Another amazing area of
change in the Middle East is the speed with which the banks can change
core systems. Many of the banks here have changed their core systems
to offer improved wealth management services combined with Shari’ah
This became clear when one of the keynote
presenters asked the audience: “How many of you have been in charge of
a core systems replacement project?” and about 70 of the 200 audience
members raised their hands.
The US presenter coughed with surprise and restated the question:
“Please keep your hand up if you are a banker, but lower your hands if
you are an IT vendor or consultant. So how many of you, as bankers,
have been in charge of a core systems replacement project?”
Around 50 hands remained raised.
you asked that question in a European or American banking conference,
you’d be lucky to see one hand raised. In the UK, that one hand would
probably be someone from IT in the Royal Bank of Scotland or Santander
who had to replace legacy applications from NatWest and Abbey with
Most of us avoid changing core systems
because it’s darned difficult, equated with changing the engines of an
aeroplane whilst flying at 39,000 feet. That’s why we don’t do it.
do you keep the plane flying without any issues when an engine needs to
be taken off and put back? This question came up in the bankers'
context of changing core systems, and one banker replied, “you do it
carefully in a phased implementation, and you don’t change the system
to suit your bank, you change your bank to suit the system.”
is why many of the banks here are achieving turnaround times of six to
nine months, from systems contract to live production, for a brand new
core platform covering retail, wholesale and payments. That's pretty
much unheard of anywhere else, and is the reason why Asian , Middle
Eastern, African and Eastern European banks are all creating structures
and operations fit for the future.
Whilst many of these
banks have implemented new core systems in the past few years, American
and European banks are stuck with thirty year old or more legacy
It tells me we could learn a few things from these
guys. One learning is don't build systems but buy in best-of-breed,
and focus on differentiation in the way you assemble all of this
Relating it back to the airlines
industry, Boeing and Airbus don’t make parts for the aircraft anymore.
They source common parts from around the world, from engines through
screws, seats, wings and wheels. They then assemble all of these
parts, common to all aircraft, into a unique finished product in their
factories. It's the way they design, integrate and deliver the
finished product that is then unique.
Middle Eastern and
other banks are doing the same. They are taking the basic components
such as servers, core systems and other techologies. They take these
in their vanilla form, and then build their bank upon that common
platform. It is then the way that they integrate the technologies with
their processes, products, services and people to deliver a unique
finished product that makes them exceptional.
Most of the banks
I deal with in Europe and America do the opposite. They try to build
all the core components and the finished product, because that's what
they have had in the past and they can't get rid of that legacy. They
have started using and sourcing common parts from best-of-breed vendors
and assembling them into the finished product ... but still have huge
resources dedicated to building their own at the same time. In other
words, they still want to change the systems to suit their bank, rather
than taking the systems in vanilla form and building the bank upon the
Now many may say that the real difference is that the banks I'm talking about in the Middle East are small bean 'corner shop banks' rather than massive, global players. First, I would say that this is a disparaging
view of banks that are, in many cases, capitalised and as complex as
the large, global players; and second, it may be complicated, but UBS,
HSBC, Citi, Deutsche and others have been replacing core payments and
banking applications over the past five years. They do this
bit-by-bit, piece-by-piece, country-by-country.
It is an
approach that uses the old adage: How do you eat an elephant? One
piece at a time. Using that approach, even a large, universal, global
bank can change core systems. It just takes a little longer to finish.
bottom-line in this debate however, is that banks that have the
mentality to build their own regardless are an endangered species.
Even if they dump their old, legacy systems through Service Oriented
Architectures and web services, these banks will never be as agile to
change and flexible to new competition as the banks who change
organisation to suit core systems.
Differentiate with people, processes, products and services. Be agile and flexible with technology.
Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, TheFinanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal's Financial News. To learn more click here...