With the pressure of the regulatory compliance environment driving the financial industry to a highly-standardized processing model, and the rise of customer expectations for up-to-date banking services, financial institutions are forced to evaluate the efficiency and standardization of regulatory compliance of current CORE processing systems. Core conversions loom on the horizon for institutions with silo back-office functions and legacy, non-standard in-house solutions. Since the core transaction environment represents the heart and soul of a bank, the transplant of these services in a single operation requires skillful strategy and an experienced team. Such a strategy should address the risks and take into account the three Cs of conversion survival: Culture, Core, and Customers.
A bank’s culture is created, for better or for worse, in a long period of time. It is the product of leadership and the tone from the top. Culture dictates how a company’s technology is used, maintained, and refreshed. Therefore, changing a bank’s culture to adapt to a new software environment presents many challenges based on your current CORE. You can convert from one service provider to another or from an in-house developed CORE to a service provider model. The key success factor is a healthy culture that has endorsed changes supported by senior management. A healthy culture provides the strong foundation necessary to apply critical thinking, consensus, and know-how to tackle a difficult project. A culture in chaos will not be able to respond decisively to the numerous issues, unknown-unknowns, rapid decision making, and changes inherent in a conversion project.
“Core transaction environment represents the heart and soul of a bank, the transplant of these services in a single operation requires skillful strategy and an experienced team”
For instance, not only will data move from one system to another as a result of conversion, but multiple processes and controls tied to the data will need to be redesigned. Project resources from a healthy culture can identify and implement these changes more readily than resources from a culture in chaos. This is because a healthy culture injects energy and excitement into the project, which paves the way for acceptance. A chaotic culture is a breeding ground of self-preservation, and conversion saboteurs will be able to divert huge amounts of project energy toward averting controls and importing legacy processes into the new tools.
Tone from the top, accountability, and information sharing are key success factors in mitigating the risks presented by the current culture. First, while tone from the top creates the sense of urgency and sets the expectation for change, sustaining excitement throughout the conversion project is the task of the entire senior staff. Second, accountability is critical to establishing employee perception of the project’s urgency. Communicating engagement expectations and implementing consequences throughout the course of the project aids in obtaining project-success behaviors. Last, regular conversion updates delivered to the entire company fosters teamwork and a sense of comradery while delivering project status details.
Cyber-security threats, constant regulatory changes, and increasing consumer expectations present significant challenges for a financial institution. The business model for most small and medium size banks shares the same back-office structure in a highly standardized environment. To minimize operational risks, most banks are transitioning from running an in-house data-center to a service bureau environment.
The field of available core vendors is quickly narrowing down to a few strong competitors offering similar products. As a result, core vendor selection must first and foremost support the bank’s strategic plan. Due diligence in reviewing a CORE vendor’s response to a Request For Proposal (RFP) and mapping the proposal to the company business strategy is key in selecting the right partner. Each vendor is invited on-site for a one day demo/preview as part of the due diligence process. Business owners, subject matter experts, and senior management must be present to assess and score the software as part of the selection methodology. Conversion methodology is also examined based on soundness and successful conversions.
CORE conversion consists of fixed milestones supporting the DNA transfer of the current CORE to the future CORE. This includes network and equipment installation, data mapping and configuration, application layering, training, readiness review, process definition, and go-live for the new environment. While the master conversion might be a page long, in reality each milestone consists of innumerable activities undertaken in support of the master plan.
A key success factor is the assignment of business analysts to each business function. Complete knowledge base of the current CORE environment and level of data hygiene is necessary in order to be successful for the data mapping process. Non-standard workflows and workaround processes need to be identified, understood, and standardized in the new environment.
Another major activity is training front-line and back-office staff to be proficient in using the new CORE in preparation for the go-live date. Un-learning of the old system and re-learning can sometimes be a challenge since tasks can be automated, simplified, or shifted in the new environment. Supervisors and management need to be hands-on and involved to understand the new staffing model created by efficiency. The new workforce in a highly automated and streamlined environment has different requirements. This includes skills such as report and data analysis, solution architecture, problem determination, process definitions, compliance, and quality control. Line management must be ready to assess skill level, coverage, and be able to adjust as needed.
Underestimating the impact a CORE conversion will have on a customer base, presents the greatest risk and can negatively impact a financial institution’s brand. Since most of the customer-facing documents, services, credit and debit cards, ATMs, voice response units, online and mobile banking services will be changed to a certain level; a comprehensive communication program must be in place with sufficient lead time before the go-live date to promote customer awareness and readiness for the change. Customer Care Centers must be staffed up in preparation for thousands of calls enquiring about online and mobile banking on-boarding. The first two months after go-live are the most painful for customers and banking staff and cannot be avoided.
Another key success factor to ease the migration pain is to provide evening training classes and test-driving with customers on consumer and business online banking, mobile banking, voice response units, and banking statement changes for at least 3 months after the conversion.
Although CORE conversion is a major decision and a complicated process, it is a win-win situation for both financial institutions and their customers. The institution can gain operational efficiency, up-to-date internal controls, automated workflow, regulatory compliance, and modernized applications in one change. Customers can receive better products and services, an increased level of online and mobile banking services, and a modernized platform ready to meet their future financial needs.