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Convincing management to renew core systems

I’m often asked what I mean by a digital core and how to convince management to buy into it.

What I mean by a digital core is that the bank has made itself cleansed and ready to join the new generation of fintech.  It has renewed and refreshed its core systems by replacing them.  They achieve this by abstracting the data from their legacy and cleansing it to be independent of the processors.  At this point, the bank has agility to replace processors overnight, without the fear of affecting core systems.

This is why I regularly state that digital has nothing to do with channels.  Channels are a past century term for sticking lipstick on the pig of legacy systems.  You try to make them look pretty at the front-end whilst the back-end is a heap of crap.  That just does not work and does not cut it in the 21st century.

This century sees everything real-time, online all the time.  You cannot have overnight batch systems that cannot connect in real-time in the 21st century.  That is why the creation of a digital core is so integral to getting this right.

Then the question is: how to get management to commit to doing this right.

Most management think of digital as another channel to market.  They hear the analysts, consultants and vendors talking about omnichannel strategies and digital channels, so they create a project, install a Digital Bank Leader and invest in deploying the new technologies.  They believe the new technologies are all about mobile and tablets and, once deployed, they clap their hands, sit back with a smug smile and congratulate themselves on getting it right.  Instead, they should be slapping themselves for getting it so wrong.  Rather than bite the bullet and make the big decision to renew the core in order to create a bank fit for the future, they’ve just invested millions in another dead duck.

At this point the Digital Bank Leader gets frustrated, because they get this stuff and can see it’s not going to the right place.  He or she has just led a project for the last months that they are passionate about.  They’ve ate, slept and drank the digital juice, and they’re high on a vision of a bank that truly has digital at its core.  But now they’ve reached the inevitable barrier where the CEO and Executive Management say: “you’ve done a good job, now go away and be a good boy or girl and here’s a much smaller budget to maintain this stuff”.

Don’t you get it?  Don’t you realise?  We have to refresh, renew, re-energise and replace the core system?

Their bleating sounds desperate.  A control grab for power.  And so they leave.

Maybe I’m wrong, but I’ve seen a number of good folks who read this blog and get this message run into the wall of management inertia.  I feel for you, I truly do.

So go out there and give them all the links embedded in this blog.  Tell them that some guy who’s not a vendor, analyst or consultant is telling them that sticking a digital channel just will not do the job.  Tell them that if they’re not ready to renew, the bank will wither on the vine.

If they stick to their guns and still don’t get it then leave, for wouldn’t you rather be with a company that seeks a future than one that is happy to decompose?

Here’s to a great year where everyone gets the vision of a digital core and, more importantly, implements it.

About Chris M Skinner

Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, the Finanser.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...

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  • Tony Coulston

    Howdy Chris – you may recall we met recently in New Zealand. At the (great) risk of being slammed by all and sundry ..does real time really work for those that float debit transactions either over night or across weekends?
    I can understand the desire for real time receipt of funds but that does require a real time debit on the other side of the trade transaction – doesn’t it? Seems to me that a few things like banking law and recourse rules will need to change to give practical effect (at scale) to what modern tech can deliver.
    what do you think?
    best regards

