Oracle’s three modes of Progressive Transformation

Oracle’s three modes of Progressive Transformation
I was able to attend Oracle’s Open World at the end of September, and although it conflicted with Sibos, it was an extravaganza. While there I sat down with some of the folks involved with core systems; they outlined the interesting way they’re thinking about progressive transformation (briefly, how to migrate core systems gradually; the opposite of a “big bang” approach). Oracle agrees with the consensus that a big bang for any sizable bank is going to be problematic. What interested me was that they outlined three different approaches for progressive transformation:
  1. Replace a vertical slice
  2. Replace a horizontal slice
  3. Create a new target state architecture off to the side
Without going into great detail, I’ll describe how Oracle has at least started the journey in three different banks around the world.
  1. Vertical Slice. Suncorp in Australia has started the process of moving off its Hogan core by focusing on unsecured lending; its next stop will be secured lending.
  2. Horizontal slice. KeyBank, based in Cleveland, announced at Open World that it intends to use non-core systems components of Oracle Banking Platform (“OBP”) to enhance and modernize its mobile and online channels. To be clear, KeyBank has not committed to a core transformation. The project is in its very early stages; it’s one we’ll watch with interest
  3. Target architecture. National Australia Bank’s new entity, UBank, is a digital-only bank that NAB created as part of its bank transformation using OBP. Its goal is to change the customer experience, and uptake has surpassed initial expectations.
Celent’s perspective is that progressive transformation (or whatever various name different vendors use for the same basic concept) is a way to purchase a real option as banks think about how to modernize their systems and accommodate the increased demands that digital access place on their technology. It lets banks begin a journey without committing them to course of action that might not be appropriate down the road as the world changes. Time will, of course, tell how successful each of these projects will be, but thinking about the different ways to approach a phased core transformation is useful for any bank with core on its strategic agenda (which should be…almost any bank).

Re-imagining Banking

Re-imagining Banking
On June 30th, Peter Sands, Group CEO of Standard Chartered, published an article in Financial Times called Banking is heading towards its Spotify moment. The article seems to have resonated incredibly well with the banking community: at a conference this week, two senior banking executives from different parts of the world referred to the article, while we have been discussing it with our clients. The article argues that “banking is very digitasable, but we have not yet seen the fundamental transformation of business models that have taken place in other sectors, such as music […] Margins will fall unless banks reinvent what they offer and how they work.” At Celent we agree wholeheartedly – the move towards “all things digital” is both a serious threat and an incredible opportunity in banking. The regulators and their “zero tolerance” attitude is one of the many barriers making it difficult for banks to be truly innovative. But many recognize the need for change and are investing accordingly. We are committed to helping our clients along their journey through our research, insights, and networking events. Dan in his recent blog post summarized our NYC event on Omni-Channel Delivery. We will also be hosting a banking roundtable in London on Oct 17th, “Evolve or Die: The Future of the Bank Account.” Again, it will be a bank-only forum with an emphasis on idea exchange, and if you are interested in attending, please contact Chris Williams at cwilliams@celent.com or +44 20 8870 7875.

The vision behind the Banorte-IBM partnership

The vision behind the Banorte-IBM partnership
Banorte and IBM announced today in a press release a “10-year strategic agreement that will allow the Mexican finance institution to create a new customer-centric banking model.” For years we’ve been discussing best practices in bank transformation; but few have actually been implemented in more than piecemeal fashion.  Three aspects of this US$1 billion alliance strike me as noteworthy:
  1. Banorte has decided that the time is right to undertake a radical restructuring of its relationship to, and view of, its customers. Now the number three bank in Mexico, with 20 million customers, Banorte realized that delivering value could more effectively come from existing customers, rather than expanded market share. They aim to create value from increased share of wallet, cost take-out, and improved risk management.
  2. The transaction is structured as a true partnership, with risk sharing baked into the pricing, and is structured to self-fund incrementally over time.  IBM will realize upside potential if it over-delivers on a set of specific KPIs.
  3. Senior management was not only involved in the structuring and approval of the deal, but will be heavily enmeshed in the details on a week to week basis. Banorte and IBM recognize that this is much more than simply a technology play, but instead encompasses every phase and level of the bank, from platform, to organization, to process.
While this transaction, five months in the making, is clearly in its early days, Banorte and IBM are making all the right noises about how to execute on a well-structured vision. True partnership, risk sharing, and a professed commitment to true customer-centricity are necessary, if not sufficient, conditions to a potentially extraordinary deal. In the spirit of full disclosure, I worked at IBM from 2001 until 2009.

The Need for Legacy Work Culture Transformation?

The Need for Legacy Work Culture Transformation?
It has been quite some time since the core banking trend hit the Indian banking industry. Almost all the top banks in India have implemented the core banking makeover in their systems and moved towards “Anytime, Anywhere” banking. But, the obvious question arises. Have the banks really moved, in spite of their marketing campaigns saying so? I recollect an incident where my colleague wanted to apply for the online banking service from the bank in which he was maintaining his salary account. Despite being one of the largest banks in India and one of the first banks in India to start the core banking transformations, he was informed that he can apply only in the branch in which he had opened the account! If the bank was indeed centralized and had implemented the “Anywhere” banking concept as advertised, why would the specific branch matter?

The culprit is not in the IT systems implemented in the bank but among the people using it. IT transformation has been the buzzword in the banking industry in India. But, the transformation of the bank is not brought about by IT alone. Business processes, policies and more importantly the work culture of the bank matters the most. I remember reading an interview of a CEO of one of the banks in India, where he mentions that a major challenge that the bank is facing is in changing the work culture of the bank. The current work culture has been inherited from decades of protectionist regime that the nationalized banks have enjoyed. The systems and processes are indeed very bureaucratic. Performance-based work culture has yet to find its place within the nationalized banks.

Fortunately for the banking industry, the liberalization and the emergence of private and foreign banks have started changing the outlook of the bank employees. With even nationalized banks gearing for major rebranding exercises, maybe it is time for them to look into their internal policies and instill corporate culture as well. The true transformation happens only when the legacy processes and policies are changed along with legacy IT systems.