Core Banking Transformation: Solutions to Standardize P

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Core Banking Transformation Saket Sinha – Global Core Banking Framework Leader August 2010

There are dramatic forces of change across financial institutions : 

There are dramatic forces of change across financial institutions Clients Regulation Trust Capitalization Competition Economy 2

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Are inflexible due to reliance on old technologies, single-purpose design and high customization Cannot support complex, highly interdependent products and relationships Require a lengthy development period to introduce and support new products Do not provide multi-dimensional customer views or management information Do not provide the necessary information required for today’s banking control environment Do not integrate easily with new applications, third-party packages and other IT assets Cannot accommodate new and more complex risk management frameworks Do not support an efficient and flexible environment leading to higher cost of maintenance Source: IBM Institute of Business Value 43% 40% 40% 29% 33% 0% 10% 20% 30% 40% 50% Customer Data Analysis New Product Time to Market Efficiency and Cost Integration With Other Systems Incorporating Regulatory Requirements BANKS’ DISSATISFACTION WITH CURRENT CORE SYSTEMS’ ABILITIES % DISSATISFIED Core banking systems today are outdated, expensive to maintain, inflexible and unable to support growth and innovation 3

Banks have began to realize the importance of Core Banking Transformation : 

Banks have began to realize the importance of Core Banking Transformation Complexity in core banking system can result in almost 30%-40% overhead on the total operating cost of the bank Old legacy core banking systems almost Consume 90% of core banking spend Siloed and fragmented architecture of the old systems results in around 20% revenue leakage through the door Source Datamonitor Group, Forrester and IBM Client analysis Core Banking IT Spend Analysis ~95% ~5% Total Operat-ing Cost IT Spend ~50% Core Banking Spend Other IT spend ~50% ~90% BAU Spend Discre-tionary Spend ~10% Non IT Spend Complexities of core banking system can almost add ~30%-40% to the operating cost 4

Yet they also need to reduce costs in response to increasing margin pressures.The solution? : 

Yet they also need to reduce costs in response to increasing margin pressures.The solution? 5 Today’s banks are looking to grow top-line revenue by deepening customer relationships Re-architected core systems that can capture and analyze the data generated by every transaction—continuously providing the insights to drive new products and services and to increase efficiency throughout the enterprise.

Core Banking transformation has three key control points. Architecture led approaches have proven to be more successful in the past : 

1. Architecture 2. Platform 3. Applications Traditional (Based on Legacy architecture, e.g.. CICS/ COBOL) Next Generation (Based on new technologies; open architecture) Package Custom A Hybrid Model Service Operating System Database Programming model Middleware or or or or & & & Progressive transformation: IBM’s Banking Industry Framework for Core Banking Transformation Dynamic Infrastructure & z/Platform Growth Framework and/or ISV Core Banking transformation Framework / ISV Strategy Architecture-led Define architecture first Determine appropriate platform based on architecture decisions Make application decisions based on architecture Package-led Select package Make platform decisions based on package selected Architecture largely defined by package applications selected Core Banking transformation has three key control points. Architecture led approaches have proven to be more successful in the past 6

IBM core banking transformation approach is based on progressive renovation— Helps to modernize existing assets with a well defined transformational roadmap : 

IBM core banking transformation approach is based on progressive renovation— Helps to modernize existing assets with a well defined transformational roadmap Step orderly approach that can be paced up and down De-risks implementation Change for course possible if the market factor changes Allows banks to pace the investment Focuses on architecture first before applications Traditional vs. progressive approach 7

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Degree of Complexity IBM’s approach provides multiple entry points to banks to pursue transformation of their core banking systems 8

IBM’s progressive renovation focuses on : 

IBM’s progressive renovation focuses on Transformational Planning Foundational Architecture Legacy Modernization New Capability Development Package Implementation Execution based on industrialized factory concepts Governance and change control 9

What Are The Objectives of Progressive Modernization? : 