  • Chris Skinner

    Hi Tony and great to hear from you
    Re your comment: it depends on your view of real-time settlement versus real-time receipt with payment later. As far as I know Sweden’s BGC is only ACH that has gone for the former so far and, according to their own words:
    … it means the following:
    Payments in Real Time, Bankgirot’s new payment system, became a reality in November 2012. It offers an open infrastructure that gives banks and payment institutions a system – a platform – for creating their own offerings. Bankgirot’s good reputation and central role in the Swedish payments system enables settlement in real time 24/7, every day of the year, in cooperation with the Riksbank, Sweden’s central bank. Mobile payments between consumers is one of the services enabled by Payments in Real Time.
    Question: What does Payments in Real Time mean?
    Answer: With Payments in Real Time, the money is transferred from one account to another account instantaneously in conjunction with the payment order being made.
    Question: How do Payments in Real Time differ from other types of payments?
    Answer: One way to discuss this issue is in terms of genuine and non-genuine experiences of real-time payments. For example, when buying a metro ticket via text message or using a debit card at the supermarket, it feels as though you are paying in real time. However, the truth of the matter is that a party somewhere in the chain is out of pocket until your mobile phone bill is paid or the money reserved on your bank account is transferred to the supermarket. When it comes to Payments in Real Time, it is a genuine experience, as the money is debited and transferred to the recipient as soon as the payment order is made. For the parties behind a payment service in real time, the service is free of credit risk. If there is money in the account, it is withdrawn and transferred; if there is no money or insufficient funds, no transaction takes place.
    Question: What distinguishes Payments in Real Time as a platform?
    Answer: The main advantages of Payments in Real Time are the speed and availability in terms of the ability to process instant transactions 24/7 all year round. It is an open and independent system based on international technology standards with the option to connect both many new participants and new services. The platform is currency-independent and has no limitations on amounts, which also can contribute to the many opportunities to optimise existing payment solutions in various ways and to create new flows with new customer offerings.
    Another important aspect is Bankgirot’s central function in the Swedish payment infrastructure, in which we are under the supervision of the Swedish Financial Supervisory Authority and the Riksbank. For several years Bankgirot has handled clearing and settlement for the Riksbank. We have now also been entrusted to handle 24/7 payments, so that transactions can take place even when the Riksbank is closed.
    Question: Who can connect to Payments in Real Time?
    Answer: Payments in Real Time is a general payment system. In brief, in order to gain access a party must be considered a payment service provider under the Swedish law on payment services (2010:751) and fulfil Bankgirot’s participant requirements. Generally speaking, all Swedish banks and payment institutions that fulfil the participant requirements have the right to participate in the system.
    Question: Which parties can connect to Swish?
    Answer: This is ultimately decided by the six Swedish banks that own Swish and whether the party fulfils the participant requirements for Bankgirot’s platform for real-time payments, on which Swish is based.
    Question: Is it possible for more than the current banks to connect to Swish?
    Answer: Initially, this is for the six banks behind Swish, namely Danske Bank, Handelsbanken, Länsförsäkringar Bank, Nordea, Swedbank and SEB, to decide. In addition, the party must also fulfil the participant requirements for Bankgirot’s real-time payments system, on which Swish is based. The system’s infrastructure is designed so that more banks can connect if there is an interest. Bankgirot will have a reseller role towards other banks that are interested in connecting to Swish and the underlying platform for real time payments.
    Question: Which is the first service using the real-time payments system?
    Answer: Payments in Real Time prepares us to meet market needs and expectations. Mobile phones are already a tool used for a number of services and it was quite natural to make the first step to launch a mobile service on the platform (in the shape of Swish).
    Question: How does the Swish payment system work?
    Answer: Swish is a service for consumers and enables you to use your mobile phone to make payments and transfer money to someone else’s bank account. What makes the service special is that the money is sent in real-time between the bank accounts, meaning that the money is available in the recipient’s account in just a few seconds. You subscribe to the service via your bank.
    Question: Which banks are involved in the collaboration?
    Answer: The banks which own the Swish service are: Handelsbanken, SEB, Nordea, Swedbank, Länsförsäkringar and Danske Bank.
    Question: Which other payment services do you foresee Payments in Real Time enables?
    Answer: There are, of course, various types of payment services that need to operate faster than they do today. Take, for example, e-commerce, payments between consumers and companies, and inter-bank transactions. We now have an infrastructure and a real-time platform in place to build upon in our development of products and services for payments. For the banks, it is about developing together with their customers and offering them services that meet current needs and demands.
    For more information about Swish, contact one of the banks: Danske Bank, Handelsbanken, Länsförsäkringar Bank, Nordea, Swedbank or SEB.

  • Tony Coulston

    Brilliant thank you Chris! – perhaps surprisingly we in New Zealand have a newish near real time payments infrastructure – but we have (as yet) failed to recognise the need for new real time payment instruments to flow across that system …seems that the folks in Sweden have got heads around that – i will contact them for insight and start my learning
    thanks again Chris
    best regards