From Basics to Breakthroughs: Three Steps Toward Core Banking Modernization?

Welcome to the third installment of our series, The Journey to Modernization, where we’ll share the most compelling cases for core banking system modernization. We’ll also share the three-step process our expert team utilizes to propel your modernization journey.? ?

Through our educational blog series, we’ve covered the key drivers for modernization:??

• Channel growth?
• Inflexible legacy systems that hinder innovation?
• Cost reduction to remain competitive and advantageous to clients?

• The shift toward greater customer centricity?
• Competition in a new, nontraditional space?
• The risk of non-compliance?

By prioritizing these focus areas, you’ll increase your agility, improve operational efficiency, optimize resources, and maximize customer retention. ? ?

Three Steps to Modern Banking? ?

To properly understand how to modernize your banking system, you must first have two things: ? ?

1. A deep knowledge of your organization’s unique needs?

2. A good plan. ? ?

This will ensure you make informed decisions that align your transformation with your bank’s overarching strategy. The three steps we provide will be the foundation of your plan and help you successfully navigate this complex evolution. ? ?

Step 1: Assess the Need?

Before taking any action toward core banking modernization, you must assess your bank’s current needs and the market trends shaping the industry. This analysis should consider all aspects of your organization, a.k.a. the tried-and-true “people, processes, and technology.” Ask yourself these questions:??

• Are your current systems meeting the evolving needs and preferences of your customers? (What are your customer expectations?)??
• Are your existing systems capable of adhering and adapting to changing regulations? (Are you achieving regulatory compliance?)??
• How well does your bank's tech stack compare to competitors and new market entrants? (How competitive are you?)?
• Can your current systems evolve to enable the growth and shifting demands on your organization? (Are you scalable? Flexible and agile?)?

If these questions ring a bell, congratulations! You understand how to modernize your banking system, and you’re squarely on the path to not just modernization for its own sake, but a strategic approach to true digital transformation that serves all stakeholders, delivers exceptional experiences, and meets regulations.? ? ? These are the critical areas of focus that will ensure your business remains relevant and competitive.? By thoroughly evaluating these factors, you can better determine the urgency and extent of modernization needed to optimize your bank's operations and overall success.?

Step 2: Identify Strategic Objectives and KPIs?

Now that you know your bank’s unique needs for transformation, you can develop milestones to track your progress. Here’s a tip: align your measurables with your overall business goals, and keep them SMART:? specific, measurable, achievable, relevant and time-bound.??

Here are some KPIs that might align with your critical areas of focus:??

• Measure the satisfaction levels of your customers by tracking metrics such as Net Promoter Score (NPS) and Customer Satisfaction Score (CSAT). (Customer Satisfaction)??
• Assess how quickly your bank can launch new offerings to stay ahead of the competition and meet changing customer demands. (Time-to-market for new products and services)?

• Monitor the rates at which you retain existing customers and attract new ones, as well as the cost of acquiring new customers. (Customer retention and acquisition)?
• Evaluate the cost-to-income ratio and overall efficiency in executing banking operations, such as transaction processing and loan approvals. (Operational efficiency)?
• Track the number of security incidents, breaches, and regulatory violations to ensure your bank maintains a strong security posture and complies with relevant regulations. (Data security and compliance)??
• Monitor system uptime, downtime, and response times to ensure your core banking system remains reliable and available. (System performance and stability)?
• Measure employee performance, job satisfaction and turnover rates to evaluate the impact of modernization on your workforce. (Employee productivity and engagement)?

When you have clear, trackable, and SMART goals, you’ll be better at assessing the success of your modernization efforts, making data-driven decisions, and showcasing value for your stakeholders.?

Step 3: Evaluate Your Modernization Options?

Once you’ve done the internal work of assessing your needs and setting your objectives, you can look externally to evaluate approaches to modernization. You’ll find there are multiple options, and no one choice is better than another. Just ensure that your specific organizational needs align with the approach you choose.??

Here are some common options to consider:??

Replatforming?

Replatforming involves moving your core banking system to a new platform, such as upgrading your hardware, operating system, or database, while preserving the existing functionalities.??

This approach can be suitable for banks that have a stable core banking system but want to take advantage of new technology infrastructure to improve performance, scalability, and reliability.?

Enhancing Existing Systems?

This approach focuses on incrementally improving your existing core banking system by adding new features, modules, or integrations to meet evolving customer demands and market trends.??

Enhancing your existing system can be a cost-effective option for banks that have a strong foundation but need to keep up with industry advancements and customer expectations.?

Adopting Cloud-Based Solutions?

Cloud-based solutions offer numerous benefits, including scalability, cost efficiency and improved performance. By migrating your core banking system to the cloud, you can take advantage of these benefits and stay agile in a rapidly changing market.??

Banks should assess the potential risks and challenges associated with cloud adoption, such as data security and compliance, before making the transition.?

Implementing a New Core Banking System?

In some cases, the best approach may be to replace your existing core banking system entirely with a modern, flexible solution designed to address today's complex banking landscape.??

This option can be resource-intensive and requires careful planning and execution, but it can deliver significant long-term benefits in terms of increased efficiency, improved customer experience, and enhanced competitiveness.?

Get the Right Guide for the Journey to Modernization?

Consider each option carefully against the prep work you’ve already done. The decision will have a significant impact on how you modernize your banking system as well as your success in transformation. It should align with your needs and strategies.??

Each approach comes with its own resource and workload requirements. So, if your current organizational structure doesn’t have the capacity to develop or implement your strategic plan, the seasoned team of banking and technology experts at Heitmeyer Consulting is here to help.? ? ?

Our goal is to guide your core banking modernization journey to success and to build trusted partnerships that expand with the market and your changing needs. ? ?

Reach out today to start a conversation.??