Whichever method you choose, we recommend using experienced partners.
If you want to modernize outdated core applications, you can do this in one big step or several small ones. What banks decide to do depends not least on their size. The "how" is hotly debated, but the "whether" is no longer.
Mobile users, strict regulations, demanding customers - many legacy systems have long since passed their sell-by date in the face of growing requirements. Some time ago, Gartner coined the term "IT debt". This refers to the amount that a bank would have to raise in order to renew all of its applications at the same time. Banks that have invested too little in IT in recent years are now facing a mountain of debt. It is expected to grow by an average of 9 percent per year until 2017. According to Gartner, this could even trigger an "IT debt crisis" in the coming years - with unforeseeable consequences for individual banks and the entire industry.
So the days of waiting and postponing are over. But how can applications be sensibly replaced today? With a high-risk big bang that brings quick benefits? Or would it be better to use the evolutionary method, which entails fewer risks but where success only comes gradually?
Small banks dare to take the big step.
Large banks usually do not opt for the big bang because they could hardly maintain their business during the changeover. The risks are almost impossible to keep track of, and failure would have fatal consequences. While the giants are difficult to maneuver, smaller specialist banks can usually change course more quickly. "Larger migration projects can often be implemented within a few months, with the system going live in a weekend," says Jan Ph. The afb board member knows the challenges faced by consumer credit banks from many years of practical experience.
And he knows about the advantages of big bang: "In times of low margins in the lending business, banks simply can no longer afford to operate several outdated core banking systems. The faster they get rid of them, the better." An integrated solution also creates an integrated customer view. Today, the focus is not on the individual account or the individual loan agreement, but on the value of the customer for the bank. Those who migrate step by step often frustrate their employees and business partners. "It's hard to explain to a consultant in a car dealership or electronics center," says Wieners, "why they should have to work with an old and a new system at the same time for several months in the lending and leasing business."
For the big bang to succeed, however, a lot of preparatory work needs to be done. Business processes need to be standardized, the organization integrated and the necessary technology implemented. Contingency plans have to be drawn up, as the schedule has to be adhered to in any case. At the same time, the bank must involve managers, employees on the ground and possibly also business partners in the project so that they support the project. Many institutions rely on external expertise for these tasks for reasons of time and cost. The IT departments of smaller specialist banks in particular are already working to capacity with day-to-day IT operations.
Reaching the goal in stages
Those who opt for a step-by-step approach instead of the big bang also do so for good reasons: They want to minimize risk or see how new modules and their functions prove themselves in practice. Banks' IT landscapes are often extremely complex and 30 or even 40 years old, meaning that a big bang is simply no longer possible. The aim here is to isolate each architectural component in such a way that it can be managed without affecting the rest of the system. The bank can then replace the components one by one with less risk. However, the time and costs involved are correspondingly higher and the dual operation of old and new should remain hidden from users as far as possible. They should benefit from improvements without restriction.
Ultimately, the size and complexity of the migration task will probably determine whether a bank migrates its core systems in one large project or several smaller ones. Experienced partners can already help in this important decision-making phase.
