Core Modernization and Open Banking

Alfred EscalaVice President Cognitive & Industry Solutions

Athens, November 22nd 2018

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Key Industry Challenges are common to every Bank

▪ Higher Consumer expectations. It’s all about the customer experience, and many

banks are not delivering the level of service that consumers are demanding

▪ It is key to stay engaged with the customerCustomers1

Competition2

Risk &

Compliance3

Complexity and

Cost5

Security & Fraud4

▪ Competition from existing banks, new banks and non-traditional players

▪ Increasing competition from financial technology companies. FinTechs are disrupting

the way traditional banking has been done. Banks not able to adjust quickly to the

changes – not just in technology, but also in operations, culture,...

▪ Increasing challenge to manage operational and financial risk

▪ Regulatory requirements continue to increase. Banks need to spend a large part of

their discretionary budget on being compliant, and on building systems and processes

to keep up with the escalating requirements.

▪ Increasing sophistication on fraud schemas, difficulties to stop and track of fraud types

▪ Banks’ integral role in the payment ecosystem exposes them to security breaches

across many industries

▪ Increasing complexity in operations, operating models and technology architectures

▪ Not making enough money. Banks and financial institutions still are not making enough

return on investment, or the return on equity, that shareholders require.

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Their main issues with legacy systems are also similar

Complexity1 Lack of

Agility2

Cost3

▪ Even if functionality footprint is huge, systems are much more complex than needed

▪ Mixed technologies, increasing # of architectural layers,… “even a small change impacts multiple levels of the architecture and multiple applications”…

▪ Continuous ”improvements” along years, but never a true transformation

▪ …

Obsolescence

Risks4

▪ Mostly fixed costs (unbalanced capex/opex)▪ “On average IT project costs 40% more than they

would with a modern IT architecture”… and growing!!!

▪ Big impact in Time to Market. SoE couple with SoRthat limits flexibility and increase time to launch new services

▪ Non efficient maintenance and development methodologies. Systems and teams not ready for Agile & DevOps

▪ Separation between Business and IT

▪ Technology outdated▪ Lack of experts resources in key applications or

components (retired or approaching retirement)▪ Doubts on scalability and performance (instant

payments…)

5

Gradual evolution towards Open Banking business

models

Distribution Channels

Open APIs

Product Factory

Distribution Channels

Open APIs

Product Factory

Distribution Channels

Open APIs

Product FactoryDistribution Channels

Product Factory

Current: Integrated

Factory

Distributor

Platform

Future

In its own nature:

Cross Industry1

<

2

<

<

<

3

8

Business Rules

Business Processes

INTEGRATIONSYSTEMS OF ENGAGEMENT

Advanced Analytics

SYSTEMS OF RECORD

AdvancedInteractions Logic

Advanced User Experience

Advanced Collaboration

Personalized CustomerContext

Core Business Logic

Other Business Logic

Business EventsBusiness

Integration Logic

SYSTEMS OF INSIGHT

Big Data (At rest + In

motion)

Intelligent Systems

Informational Data

(DW+ DM)

Business Intelligence

Operational DataEngagement DataEnterprise

Content Management Data

BusinessEcosystem

Support

Banks need to implement a new multi-dimensional architecture to

cope with the challenges of digital revolution

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Business Rules

Business Processes

INTEGRATIONSYSTEMS OF ENGAGEMENT

Advanced Analytics

SYSTEMS OF RECORD

Interactions Logic

Advanced user experience

Advanced Collaboration

Personalized CustomerContext

Core Business Logic

Other Business Logic

Business Events

Business Integration Logic

SYSTEMS OF INSIGHT

Big Data (At rest + In motion)

Intelligent SystemsInformational

Data(DW+ DM)

Business Intelligence

Operational DataEngagement Data Enterprise Content

Management Data

BusinessEcosystem

Support

TRADITIONAL

CLOUD

Cloud will be pervasive in the new multi-dimensional Architecture but

with different rate of penetration in the various domains of the

architecture

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Modernized Mainframe

Cloud

The different requirements are better supported with an Hybrid

Infrastructure, with Legacy System accessible via APIs, enabling the

development of Digital Capabilities.

Analytics, Insights,

IA

Digital Agility Layer (Systems of Integration)

Transaction

Processing and

Ledgers (Legacy)

Operations and

Support

Distribution (Sales and Customer Service)

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Distribution processes are independent from core processes

Accounts

Distribution

Loans ….Clients

Strong coupling

Customer Agreements

Customer Offer Sales ProductsProduct CatalogueCustomer Sales

Agreements

Customer Reference Data Management

Party Profile

Strong de-coupling Accounts are opened when the sales is completed

• Distribution processed run

isolated from core system

based on product definitions

in the catalog and customer

information

• Product Processors are only

invoked when a contract is

signed and the accounts are

open for the core systems to

be able to process the

contract

Simplification of core because all

distribution concerns are moved

to the new platform

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Banks are addressing this…

▪ Core Simplification▪ Framing core systems and modernize them to be more

easily consumable▪ De-coupling Front from Back▪ De-coupling Application from Application

▪ Ecosystems & Open Banking▪ Platform enablement▪ Participation – Open APIs

▪ Processes redesign▪ RPA▪ “Zero” back-office

▪ Agile & DevOps

▪ Cloud & externalization

▪ Replatforming

Most Banks are launching big transformation/digitalization initiatives.

14Multiple entry points to the roadmap

Accelerators for Post PSD2 Transformation

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THANKS