The banking structure is now resting upon highly sophisticated and intricate IT solutions that are as efficient as they are complex. Sabiha Essa Khan looks at issues surrounding foreign and locally developed banking systems, and the process of acquiring, implementing and migrating over to a new system.
Industries all over the world make use of automation and computerisation in order to streamline their processes. The financial sector, particularly banking, is no different. In fact, banking has come a long way since the days of manual processing and paper trails combined with reconciliations.
Today, banks are one of the major consumers of a range of IT-enabled products — be it core banking systems, distribution networks, links with third-party service providers, integration with telecommunication channels, complaint management, and relationship management. These systems are either developed in-house or purchased off the shelf.
In case of the former (in-house), banks are still struggling with this due to cost and time issues — unless their parent organisations already have systems developed (or purchased)such as is the case with, foreign banks. But in the case of the systems being bought off the shelf, there's a cut throat competition to acquire locally developed banking solutions or to acquire a foreign one with customised implementation.
This write up attempts to look up issues surrounding foreign and locally developed banking systems, generalised and specialised systems, the decision-making process to acquire banking systems, and post-decision making implementation and the process of migrating over to a new banking system.
Foreign Versus Local
Banking solutions can be broadly divided by their origins – foreign or local. Like nearly everything, the solutions produced abroad are highly sought-after in the banking industry. However, there are many local software houses (or independent software vendors) working extensively in the banking domain.
Foreign banking solutions such as Misys are mostly marketed through companies with local presence such as Systems Limited. Though these two genres compete against each other, their market has certain delimitations as larger banks usually opt for foreign developed systems while it’s the relatively smaller ones who prefer local solutions mainly due to the cost factor. But it does not mean that locally developed software systems are by any means inferior when it comes to functionality. However, there are problems related to consistency and errors owing to rapid development cycles expected from local vendors.
But it is also a fact that some errors are also encountered in banking systems of large foreign banks even when they mostly run the systems that is being used globally in their bank branches. There have also been cases of foreign system implantations taking longer than anticipated.
Generalised Versus Specialised Banking Solutions
Banking solutions deployed in a bank are often not one comprehensive and cohesive set. It’s mostly a combination of different modules catering for different applications and purposes. There are international software vendors working exclusively in areas such as mortgage systems or loan systems. Then there are specialised trade finance systems which banks can acquire only for that particular purpose.
At the very core of banking solutions lay its fundamental accounting system which generates its day-to-day financial picture as well as financial reporting for various purposes. This is a central system, much like the sun in our solar system, around which different systems revolve.
Good banking systems must provide easy-to-use yet effectively managed systems which allow high-stakes corporate bankers to focus more on their analytical and business skills, and use computers to get assistance in say performing analysis that requires time and effort. This area of banking systems has become so specialised that there are international vendors solely devoted to developing solutions catering for one product at a time.
Choosing The Right One
While banking solutions require hefty investment in acquiring specialised software, it is a long-term investment that require careful analysis such as analysing current and future requirements, business trends, expansions, load balancing, pricing, platform support, prices, post-deployment support, future enhancements, training and scalability.
It is therefore mandatory that a bank selects its senior most and all-round business division heads, as well as IT department staff from the very beginning in procurement of a banking solution.
One aspect of banking solution selection is functionality — what the system has to offer and how much customisation can be done for making existing products work over the new system. It should be kept in mind that banking products are complex in nature, such as having different tenures, different interest rates, handling of priority customers, combination of reward schemes, amalgamation of insurance, rate conversions, currencies supported, limits, etc. This complexity means it requires expertise at the end of the bank as well as the vendor’s end to ensure all business needs are fulfilled adequately.
Good banking systems must provide easy-to-use yet effectively managed systems which allow corporate bankers to focus more on their analytical and business skills, and use computers to get assistance in performing analysis that requires time and effort.
The next aspect is that of technology. Banking solutions have traditionally been desktop-based software applications requiring specific platforms such as an operating system with a particular database, like Windows and SQL Server.
Then there are solutions that do away with the requirement of a particular database but retain the requirement of a particular operating system. But the trend that is set now is to do away with both — making completely web-based solutions so that they are easy to deploy on a single server and accessible easily over local area network. The technological aspect is important because the vendor must coordinate very closely with the bank involved to see what new purchases would have to be made other than the banking solution itself.
This would include expensive hardware such as servers, firewalls and networking equipment for installing the new system. And this is the third important aspect of decision making — namely, hardware procurement. It is easy to get carried away in buying top-of-the-line equipment where it might not be needed, e.g. end user machines. The proper way is to first analyse the requirements realistically and statistically by using tools for capacity planning, and load and stress testing.
These three aspects — feature analysing, technical specifications and hardware requirements are among the basics of decision-making that goes into acquiring a banking system. These aspects require expertise that might not even be available in-house so there could even be third-party consultants coming into the picture, working on tasks such as business workflow modelling, creating detailed specifications, verifying functionality, providing database and network expertise, say creation of new data centres, etc.
Then there are banking solutions in the area of credit and risk management. These are not the applications that a large number of staff in a bank makes use of, unlike consumer and corporate systems. Yet, these are critical systems for analysing the bank’s credit, liquidity, compliance to standards, such as Basel-II, various other regulatory requirements and even the bank’s own policies and standards. This has traditionally been a niche market where few local software houses have been active. This is true for areas such as financial modelling, anti-money laundering, phone, mobile, SMS and internet banking, ATM/POS support, etc.
Making It Work
Acquiring new banking systems and making it work is no walk in the park. Huge costs overruns, customer impact, training and conversion of the existing system to new ones, verifying results of such conversion and above all, integration of different systems into the newly-acquired system pose unique challenges.
The challenges and situations differ from bank to bank, and, for the vendors, offer a new experience nearly every time as they have to work in different scenarios. The banks that choose to develop their own systems in-house are also at risk because of the tendency of delays when working with internal stakeholders as timelines are often lax and there is not as much sense of urgency as it is when working with an external vendor.
Banks also require running new systems in parallel or test run to ensure it is working properly, and reports are being extracted the same way as required. Then rolling the system out branch by branch requires expertise in project management and foresight with technical support to ensure that the new system is rolled out within the expected timeframe and customers are not made to suffer. In one case, an existing service of online-banking (branch-to-branch communication) was halted in a local bank merely due to the fact that new system was rolled out without bringing on board all the branches. Such are the fallacies of new systems which are ill thought out and unprofessionally upgraded.
Saeed Siddiqui, with over seven years of experience in the financial services sector as a developer and presently a senior software engineer at a software house, is of the view that at times the bank’s own staff lack the understanding of their requirements and architecture, and that results in poor integration or conversion. There can be problems with database details, formats, managing archived data with the new systems, and, most importantly, the validating part.
He further adds, “At times the local systems are not as new and compliant with modern cutting-edge requirements as they claim to be, whereas foreign systems provide better feature mix and quality. But, consequently, at a higher price tag. Therefore, it’s advisable to purchase basic modules and get the rest developed locally with really good IT professionals. In doing so, it is important to realise the role of challenges of technology, performance and platform with a deep understanding. These are very important in trying to pull off any integration or migration effort successfully.”
To sum it up all, banking solutions are complex and numerous. Decisions surrounding their development and procurement are never easy either. It has to be understood that there are long-term implications as having a better system can provide a real business edge during these tough times when things are less than ideal for banks. |
