Digital Disruption and Innovation in Financial Services Extend or Shrink the Core?conf.mbri.ac.ir/ebps7/assets/Download/Paul Samerin.pdf · 2018-02-03 · Core banking success factors

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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


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


… 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


Technology: Disruptive technologies are converging

Individually powerful…

…collectively disruptive

Internet

of

thingsRobotic

Process

Automation

Artificial

Intelligence

Advanced

Analytics

Blockchain

Digital

Transformation

Smart

Contracts


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


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


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


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)


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


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.


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


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


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


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


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

Documents

Digital Disruption and Innovation in Financial Services Extend or Shrink the Core?conf.mbri.ac.ir/ebps7/assets/Download/Paul Samerin.pdf · 2018-02-03 · Core banking success factors