Daniel Mayo on Core Systems Migration in the Banking Sector

European Voices4 minutes readSep 26th, 2012
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Steve O’Loughlin and Nick Fraser recently sat down with Ovum’s Daniel Mayo to discuss core systems migration in the banking sector. Daniel offers his thoughts on the subject below.

What are the characteristics of core systems migration that succeed?  When, how and why should clients rely on external partners for these?

Executive sponsorship is a key requirement for successful core systems migration. While it has a heavy ‘IT’ component, it represents a significant business project in terms of cost, risk and need for top prioritisation. At a tactical level however, banks need to recognise that they must obtain migration skill, expertise and actual experience. They shouldn’t assume that they necessarily have these in-house, even if an in-house team currently operates this system. When looking at external partners, consideration of IT and data migration skills is important, but domain knowledge and experience is even more so. Understanding how existing systems and processes rely on the current system is critical to ensure smooth running with the new system.

Why is core system migration such a key component of successful M&A in the banking sector?

Cost synergies are generally a critical part of the business case put forward to shareholders in bank M&A situations these days, with executives becoming increasingly aggressive in terms of the scale and timeframe to extract such savings. Banks need to truly integrate, particularly in back office operations and administration functions, which at the end of the day, are highly dependent on the IT platforms that support and enable them. Consolidating IT platforms is therefore a prerequisite to be able to consolidate the wider back office. This also gives the bank an opportunity to extract further savings through process standardisation and consolidation, as well as obtain customer service benefits from use of standardised systems and processes.

Why do core banking system migrations fail?

Core systems migrations fail for a number of reasons. Key issues include a lack of understanding about existing systems and processes as well as lack of executive sponsorship. These failings can result in a fall in project prioritisation and hindrance by the business, particularly as business benefits typically accrual in the medium-long term.

What are the potential gains of a successful core system migration?

Whilst migration should produce cost savings through lower maintenance and platforms costs, once the legacy systems are decommissioned, the main benefits come at the business level . This is because a consolidated platform typically facilitates the ability to run standardised processes and makes it easier to maintain a single view of the customer. When migration replaces very old systems, it also reduces a growing operational risk banks are facing in using systems that are based on old technologies, or with in-house systems that have low levels of documentation.

What should banks look for when considering which core system vendor to work with on a migration?

As mentioned, experience and domain expertise are vital here. Whilst IT integration and data migration skills are important, the ability to understand how the older system operates and works with the rest of the bank from both an IT and business process perspective is critical to allowing the rest of the bank to run smoothly post-migration.

About Daniel Mayo

Daniel Mayo, practice leader for financial services technology at Ovum

Daniel Mayo is the practice leader for Ovum’s global financial services technology team, covering the retail and corporate banking sectors and financial markets industries. He specializes in core systems, payments and compliance, and IT spending/ investment trends across North America, Europe, and Asia-Pacific and has experience working in both the European and North American theatres.

Daniel has authored and/or managed numerous research and analysis studies across the retail, private and corporate banking, and financial market technology sectors, as well as worked closely with a number of leading US and European financial institutions around IT benchmarking, investment strategies, and IT governance. He has extensive research experience with and knowledge of financial institutions and the supporting vendor community across Europe and the US. He is regularly involved in industry presentations and frequently quoted in both US and European press.

Daniel holds an MA and BA in Economics from Cambridge University.

To read more from Daniel and the rest of the Ovum team, have a look at the StraightTalk blog pages on the Ovum web site.

Tags-   banking core system migration