Understand the Challenges and Opportunities of a Core Conversion for Your Bank
Although change can be daunting, ushering in a more sophisticated environment for your employees, shareholders, and customers is bound to be a positive change in the end. As you consider a core conversion, it’s important to understand that this is no small feat, but one that requires months of planning and precision in execution.
The best way to ensure a positive outcome is to have clear strategy and timing when updating your banking systems. This will help you avoid disruptions to your finely tuned financial institution. After all, the goal is for the core banking system to function without issue or interruption which can cause customer dissatisfaction and even invite regulatory scrutiny. However, to maintain competitive technology, it is vital to stay up to date with your financial systems and it is possible to have a seamless transition with proper planning. Keep reading for best practices to consider with your core conversion.
Is It Time to Upgrade Your Bank’s Legacy Core Banking System?
The primary advantage of a legacy core banking system is its reliability. This advantage is also the reason some financial institutions are resistant to an upgrade. So, how do you know when it’s time to upgrade your bank’s legacy core banking system? Generally, a conversion becomes necessary when the legacy system no longer supports the goals, aims, and vision of your institution. Reasons to upgrade your bank’s legacy core banking system include:
- Digital banking, APIs, and cloud usage have led to a significant change in banking partnerships and products.
- Customers expect real-time transaction processing.
- Features are always updating, and infrastructure needs to scale up and down to match.
Other issues banks are facing with legacy systems include the following:
- Dwindling pool of engineers available to maintain
- Complex core base with often undocumented customization
- Current platform software does not support the business process flow
- Inability to accurately define and segment customer population
- Diminished competitive advantage
- Legacy systems have negatively impacted business growth
- Poor customer experience and interface
- Governance, risk and compliance problems
- Disparate data sources have caused weakened analytics and reporting
- Failing compliance audits
The Importance of Buy-In for a Core Conversion
The reasons to do a core conversion are compelling, but you also need to get employee buy-in. Listening can go a long way when you ask employees how this change will impact them. Next, form a committee to choose from the new features and upgrades available with the new core system. Be sure to include representation from each department.
Before the launch of your FI’s new core system, make it a priority to train employees on the new system. You want to set people up for success, not frustration.
Throughout the process, create ownership among employees. Keep a positive outlook on the change while also acknowledging pain points. Assign tasks leading up to the change, allowing each employee to have a defined role in the transition’s success.
Finally, never discount the importance of ongoing recognition: create opportunities to recognize employees for their efforts and focus. This could look like catered lunches, gift card giveaways, or raffle tickets for larger prizes.
Preparing Customers For The Conversion
Why are you doing a core conversion in the first place? For most financial institutions, one of the top reasons is to increase customer satisfaction. However, you may be worried about your customers having a negative experience during the upgrade process. The best way to get ahead of that fear is to prepare customers, communicate regularly, and offer assistance during the transition.
- Consider technology gaps. A bank has a wide range of clients, each with its own level of technical prowess. Be sure to cover all avenues of communication to increase your chance of reaching every client.
- Create a dedicated webpage. This space should outline the timeline of changes and available options to help clients experiencing issues.
- Create an email drip campaign. You can use this to announce the transition and include tips for navigating the new system.
- Mail flyers to customers. Don’t forget about “snail mail” as another way to distribute information on the core transition.
- Have extra staff on hand. During the transition when disruptions are most likely to happen, have extra staff on hand to answer phone calls, chat messages, and walk-ins.
Planning the Route of a Core Conversion
Now that the goal of a new financial system is on the horizon, you need to plan the way to your destination.
There are two routes to a system platform change:
- Phased Implementation: This is a staged approach with two core offerings—Build and Migrate and Progressive Migration.
- Big Bang: As the name suggests, this is a full replacement in one go.
With the Build and Migrate option, the bank offering is set up and established on the new core system with the help of modular software. Built-in parallel to the legacy core system, customers are migrated gradually to the new system.
Progressive Migration involves waves or stages. To accomplish these waves, customers are divided and migrated in a tiered fashion.
Pros and Cons to Phased Implementation
- ROI is realized quickly, although not fully as lower tier customers can be moved quickly to the new system.
- With a system rollout overlap, there is more time for testing and debugging.
- During this early rollout, a target group of early adopters who are more understanding of bugs can be used to lower the risk of dissatisfaction.
- Although a phased approach has a longer timeline for full adoption, the risks are lower.
- The implementation or ‘we’re live!’ period is repeated with each wave, prolonging the intensive environment for employees.
- Both the old and new systems must be maintained during the rollout, garnering additional costs
- Without dedicated plans, focus can be taken from other tiers of customers and diverted to the ‘we’re live!’ tier, leading to neglect during the testing phase.
Big Bang Approach
The risk is higher with the big bang approach, but so too is the reward. Big bang projects typically cost less and are delivered in a faster time frame than phased approaches. The Big Bang implementation is not for the faint of heart and is typically better suited to smaller, less complex customers, although with the right planning and technology, can be rewarding for customers of all sizes.
Pros and Cons to the Big Bang Approach
- Shorter implementation or ‘we’re live!’ timeline.
- Less time is spent maintaining both the legacy and the new core system leading to cost savings.
- One and done–with the project focus being intense, yet extremely focused, the shorter timeline leads to a more positive overall experience.
- The hiccups, issues, and glitches are there for all to see, including customers and stakeholders.
- There is no built-in time for parallel testing due to the rip and replace approach, leading to a blind rollout.
- Until the project is completed in full, no ROI can be realized.
- Fewer hiccups lead to a faster rollout, but one glitch can delay the whole project
Questions to Help Determine Which Type of Rollout is Best
When choosing between these two approaches to core conversion, ask these questions to determine your FI’s business drivers:
- Are we trying to increase efficiency?
- What is the financial impact of the conversion? Is a faster result with lower cost and higher risk preferable to cutting risk but increasing the time and budget allocated?
- What is the nature, complexity, and size of your financial institution?
- What are the number of products and the IT complexity involved?
- What is your bank or credit union’s appetite for risk and the effect of risk on the business?
Core Conversion Data Integration Prioritization
Prioritize what data is necessary to convert into the new system. A core conversion is a good opportunity for banks to analyze what unnecessary data they are holding on to. Oftentimes, bankers believe they need to convert 100% of their data, but this can be costly and inefficient. Decide which data is important to transfer and integrate, and rid of irrelevant data.
While you may see a core conversion as an opportunity to consolidate, convert, or sunset older offerings, proceed with caution. Making big changes adds an additional layer of complexity that, in the end, will confuse some of your customers. It’s best to execute product decisions six months to a year beforehand to make product mapping to the new core system easier.
Finally, a core system conversion, or even the major introduction of an enterprise CRM, is too important to put in the hands of someone who has not led such an effort previously. Hire a professional firm to make sure the conversion is done right.
While you’re considering a core conversion, do you also need help with bank statement processing or electronic statements for your bank? After partnering with 300+ financial institutions across the country we have experience working with most every core out there; we invite you to start a conversation with us to learn how we can support your core conversion.