Nordea has selected Temenos and Accenture to undertake the first major comprehensive European core banking replacement in years.
“Digitalization and the rapid change in customers’ preferences toward using online and mobile solutions, as well as the increasing operational regulation, are transforming the banking industry.” said Jukka Salonen, head of group simplification at Nordea.
The new core banking platform is aimed at meeting the current and future needs of the bank’s 11 million customers, he added.
“The migration to the new platform will be done gradually over the next four to five years. Along with simplified processes and products, the new platform will provide the framework for an end-to-end digital business model, improving our operational agility and delivering the benefits of scale.”
Although banks know their decades-old core mainframe systems are ill-suited to a real-time digital banking business, they hesitate to take on big, risky multi-year core replacement projects. Temenos came close to winning a major European contract a few years ago, only to have the bank back out at the last minutes and settle for the status quo. For at least a decade industry analysts have predicted banks would have to move to new systems soon, but for the most part banks have proved them wrong and stuck with old hardware and software.
Nordea is the biggest deal Temenos has ever had, said Ben Robinson, chief strategy and marketing officer at the Geneva-based banking technology company. The bank’s 11 million customers are in Finland, Sweden, Norway and Denmark, he added, and the new core will cover both retail and corporate clients.
Digitize throughout the bank’s operations
David Arnott, CEO of Temenos, said that banks’ margins are under pressure, customers are becoming less loyal, and they want personalized services — the right products at the right time.
“Banks are spending hundreds of millions on front end digitalization, but that won’t work if the back end is not real-time and integrated. You have to start with core, a single reference point at the heart of your system. Only with a modern core can you layer on analytics and other services.”
Michal Panowicz, who recently joined Nordea from Poland’s innovative Mbank as deputy head of digital banking, agreed, as he told Brett King, CEO of Moven and host of the Breaking Banks weekly internet radio program:
“You can only expose in the channel what has actually been process-enabled in the product factory...you will only see the [level of digital] experience that the product factory and the rails have enabled,” he said.
“Today’s online and mobile channels are so far mainly focused on simple transactions and less on providing sufficiently actionable information,” Panowicz added, perhaps providing a preview of what Nordea will develop with Temenos. “New digital capabilities will provide our customers with a new level of access to their money, information, insight, advice, and the opportunity to acquire new products and services across digital platforms. Interestingly large elements of the digital solutions will be shared across household and corporate lines.”
Everything starts with core, said Robinson.
“Banks can only provide the level of digital experience that the back office system enables. Providing the compelling, personalized digital experience that customers expect requires banks to have real-time capabilities such as offers and rich data where every transaction informs the next transaction.”
A fully digital bank can achieve extremely high levels of integration and automation to deliver the level of instant fulfillment, he added.
“None of this is possible with existing legacy infrastructure – regardless of much banks spend on front end capabilities.”
System integrators provide support
Temenos has developed alliances with global systems integrators like Accenture, Deloitte and Cap Gemini to assist in winning business and then implementing systems through a well-planned modular approach that avoids a big bang, or a big bust.
In partnership with Capgemini, Temenos has developed an implementation model that has made a huge difference in the time it takes to install a new system, said Mike Davis, client director at the banking software firm. It relies on a process-led approach, models, knowledge management, partners and an integration framework.
Time to act?
Costs, regulatory pressures and threats from non-banks are all coming together to encourage more discussion, and even occasionally action, by banks on core replacement.
“In today’s fast-changing environment driven by the digital revolution, banks need to be as agile as startups,” said Mads Raahede, a managing director in Accenture’s financial services operating group. “It is vital for banks to exploit the business potential of digital and to innovate at a faster pace, but most banks are hampered by their legacy systems.”
Accenture will provide consulting and systems integration services on the program. Services will be delivered through Accenture Core Banking Services, a business service within Accenture’s Financial Services operating group that has helped design and implement core banking systems for more than 200 institutions globally.
Robinson said the big integrators have developed core system practices only recently, presumably after identifying it as a business opportunity.
“Banks are realizing that delivering the desired level of customer experience requires a core banking infrastructure that is real-time, integrated and provides rich, consolidated information - regardless of how much banks spend on front-end capabilities,” said Andreas Andreades, Temenos executive chairman. “However, these are large and complex projects that need significant consulting and systems integration expertise. That is why we believe, to address the needs of the largest banks, the value proposition of Temenos’ software is significantly enhanced when we work together with global partners, such as Accenture.”
The alliances with major system integrators also relieves Temenos of the need to build up a large, and expensive, tech staff to handle projects before they arrive, said Jim O’Neill, senior analyst at the financial services specialist Celent.
“From Temenos’s perspective, the use of partners makes sense because they can scale up their investment in the market as they have commercial success rather than build a big home-owned organization. It makes sense to scale along with the market rather than front loading it.”
Cloud in banking
O’Neill said that cloud services may be the key that finally breaks the back of legacy mainframe core
“The reason is that for the first time you have a technology that provides the potential for the scalability that is comparable to the mainframe. I think that with the advance of cloud computing and as cloud gets more socially acceptable in banking we will see some movement. I think it will start with the large banks and trickle down to the mid-tier.”
Although cloud hasn’t been mentioned in the Nordea case, Temenos has implemented some core banking systems in the cloud.
Mark Gunning, global business solutions director at Temenos, said he thinks cloud will take off in a familiar hockey stick pattern.
“I am not sure when it is going to go, if you have a bank and your competition has gone to cloud and reduced costs by X hundreds of thousands, I am sure there will be a hockey stick. It won’t be three years and it will be vary by geography, more for cultural than regulatory reasons, because regulators are catching up with this.”
