecture implications (e.g., risk of integration with high risk
systems such as AML, Fraud, and critical Data functions)
Business Led -- Technology supported; Driven and tied to a well defined Business Architecture Empowerment of a PMO that can handle the complexity of an enterprise class program Development and adherence to an effective Risk Management mechanism Definition of clear lines of communication to Business, Stakeholders and Vendors
Clear and complete understanding of the scope Containing the level of customizations Full understanding of the cost and complexity of customizations Understanding the importance of operational risk readiness early on
Business Strategy
Vendor & Delivery Strategy
Technical Design
Program Governance
Change Management
Page 16 Digital Disruption and Innovation in Financial Services Page 16
Core banking success factors
Lessoned learned from successful implementations
# Common Challenge Key Success Factors
1 The transformation must address business and it and have a coordinated effort across all areas of the bank
Replacement programs are joint efforts between IT and Business; not just a technology exercise, and strong executive ownership, sponsorship and guidance along with active and participatory business support
2 Overlooking detailed business requirements because “nothing is changing”
Even when replacing current functionality, detailed business requirement and process flow models are key to understanding the complexity and interdependencies for the target system
3 Keeping business processes as is rather than re-engineering to streamline with the technology solution.
Align business processes to vendor package process where possible; this is the key to reduced cost and increased realization of benefits
4 Selecting new vendors to the space with limited local market experience
Critical component of vendor selection is the validation of local market experience (e.g. product and regulatory fit) or use of comprehensive contractual terms that outline how market fit will be achieved
5 Firms with little experience in core replacements decide to manage the project internally
Firms with little to no experience in core replacement often utilize experienced 3rd party systems integrators through the first months of production to manage large scale implementations and ensure successful delivery
6 Poor program governance and accountabilities leads to a implementation date slippage and cost overruns
Establish a proven program governance framework as it clearly identifies the accountabilities of all involved and establishes effective issue resolution mechanisms
Page 17 Digital Disruption and Innovation in Financial Services Page 17
About the Presenter
Paul Sommerin, is a Partner in the EY Africa, India and Middle East (AIM) practice and leads the
Financial Services Digital and Innovation Team across the 3 regions and is based in Johannesburg.
Paul was recently the MENA FS Technology and Transformation Leader for MENA and was based in
Dubai. EY recently relocated Paul to Africa to build the Digital Banking team across the 3 regions . Paul
has worked and lived in the USA, Latin America, Asia, Middle East and now Africa..
Paul has spent his entire 25 year career working and living in 6 continents and focused mainly on
creating value from large-scale business and technology transformations and helping clients to shape
and accelerate their digital transformation. Paul has extensive delivery experience in modernizing Core
Banking platforms in both the USA , MENA and Asia..
In his work with clients, Paul has played a key role in developing technology and digital strategies in
some of the most complex mature and emerging markets within Financial Services
Paul sits on EY’s Global Consumer Banking Advisory Board the Emerging Markets Financial Services
Team and the Global FS Digital Advisory Board. He is also a Member of Australian Institute of Company
Directors
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