Enabling banking as a lifestyle: Progressive core modernization
Imagine yourself in the day-to-day chaos of life with a modern family; both parents working, two children going to school or daycare and participating in at least two extra-curricular activities. Running from place to place, as the head of the household you have to manage the family’s financial well-being, pay the bills, save for college and do the grocery shopping.
The ratio of demand vs. available time is significantly lopsided. The customer expects to be able to manage their entire life from their mobile phone while on the go or in the moments of down time between drop-offs.
They want to able to pay the babysitter, immediately after they send their friend money for the lunch that they just split. They expect easy-to-consume information that allows them to manage their budget, all in a digital ecosystem that supports their on-the-go lifestyle.
Over the past 10 to 15 years, financial institutions have continually tried to meet these rapidly changing and evolving customer expectations. At Luxoft we’ve found creative and ingenious ways to piecemeal our complex environments to support the ever-changing demands of our end users while digital-only challengers target our customers. This has allowed us to extend the lives of our monolithic core banking systems while meeting the minimum expectations.
Interestingly enough, the COVID-19 crisis has fueled the need for delivering digital transformation ahead of time and at lightning speed. We‘ve jumped several years forward in the digital adoption in consumer and business segments during the pandemic. Banks have transitioned to remote sales and services, they have devised many ways to support the consumer by adjusting the payments around loans and mortgages. The bank’s customer has become accustomed to the new norm of remote banking, so much so that in some cases it is going to be the point of no return.
The banking and financial industry needs to transition rapidly into the future, from delivering banking as a product to banking as a lifestyle, supporting the customer’s end-to-end journey as they move from one phase of life to the next. Banks must develop a continued and holistic view of customer evolving demands over their life cycle to offer personalized product and services.
Core banking modernization options
The central positioning of core banking systems makes them one of the most critical components in the overall banking architecture. According to Celent, the leading research and advisory firm,
“The core banking system (CBS) platform is the primary system of record for the accounts of a bank, and thus forms the technological foundation on which the entire bank operates. Because of this, the decision to change it can be difficult. The process of switching out a core system has been likened to changing the engine on an aircraft in flight. These transformations can be costly, and risky.”
While the financial benefits of a core overhaul delivering a dramatically improved banking experience for customers could be real enough, the overwhelming counter argument has always been around how well the risks of such a transformation, and the associated mitigation, are understood. However, waiting until a forced migration as systems approach end-of-life could be detrimental.
Deciding to modernize a bank’s core is no longer a binary choice (do nothing or total replacement), thanks to massive advances in core banking technology that supports a variety of solutions. In general, banks have three options when it comes to modernizing their core applications:
Big-bang replacement of the core: This approach requires a replacement of monolithic components every few years. The selected systems are replaced or upgraded according to an architecture roadmap through a buy or build process.
Journey-led progressive modernization: In this approach, the major customer journeys are reinvented and new business logic is built iteratively as modular microservices (and selectively “hollowed out” from existing systems) with shared utilities.
Greenfield tech stack implementation: Greenfield tech stack leveraging cloud-native architecture (e.g., hyper-parametrized, real time, modular, API first). New customers are onboarded on the new platform and existing customers are migrated from existing core applications onto the new applications.
The cost and the risk associated with each of the options varies and banks must choose their preferred options carefully.
Luxoft’s approach toward core modernization
At Luxoft we recommend a journey led progressive modernization approach, by optimizing the risk exposure and costs without compromising the opportunity for a highly competitive and client-oriented proposition. Our principles of the four Cs for progressive modernization enables the transformation of its core banking application — Hogan:
Componentization of the Hogan core banking application expedites the digital transformation by segregating business capabilities typically meshed and found embedded inside the core application to the discrete functional components. The decomposition process provides insight into the business functions that are best suited at an enterprise level rather than duplicating at individual core level that must be externalized. While there are many options available for de-componentization of the core applications, we have aligned ourselves to the Banking Industry Architecture Network (BIAN) definition of service landscape and more specifically the service domains to arrive at de-componentized view of core application. The service domains define the elemental building blocks supporting a discrete business capability. A service landscape is a collection of multiple service domains, and when combined will provide end-to-end business processes and outcomes.
Composable architecture is the way by which componentized business functions are rearranged to provide the intended business outcomes. The adoption of APIs and microservices architecture for core application paves the way to enable new offerings and services more rapidly. Every component is self-contained and responsible for specific end-to-end business processes, and are designed to be integrated.
Containerizing the service domains, such as independent microservices, allow for continual deployment, which enables banks to safely implement agile changes.
Cloud enablement of the core brings the capability for instant scalability and reduced operational costs.
The modern core built with the four Cs will harness the core’s processing power to serve as the account and transactional platform. At the same time, this next-generation solution offers componentized modules and the latest fin-tech capabilities to expand real-time digital processing enablement, and the promise of compelling banking transformation opportunities.
Luxoft and Temenos
We recently signed an agreement with Temenos enabling its large bank customers to reimagine core banking transformation. The expanded partnership brings together our extensive cloud hosting, implementation and integration strengths with the power of Temenos industry-leading banking software. Together we will offer large bank customers the optimal modernization approach to address competitive, regulatory, cost and innovation drivers.
By working with Temenos we are able to offer a unique path for core banking modernization. As the developer of Hogan core banking application, we have a deep understanding of modern core banking needs, and know how to create an efficient path to realizing your core banking transformation vision. Temenos, a very popular core banking system, enables a robust, scalable and future-proof platform. Our joint synergies result in a low-risk, phased, earned-value approach that drives unparalleled innovation and value for your bank.
Core modernization through componentization can be a more efficient and beneficial transformation strategy that produces impactful and measured short-term wins, aligned with long-term visions while at the same time balancing the risks and cost associated with the transformation.
By leveraging the inherent benefits of intentional component design and the right fit for purpose components from Temenos, financial institutions are better able to turn their core modernization strategies into incremental micro-phases that have direct impact in the banks ability to enable banking as a lifestyle for the customers.
Chief Technologist at Luxoft Banking
Arun Sharma is Chief Technologist at Luxoft Banking. He is responsible for DXC’s Core Banking application which is used by more than 40 tier–1 banks, globally. He has a keen interest in digital transformation and has been working across Luxoft’s worldwide customer community to shape the digital transformation strategy for core banking. Arun has more than 25 years’ experience in the banking and financial services industry, and enjoys a hands-on role in technology planning, prototyping and implementation. He also leads Luxoft’s BIAN organization and is involved with key BIAN initiatives for 2021.