What Are The Objectives of Progressive Modernization? Modernized World Green Screens Monolithic Applications Inflexible Architecture Multiple Point to Point Interfaces At Application & Data Levels Embedded Business Rules Embedded Data Access Logics GUI Screens Modular Application Constructs Reusable Business Services via ESB Modular & Flexible Architecture Message Broker Mediated Interfaces Exposed Business Rules That Are Re-Usable Across Applications Integrated Data View Step By Step Modernization (COBOL to JAVA AND/OR COBOL) Business Domain By Business Domain Application By Application User Interface Multi-Channel Application Architecture Integration Data Governance Develop new capabilities in modernized world New Development to meet business requirements Migrate existing capabilities into new environment Code conversion Data Conversion Application Retrofit Harvest existing capabilities from legacy environment Embedded business logics & business rules Product Engines Data models Legacy World Progressive Modernization High Cost of Maintenance Higher Operating Cost High Time to Market Business Inflexibility Poor Efficiency & Productivity Reduced Ability to boost revenue & Growth Lower Cost of Maintenance Lower Operating Cost Lower Time to Market Improved Business Flexibility Higher Efficiency & Productivity Significant Ability to boost revenue & Growth 10

IBM’s Banking Industry Framework A combination of assets, tools, accelerators, methods and software products that help banks modernize and run their core banking systems : 

IBM’s Banking Industry Framework A combination of assets, tools, accelerators, methods and software products that help banks modernize and run their core banking systems Integrated Risk Management Customer Care and Insight Integration Optimization Analytics Collaboration Security Resiliency Core Banking Transformation Payments and Securities The framework gives you speed, flexibility and choice in deploying solutions while reducing cost and risk! 11

IBM’s Core Banking Transformation Framework offers key benefits : 

IBM’s Core Banking Transformation Framework offers key benefits Accelerates core system transformation while minimizing risk and disruption. Key Benefits: Faster deployment Lower Risk Support for adoption of open & industry standards Offer choice of business applications from IBM & its partners Simplified enterprise architecture 12

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Services Components Building Blocks Solution Templates Banking Transformation Workbench Design Rules Examples of framework assets and accelerators for Core Banking Transformation include IFW Banking Data/Message Model Banking Extensions for Master Data Management Common Shared Services 13

IBM’s Core Banking Transformation Framework enables banks to undertake one or more approaches to modernization based on strongest alignment of business needs with IT transformation efforts : 

IBM’s Core Banking Transformation Framework enables banks to undertake one or more approaches to modernization based on strongest alignment of business needs with IT transformation efforts Strategic Priorities Modernized Banking Environment Identify new “To Be” process models, service components& architectural constructs Determine how legacy can be harvested and/or migrated to support “To Be” model Implement Package Re-Write / Develop Legacy Modernization Hybrid Modernization Approaches Facilitated by Framework Design “To Be” architecture for modernization 14 Top Down Bottom Up

IBM Core Banking Transformation Framework enables organizations to start with any solution and build upon it over time to achieve a simplified, strategic infrastructure : 

IBM Core Banking Transformation Framework enables organizations to start with any solution and build upon it over time to achieve a simplified, strategic infrastructure Achieve a simplified, strategic infrastructure. Choose a project and implement it to achieve immediate ROI. Build on the value of previous projects, reusing assets and implementation patterns. 1 2 3 15

Banks benefit from added speed, choice and flexibility, and the support of a vast IBM Business Partner network : 

Banks benefit from added speed, choice and flexibility, and the support of a vast IBM Business Partner network Speed: Pre-configured solutions can be implemented faster than ever Choice: Banks choose the solutions that provide the most value to them, in the order and at the pace that makes the most sense. Flexibility: Techniques built on business process management and service-oriented architecture means easier deployment and interoperability of solutions. Lower risk: Incremental projects, each with a defined payback period, are more easily scoped and implemented—and build on infrastructure deployed in previous phases. Business Partner network: An array of powerful applications integrate seamlessly with IBM middleware. 16