Core Transformation, Blockchain, RPA - Next Generation Banking Transformation

In the movie Superman Returns Lois Lane wrote an article “ Does the World need a Superman” and won an award but as reality dawned , the end of the movie she once again starts to write “Why the world needs a Superman” and stops abruptly to contemplate what form of Superman does the world need.

The Banking world is in a similar dilemma, wanting to leapfrog into the future but in what from or shape is yet unclear. In the ever changing world of newer faster efficient and cheaper technologies such decisions can be quite tough for most CIO’s or CEO’s.

Given the present environment where the cost needs to be curtailed, spreads needs to improved, customer experience needs to be enhanced and realtime processing capabilities can help and to add to it the complex web of regulatory requirement, they have no choice either stagnate and do some window dressing or adopt a transformational journey. The next 8-10 years of business is something they need to visualize and envisage the rapidly changing environment  

Three things are changing the Banking world....Replacements of the Core which has  been beaten to death in the last 15-20 years by anyone and everyone ...yes but then there were about 50-75 plus core transformations happening across the world and the need for the same has not been ruled out completely as yet.

The other two technologies are new and the numerous articles etc. published about blockchain and its features is really known to all and have attracted anywhere between 5-8 Bn in the last 24 months. People betting on new technology and trying to harness its power to ease the pain of doing business. The positive aspects being that Governments and Regulators have adopted some good aspects of it and moving in the right direction.

The other one is Robotic Process Automation or commonly referred to as RPA. One always knew that Banking was guided by a set of rules and events that could clearly be charted out to drive business process and automation....but RPA takes this one step forward is the art of self-learning.

This has led to the creation of  more and more process being handled by software bots or actually Robots with really good names like “ Pepper “ , “Nao” , ""Lakshmi "etc. ....and many more to be christened already handling millions of customer transactions and handle customer service and also provide customer insights effectively.

Now trying to put it into a real Banking perspective and see how it fares. All the three are important, but then things have diluted very much in the last couple years about the Core Replacement.

Componentisation is a reality and the need for a complete new core is diluted in many ways and most of the Core banking vendors have a cautious approach on this subject but cannot avoid this. This means changing the business model to develop and sell core banking software. 

API- fication has led the way in most cases...i.e. ....opening up of the software and exposing everything to the external world to consume has reduced the over need for a complete core transformation. Except in cases where the software has never seen an upgrade in last 20-25 years which is the issue with most big banks and the customisation layer is so huge that it requires extra-ordinary effort to understand and make the changes. 

This has also resulted in some cases a positive outcome for the Digital Drive which in most cases has not been achieved by many due to this issue.

So now there are these two options...

1. Use the existing software and open up the API’s for external consumption
2. Or use certain components from the core system and build the layers on top of it.

The first option has been tried and limited success has been achieved. The second is what most Banks are looking at. If one were to break the Core Banking system in terms of components which normally consists of the following:

1. Customer Master which is easily replaceable by an MDM or Customer Hub tied with Cognitive and Analytical capabilities help manage customer experience and provide the “Power or Segment of One”
2. Product Factory ...this is the key where the Core Banking platform has an advantage.....the flexibility and agility which the Bank can create products. This is an area which has still not been created by other vendors except for Core Banking vendors. The complexity of the rules on fees, charges, commissions, interest, accounting  etc are some to key features guided by very complex business rules  and this is the heart of the system.

 A few companies like vault OS and others are trying to get a toe-hold into this space and whoever is the first successful company to do it quickly will see over-arching business value and that will change the dynamics of the game.

1. Transaction processing engine  again which is the core of the system nothing but a set of business rules driven piece of software using a mix of business triggers and events which is being developed by some and others using already existing engines to do the same.  If we use Blockchain technologies this process is better handled here and Smart contracts take over the processing rules offering flexibility to conduct transaction processing in a local and a global environment taking into cognizance all the Regulatory and Compliance challenges globally.
2. And finally the GL or Sub-GL as the case may be which is already being handled by an external or Enterprise wide GL to create the P&L or a hyper ledge or a Distributed Ledger platform connected seamlessly into the Blockchain environment

Many would argue about the integrations, interfaces etc. but most of those areas have been standardised and can be integrated with relative ease. That is not much of a challenge as most of the internal and external interfaces can be attached using light weight middleware’s which are more responsive and have a better capability of handling transactions and API’s and standards rather than the traditional ones.

The other argument is off-course the fact that most modern Core banking systems are realtime and online and also provide STP. Blockchain along with Smart contracts can provide online and realtime transactions and also the cost of being realtime can also be decided. 

So in nut-shell Bank should be agile in churning out products fast and offer it seamlessly across all channels, enterprise, partners for consumption and be able to monetize it. This is completely in line with the actual Digital Transformation that every bank seeks to achieve.

So where does Robotic Process Automation come in here.  RPA has a huge role to play in this space.  This is what will bind all the components together seamlessly and ensure a smooth delivery or transmission effortlessly. Acquisition of companies like Openspan by Pega is a clear indication as to where the market is headed. This is just the beginning of such acquisitions and we will see more of them. The need for process BOTS along with other BOTS with self-learning capability is and arriving at the first step of Artificial Intelligence (AI).

The combination of Process automation tools plus Robotic tools will pave way for a new way of inter-component communication will streamline the integration and the process associated with each of the modules and also help automate many of the components with business rules being built into the system. So in no uncertain terms are we saying that using a pure Robotics software is going to be a panacea to all problems and cost reductions. The basic fact still remain that Process Optimisation and Rationalisation is first needed to achieve success and save costs, else using Robotics is one more exercise of futility which most Banks embark upon and not having any effective savings.

Cognitive Technologies with Natural Language Processors (NLP) and its analytical engine will then drive these bots and produce a very efficiencies and self-learning and self-healing capability of the bots jumps manifold thereby improving efficiencies within the Banks.

This actually sums up the entire transaction neatly………Cognitive and analytical tools along with Customer Hub to manage customer experiences, Segment of One, Product factory from the Core Banking System to create products which can expose all its API’s to the Blockchain to create Smart Contracts and performing the transactions and the BPMN engine along with RPA acts as the glue which will pave way for the next generation of banking systems.

Corporate Banking which includes Trade Finance, Supply Chain Finance, Recievable Finance, Payments , Loan Syndication , Securities Trading (Buyside-SellSide), Factors Securitisation and Cash Management are highy intensive in terms of Business Process, Regulatory norms like KYC and documentation. The new technologies can reduce the overall costs of banking and significantly improve businesses.

The next few years can be probably one of the most interesting periods for Startups, Fintech, existing product companies and most of all the Banks and Financial institutions who have invested heavily on the same and have seen some benefits and would want to exploit this further. Interesting times ahead.