Forrester Research Sees The End Of The Line For Vintage Banking Platforms
The shape of today¿s European banking industry is massively influenced by a highly challenging environment: Mergers, acquisitions, reorganizations, and disposals are constantly creating new business scenarios. At the same time, banks need to increase revenues, manage costs, create new products, get ready for the industrialization of banking, and cope with regulatory requirements. Are all banks¿ application platforms ready for all this? According to Forrester Research, Inc. (Nasdaq: FORR): Probably not. In a series of reports, Forrester describes how banking platforms¿ lack of agility threatens many banks¿ business, what the key drivers behind platform renewal are, and what methodology to use for successful platform renewal.
Jost Hoppermann, Vice President of Financial Services at Forrester Research and author of the banking platform series, explains: ¿Despite huge renewal costs and inherent migration risks, many banks have already started planning for banking platform renewal ¿ giving themselves sufficient time for careful preparation. Their planning approach needs to use strong methodologies that support close cooperation between the business and the IT side. Other banks will eventually have to accept at least the same renewal costs ¿ and definitely higher risk: Banking platform renewal can¿t be started quickly or easily.¿
A recent Forrester survey showed that application renewal is one of the top IT concerns of European banks. Heads of IT strategy, planning, and architecture speak of large volumes of ongoing projects intended to cope with new and often urgent requirements from their banks¿ business divisions. These requirements can be prompted by mergers and acquisitions ¿ for example, the Royal Bank of Scotland¿s takeover of the UK¿s NatWest in 2002 and Spain¿s Banco Santander Central Hispano¿s current restructuring of the UK¿s Abbey ¿ but are perhaps more predominantly due to the growing need for banks to boost revenues and reduce costs.
New functions and applications are meant to help grow existing customer revenues and acquire new customers. Banks increasingly analyze their profitability on a customer-by-customer basis and try to lower the cost of serving customers by migrating to new self-service technologies. But these technologies represent only a small part of a comprehensive multichannel solution ¿ business requirements, such as improved customer risk scoring for credit and insurance, are a large part of the equation. And banks need to cope with all of these challenges while managing the ever-increasing pressure to reduce the costs of running the bank.
Hoppermann emphasizes the need for banks to move to new, and ideally more agile, platforms: ¿Those banks that haven¿t even started planning for an agile banking platform will eventually run the risk of operating and maintaining a platform that is suddenly unable to cope with business requirements.¿ He continues: ¿Insufficient agility will not only increase time-to-market for new services, it will also drive up costs and reduce the quality of the platform and its contribution to the business.¿
So how can banks achieve agile platforms? According to Forrester, banking platform renewal requires a sound, business-oriented foundation that consists of a set of clearly defined and communicated decisions, including a sourcing strategy, an IT strategy, and a concise description of current and future functional maps. A lean and dynamic planning methodology is needed to cope with new and changing business requirements, select the right solution, and execute a migration lasting several years.
The approach used depends on the maturity of the existing banking platform. Most banks ¿ including some claiming to already have an agile platform ¿ need to prepare for platform renewal step by step. The necessary steps in this process include: aligning IT portfolio decisions with the bank¿s situation and objectives; recognizing that the strategic sourcing option is more than just ¿build or buy¿; providing migration with methodological support; and investigating off-the-shelf navigation.
Hoppermann concludes by saying: ¿Many banks¿ application platforms are either not up to current (much less future) business requirements, or will soon reach the point where they are unable to cope with these requirements. This endangers a bank¿s competitiveness. Many banking platforms are patchwork systems, just short of being maintained to death. Whether a bank intends to build a new application platform or buy one (or even parts of one) off the shelf, it will need to prepare for this in a comprehensive, holistic, and forward-looking way. To prepare these mandatory planning phases and to execute migration, a bank will typically have to think in the medium to long term.”
Forrester Research Banking Platform Report Series:
- End Of The Line For Vintage Banking Platforms: Platform Renewal Cannot Be Achieved On The Fly
- Vintage Banking Platforms Need Renewal: A Path To A Shortlist ¿ Or To Banking Platform (Re)design
* Forrester defines a banking platform as: A core banking application along with most, if not all, of the relevant functions for a bank¿s business, as well as a comprehensive multichannel functionality.